Financial Risk Manager (FRM) Practice Examination –
Part I Style Newest 2025 – 2026 Questions From Past
Papers Actual Exams Complete 100 Questions And
Correct Detailed Answers (Verified Answers) |Already
Graded A+||Brand New!!
Content Covered (Most Frequently Tested Topics): Foundations
of Risk Management, Quantitative Analysis, Financial Markets
and Products, Valuation and Risk Models
1. A bank enters into an interest rate swap in which it pays a fixed rate and
receives a floating rate. What type of risk is the bank primarily managing?
A. Liquidity risk
B. Credit risk
C. Market risk
D. Operational risk
Correct Answer: Market risk
Explanation: Interest rate swaps are primarily used to manage exposure to interest
rate fluctuations, which are a form of market risk.
2. A portfolio manager wants to estimate potential losses under normal
market conditions over one day with a 99% confidence level. Which risk
measure is most commonly used?
A. Duration
B. Value at Risk
C. Sharpe Ratio
D. Beta
Correct Answer: Value at Risk
,Explanation: Value at Risk (VaR) estimates the maximum expected loss over a
given time period at a specified confidence level.
3. Which statistical measure describes the degree to which two variables
move together?
A. Variance
B. Correlation
C. Standard deviation
D. Skewness
Correct Answer: Correlation
Explanation: Correlation measures the strength and direction of the relationship
between two variables.
4. If a distribution has a long right tail, it is described as:
A. Negatively skewed
B. Positively skewed
C. Symmetrical
D. Mesokurtic
Correct Answer: Positively skewed
Explanation: Positive skewness indicates a long tail on the right side of the
distribution.
5. Which derivative instrument gives the holder the right but not the
obligation to buy an asset at a predetermined price?
A. Forward contract
B. Futures contract
C. Call option
D. Swap
Correct Answer: Call option
Explanation: A call option grants the holder the right, but not the obligation, to
purchase the underlying asset at the strike price.
, 6. The primary difference between a forward contract and a futures contract
is:
A. Futures are standardized and traded on exchanges
B. Forwards involve daily settlement
C. Futures are private agreements
D. Forwards require margin
Correct Answer: Futures are standardized and traded on exchanges
Explanation: Futures contracts are standardized and traded on exchanges, while
forward contracts are private over-the-counter agreements.
7. Duration measures a bond’s sensitivity to changes in:
A. Inflation
B. Interest rates
C. Credit ratings
D. Currency rates
Correct Answer: Interest rates
Explanation: Duration measures how much a bond’s price changes in response to
changes in interest rates.
8. Which risk arises when a counterparty fails to fulfill its financial obligation?
A. Liquidity risk
B. Market risk
C. Credit risk
D. Settlement risk
Correct Answer: Credit risk
Explanation: Credit risk refers to the risk that a borrower or counterparty fails to
meet contractual obligations.
9. Which of the following measures dispersion of returns around the mean?
Part I Style Newest 2025 – 2026 Questions From Past
Papers Actual Exams Complete 100 Questions And
Correct Detailed Answers (Verified Answers) |Already
Graded A+||Brand New!!
Content Covered (Most Frequently Tested Topics): Foundations
of Risk Management, Quantitative Analysis, Financial Markets
and Products, Valuation and Risk Models
1. A bank enters into an interest rate swap in which it pays a fixed rate and
receives a floating rate. What type of risk is the bank primarily managing?
A. Liquidity risk
B. Credit risk
C. Market risk
D. Operational risk
Correct Answer: Market risk
Explanation: Interest rate swaps are primarily used to manage exposure to interest
rate fluctuations, which are a form of market risk.
2. A portfolio manager wants to estimate potential losses under normal
market conditions over one day with a 99% confidence level. Which risk
measure is most commonly used?
A. Duration
B. Value at Risk
C. Sharpe Ratio
D. Beta
Correct Answer: Value at Risk
,Explanation: Value at Risk (VaR) estimates the maximum expected loss over a
given time period at a specified confidence level.
3. Which statistical measure describes the degree to which two variables
move together?
A. Variance
B. Correlation
C. Standard deviation
D. Skewness
Correct Answer: Correlation
Explanation: Correlation measures the strength and direction of the relationship
between two variables.
4. If a distribution has a long right tail, it is described as:
A. Negatively skewed
B. Positively skewed
C. Symmetrical
D. Mesokurtic
Correct Answer: Positively skewed
Explanation: Positive skewness indicates a long tail on the right side of the
distribution.
5. Which derivative instrument gives the holder the right but not the
obligation to buy an asset at a predetermined price?
A. Forward contract
B. Futures contract
C. Call option
D. Swap
Correct Answer: Call option
Explanation: A call option grants the holder the right, but not the obligation, to
purchase the underlying asset at the strike price.
, 6. The primary difference between a forward contract and a futures contract
is:
A. Futures are standardized and traded on exchanges
B. Forwards involve daily settlement
C. Futures are private agreements
D. Forwards require margin
Correct Answer: Futures are standardized and traded on exchanges
Explanation: Futures contracts are standardized and traded on exchanges, while
forward contracts are private over-the-counter agreements.
7. Duration measures a bond’s sensitivity to changes in:
A. Inflation
B. Interest rates
C. Credit ratings
D. Currency rates
Correct Answer: Interest rates
Explanation: Duration measures how much a bond’s price changes in response to
changes in interest rates.
8. Which risk arises when a counterparty fails to fulfill its financial obligation?
A. Liquidity risk
B. Market risk
C. Credit risk
D. Settlement risk
Correct Answer: Credit risk
Explanation: Credit risk refers to the risk that a borrower or counterparty fails to
meet contractual obligations.
9. Which of the following measures dispersion of returns around the mean?
