FRM Part 2 UPDATED ACTUAL Exam
Questions and CORRECT Answers
Vasicek Model - CORRECT ANSWER - dr = k(theta- r)dt + sigma*dw
Regulatory Capital - CORRECT ANSWER - Capital required to be held by banks as a
requirement for meeting the central bankers objectives of keeping the total capital of a bank
adequately high, so that the chance of a bank failure is very low.
Put-Call Parity - CORRECT ANSWER - c - p = S - Xe^-rT
Spearman's Rank Correlation - CORRECT ANSWER - 1 - 6*sigma d^2/n(n^2-1)
I-Spread (interpolated spread) - CORRECT ANSWER - YTM risky bond - linearly
interpolated YTM on benchmark government bond
Securitization - CORRECT ANSWER - Pooling loans into standardized securities backed
by those loans, which can then be traded like any other security.
Repurchase Agreements - CORRECT ANSWER - agreements involving the sale of
securities by one party to another with a promise by the seller to repurchase the same securities
from the buyer at a specified date and price
Liquidity Coverage Ratio (LCR) - CORRECT ANSWER - (Stock of high quality liquid
assets/total net cash outflows over next 30 calendar days) > 100
Data governance program - CORRECT ANSWER - defines the roles, responsibilities, and
accountabilities associated with managing data quality
, Filtered Historical Simulation - CORRECT ANSWER - relies on bootstrapping of
standardized returns based on volatility forecasts; able to capture conditional volatility, volatility
clustering, and/or data asymmetry
Z-Spread - CORRECT ANSWER - spread added to each spot rate on a benchmark curve
Hazard rates - CORRECT ANSWER - represents the default intensity by using a constant
parameter, lambda, and the probability of default over the next, small time interval, dt.
Leverage Ratio - CORRECT ANSWER - Assets divided by equity
Information Ratio - CORRECT ANSWER - ratio of surplus return to its standard deviation
Emerging Markets Strategy - CORRECT ANSWER - Hedge fund strategy to invest in
developing countries' securities or sovereign debt
Convexity Effect - CORRECT ANSWER - For the same coupon rate and time to maturity,
the percentage price change is greater when the market discount rate goes down than when it
goes up
Kendall's Tau - CORRECT ANSWER - a non-parametric correlation coefficient similar to
Spearman's correlation coefficient, but should be used in preference for a small data set with a
large number of tied ranks.
Exposure at Default - revolving lines - CORRECT ANSWER - drawn + (limit - drawn)*
loan equiv factor
systemic risk - CORRECT ANSWER - risk of breakdown in the financial system,
particularly due to spillover effects from one market into others
Questions and CORRECT Answers
Vasicek Model - CORRECT ANSWER - dr = k(theta- r)dt + sigma*dw
Regulatory Capital - CORRECT ANSWER - Capital required to be held by banks as a
requirement for meeting the central bankers objectives of keeping the total capital of a bank
adequately high, so that the chance of a bank failure is very low.
Put-Call Parity - CORRECT ANSWER - c - p = S - Xe^-rT
Spearman's Rank Correlation - CORRECT ANSWER - 1 - 6*sigma d^2/n(n^2-1)
I-Spread (interpolated spread) - CORRECT ANSWER - YTM risky bond - linearly
interpolated YTM on benchmark government bond
Securitization - CORRECT ANSWER - Pooling loans into standardized securities backed
by those loans, which can then be traded like any other security.
Repurchase Agreements - CORRECT ANSWER - agreements involving the sale of
securities by one party to another with a promise by the seller to repurchase the same securities
from the buyer at a specified date and price
Liquidity Coverage Ratio (LCR) - CORRECT ANSWER - (Stock of high quality liquid
assets/total net cash outflows over next 30 calendar days) > 100
Data governance program - CORRECT ANSWER - defines the roles, responsibilities, and
accountabilities associated with managing data quality
, Filtered Historical Simulation - CORRECT ANSWER - relies on bootstrapping of
standardized returns based on volatility forecasts; able to capture conditional volatility, volatility
clustering, and/or data asymmetry
Z-Spread - CORRECT ANSWER - spread added to each spot rate on a benchmark curve
Hazard rates - CORRECT ANSWER - represents the default intensity by using a constant
parameter, lambda, and the probability of default over the next, small time interval, dt.
Leverage Ratio - CORRECT ANSWER - Assets divided by equity
Information Ratio - CORRECT ANSWER - ratio of surplus return to its standard deviation
Emerging Markets Strategy - CORRECT ANSWER - Hedge fund strategy to invest in
developing countries' securities or sovereign debt
Convexity Effect - CORRECT ANSWER - For the same coupon rate and time to maturity,
the percentage price change is greater when the market discount rate goes down than when it
goes up
Kendall's Tau - CORRECT ANSWER - a non-parametric correlation coefficient similar to
Spearman's correlation coefficient, but should be used in preference for a small data set with a
large number of tied ranks.
Exposure at Default - revolving lines - CORRECT ANSWER - drawn + (limit - drawn)*
loan equiv factor
systemic risk - CORRECT ANSWER - risk of breakdown in the financial system,
particularly due to spillover effects from one market into others
