Poiana Peceesabsteeeeeesaceieeeeiaeiete Pececissseteietteseeersaseaeeer Secret @GARP Pichelesaearaeieal 10n Aaa inat a e} calm ee, as Pay ae a Oe nc a, Exam2011 Financial Risk Manager Examination (FRM®) Practice Exar ‘TABLE OF CONTENTS: Introduction fl 2011 FRM Part | Practice Exam 1 Candidate Answer Sheot ..........cccecsseee 8 2011 FRM Part | Practice Exam 1 Questions ... 5 2011 FRM Part | Practice Exam 1 Answer Shoet/Answers ....2.0..seeceeceeeee IS 2011 FRM Part | Practice Exam 1 Explanations .. 2011 FRM Part | Practice Exam 2 Candidate Answer Sheet 35 2011 FRM Part | Practice Exam 2 Questions 37 2011 FRM Part | Practice Exam 2 Answer Sheet/Answers. a7 2011 FRM Part | Practice Exam 2 Explanations . 49 2011 FRM Part Il Practice Exam 1 Candidate Answer Sheet .. 67 2011 FRM Part Il Practice Exam 1 Questions .. 69 2011 FRM Part Il Practice Exam 1 Answor Sheet/Answors .. 7 2011 FRM Part Il Practice Exam 1 Explanations 79 2011 FRM Part Il Practice Exam 2 Candidate Answer Sheet 93 2011 FRM Part Il Practice Exam 2 Questions 95 2011 FRM Part Il Practice Exam 2 Answer Sheet/ANSWEIS «5.6.6.2 sce e ee eee JOB 2011 FRM Part Il Practice Exam 2 Explanations .... -105: 3 in any format without prior written approval of GARP, Global Association of Rsk Professionals IncINTRODUCTION ‘The FRM Exam is a practice-oriented examination. Its ‘questions are derived from a combination of theory, as set forth in the core readings, and “real-world” work experience, Candidates are expected to understand risk management ‘concepts and approaches and how they would apply to a risk manager's day-to-day activities, ‘The FRM Examination is also a comprehensive examina- tion, testing a risk professional on a number of risk managt ment concepts and approaches. It is very rare that a risk manager will be faced with an Issue that can immediately be slotted into one category. In the real world, a risk man~ ‘ager must be abie to identify any number of risk-related issues and be able to deal with them effectively. The 2011 FRM Practice Examns | and Il have been devel ‘oped to aid candidates in their preparation for the FRM Examination in May and November 2011, These practice ‘exams are based on a sample of questions from the 2009 FRM Examination and are suggestive of the questions that will be in the 2011 FRM Examination. Each of the 2011 FRM Practice Exams for Part | contain 25 multiple-choice questions and each of the 2011 FRM, Practice Exams for Part Il contain 20 multisle-choice ‘questions. Noto that the 2011 FRM Examination Part | will contain 100 multiple-choice questions and the 2011 FRM Examination Part Il will contain 80 multiple-cheice ques tions, The practice exains were designed to be shorter to allow candidates to calibrate their preparedness without being overwhelming. ‘The 2011 FRM Practice Exams do net necessarily cover all topics to be tested in the 2011 FRM Examination as the material covered in the 2011 Study Guide may be different from that covered by the 2009 Study Guide. The questions. selacted for inclusion in the Practice Exams were chosen to be broadly reflective of the material assigned for 2011 2s well 2s to represent the style of question that the FRM Committee considers appropriate based on assigned material For a complete list of current topics, core readings, and key learning objectives candidates should refer to the 2011 FRM Examination Study Guide and AIM Statements. 2011 Financial Risk Manager Examination (FRM) Practice Exam Core readings were selected by the FRM Committee to ‘assist candidates in their review of the subjects covered by ‘the exam. Questions for the FRM examination are derived from the "core" readings. It is stronaly suggested that candidates review these readings in depth prior to sitting, for the exam, ‘Suggested Use of Practice Exams To maximize the effectiveness of the practice exams, candi dates are encouraged to follow these recommendations: Plan a date and time to take each practice exam. Sot dates appropriately to give sufficient stucy/ review time for the practice exam prior to the actual exam, 2, Simulate the test environment as closely as possible. + Take each practice exam in a quiet place, + Have only the practice exam, candidate answer sheet, calculator, and writing instruments (pencils, (erasers) available, + Minimize possible distractions from other people, cell phones and study material, + Allocate 90 minutes for the practice exam and set an alarm to alert you when 90 minutes have passed, Complete the exam but note the cuestions answered after the 90 minute matk + Follow the FRM calculator policy. You may only use 2 Texas Instruments BA Il Plus (including the BA II Plus Professional), Hewlett Packard 12C (including the HP 12¢ Platinum), Hewlett Packarc 108 Il or Hewlett Packard 208 calculator. 3. After completing the practice exam, + Calculate your score by comparing your answer sheet with the practice exam answer key. Only include questions completed in the first 90 minutes + Use the practice exam Answers and Explanations: to better understand corract and incorrect answers and to identify topics that require adi- tonal review. Consult referenced core readings to prepare for exam. In aty format without prior written approval of GARP, Global Association of Risk Professionals, Inc;Financial Risk Manager (FRM ) Examination 2011 Practice Exam PART | / EXAM 1 Answer Sheet2011 Financial Risk Manager Examination (FRM®) Practice Exar a b. « 4. a b. « 4. 1 Oo oO oO Oo 6. O Oo O O 2 Oo oO oO oO ”. oO Oo oO ° 3. Oo Oo Oo Oo 16. oO Oo oO O 4 °O Oo ie) 0 19. oO Oo oO ° 5. Oo oO oO oO 2° «60 O oC oO 6. Oo oO oO iY Fa oO Oo C oO 2 Oo oO ie) oO 22. oO Oo ie) °O 8. Oo Oo oO Oo 23. oO Oo oO O 9. Oo Oo Oo oO 24, oO Oo oO oO 10, oO oO oO Oo 25. oO Oo ° ° n Oo Oo oO oO 2 Oo oO oO oO Correct way to complete 8. Oo oO oO oO 1 e e e e 14, oO Oo oO Oo Wrong way to complete 15. Oo Oo oO oO 1 Dw eS ¥ w% in any format without prior written approval of GARP, Global Association of Risk Professionals IncFinancial Risk Manager (FRM ) Examination 2011 Practice Exam PART | / EXAM 1 Questions2011 Financial Risk Manager Examination (FRM®) Practice Exar Assume that a random variable follows a normal distribution with a mean of 50 and a standard deviation of 10, What percentage of this distribution 's between §5 and 65? a 456% 8.96% fe. 1815% 24.17% ‘Suppose you simulate the price path of stock HHF using a geometric Brownian motion model with drift = 0.02, volatility o = 0.18 and time step At = 0.05. Let 5, be the price of the stock at time t. If Sq = 100, and the first two simulated (randomly selected) standard normal variables are €; = 0.253, t) = -0.675, what is the simulated stock price after the second step? a. 9679 98.47 10112 4. 10370 A population has a known mean of S00, Suppose 400 samples are randomly drawn with roplacement from this population. The mean of the observed samples is S087, and the standars deviation of the observed samples is 30, What is the standard error of the sample mean? a. 0015 b. 015 «15 415 4. Tho following GARCH(L) modo is usod to foracast the daily oturn variance of an asset «2 = 0.000005 + 005u2; + 0920, ‘Suppose the estimate of the volatility today is 5.0% and the asset return is -2.0%, What is the estimate of the long-run average volatility per day? a. 129% 173% e. 185% a. 191% in any format without prior written approval of GARP, Global Association of Rsk Professionals Inc2017 Financial Risk Manager Examination (FRM Practiog Exar 5. John's forecasting a stock’s price in 2011 conditional on the progress of certain legislation in the United States Congress. He divides the legislative outcomes into three categories of "Passage", "Stalled" and "Defeated" and the stock's performance into three categories of “increase”, “constant” and “decrease” and estimates the following events: Passage Stalled Defeated Probability of legislative outcome 20% 50% 30% Probability of increase in stock price given legislative outcome 10% 40% 70% Probability of decrease in stock price given legislative outcome 60% 30% 10% ‘A portfolio manager would like to know that if the stock price doos not change in 2011, what the probability that the legislation passed is. Based on John’s estimates, this probability is: a 155% b. 19.6% 222% 4. 387% Roy Thomson, a global invest mont risk manager of FBN Bank, is assessing markets A and 8 using a two- factor model. In order to determine the covariance between markets A and B, Thomson developed the following factor covariance matrix for global assets: Factor Covariance Matrix for Global Assets Global Equity Factor Global Bond Factor Global Equity Factor 0.3543 0.0132 Global Bond Factor 0.0122 0.0089 ‘Suppose the factor sensitivities to the global equity factor are 0.75 for market A and 0.45 for market B, and the factor sensitivities to the global bond factors are 0.20 for market A and 0.65 for market B. The covariance between market A and market B is closest to: a 0.215 b. -0n3 fe 0113 4. 0215 6 © 2011 Global Associstion of Rsk Professionals All rights reserved. Is illegal to reproduce this material in any format without prior written approval of GARP, Global Associaton of Risk Professional, Inc