1、FRM Part II Practice Exam2017Financial Ris kManagerExamination(FRM)PartII PracticeExam 2017 GlobalAssociationofRiskProfessionals.Allrightsreserved.Itisillegaltoreproducethismaterial inanyformatwithoutpriorwrittenapprovalofGARP,GlobalAssociationofRiskProfessionals,Inc.TableofContents Introductionto20
2、1 7 FRMPart IIPracticeExam.2 2017FRMPartIIPracticeExam StatisticalReferenceTable.4 2017FRMPartIIPracticeExam SpecialInstructions andDefinitions.5 2017 FRMPartIIPracticeExam CandidateAnswerSheet.6 2017 FRMPart IIPracticeExam Questions.7 2017 FRMPartI IPracticeExam AnswerKey.42 2017 FRMPartIIPracticeE
3、xam Answers&Explanations.43 VER05/1 2/17Financial Ris kManagerExamination(FRM)PartII PracticeExam 201 7 GlobalAssociationofRiskProfessionals.Allrightsreserved.Itisillegaltoreproducethismaterial inanyformatwithoutpriorwrittenapprovalofGARP,GlobalAssociationof RiskProfessionals,Inc.2 Introduction TheF
4、RMExamisapractice-orientedexamination.Itsquestionsarederivedfromacombinationoftheory,as setforthinthecorereadings,and“real-world”workexperience.Candidatesareexpectedtounderstandriskmanagementconceptsandapproachesandhowtheywouldapplytoariskmanagersday-to-dayactivities.TheFRMExamisalsoacomprehensiveex
5、amin ation,testingariskprofessionalonanumberofriskmanagementconceptsandapproaches.Itisveryrarethatariskmanagerwillbefacedwithanissuethatcanimmediatelybeslottedintoonecategory.Intherealworld,ariskmanagermustbeableto identifyanynumberofrisk-relatedissuesandbeabletodealwiththemeffectively.The2017 FRM P
6、artIandPartIIPracticeExams havebeendevelopedtoaidcandidatesintheirpreparationfortheFRMExaminMayandNovember201 7.ThesePracticeExam sarebasedonasampleofquestionsfrompriorFRMExamsandaresuggestiveofthequestionsthatwil lbeinthe201 7 FRMExam.The2017 FRM PartIPracticeExam contains100multiple-choicequestion
7、sandthe201 7 FRM PartIIPracticeExamcontains80multiple-choicequestions,thesamenumberofquestionsthattheactual201 7 FRMExamPartIand201 7 FRMExamPartIIwillcontain.Assuch,thePracticeExamsweredesignedtoallowcandidatestocalibratetheirpreparednessbothintermsofmaterialandt ime.The2017 FRMPracticeExamsdonotne
8、cessarilycoveralltopicstobetested onthe201 7 FRMExamasanytest willsamplefromtheuniverseoftestablepossibleknowledgepoints.However,thequestionsselectedforinclusioninthePracticeExams werechosentobebroadlyreflectiveofthematerialassignedfor201 7 aswellastorepresentthestyleofquestionthattheFRMCommitteecon
9、sidersappropriatebasedonassignedmaterial.Foracompletelistofcurrenttopics,corereadings,andkeylea rningobjectivescandidatesshouldrefertothe201 7 FRMExamStudyGuideand201 7 FRMLearningObjectives.CorereadingswereselectedbytheFRMCommitteetoassistcandidatesintheirreviewofthesubjectscoveredbytheExam.Questio
10、nsforthe FRMExamarederivedfromthecore readings.ItisstronglysuggestedthatcandidatesstudythesereadingsindepthpriortosittingfortheExam.SuggestedUseofPracticeExams Tomaximizetheeffectivenessofthepracticeexams,candidatesareencoura gedtofollowtheserecommendations:1.Planadateandtimetotakethepracticeexam.Se
11、tdatesappropriatelytogivesufficientstudy/reviewtimeforthepracticeexampriortotheactualexam.2.Simulatethetestenvironmentascloselyaspossible.Takethepracticeexaminaquietplace.Haveonlythepracticeexam,candidateanswersheet,calculator,andwritinginstruments(pencils,erasers)available.Minimizepossibledistracti
12、onsfromotherpeople,cellphones,televisions,etc.;putawayanystudym aterialbeforebeginningthepracticeexam.Allocate4hourstocompleteFRM PartIPracticeExam and4hourstocompleteFRM PartIIPracticeExamandkeeptrackofyourtime.TheactualFRMExamPartIandFRMExamPartIIare4hourseach.Financial Ris kManagerExamination(FRM
13、)PartII PracticeExam 201 7 GlobalAssociationofRiskProfessionals.Allrightsreserved.Itisillegaltoreproducethismaterial inanyformatwithoutpriorwrittenapprovalofGARP,GlobalAssociationof RiskProfessionals,Inc.3 Completethe entireexamandanswerallquestions.Pointsareawardedforcorrectanswers.Thereisnopenalty
14、ontheFRMExamforanincorrectanswer.FollowtheFRMcalculatorpolicy.Candidatesareonlyallowedtobringcertaintypesofcalculatorsintotheexam room.TheonlycalculatorsauthorizedforuseontheFRMExamin201 7 arelistedbelow,therewillbenoexceptionstothispolicy.Youwillnotbeallowedintotheexamroomwithapersonalcalculatoroth
15、erthanthefollowing:TexasInstrumentsBAIIPlus(includingtheBAIIPlusProfessional),HewlettPackard12C(includingtheHP12CPlatinumandtheAnniversaryEdition),HewlettPackard10BII,HewlettPackard10BII+andHewlettPackard20B.3.AftercompletingtheFRMPracticeExams Calculateyourscorebycomparingyouranswersheetwiththeprac
16、ticeexamanswerkey.UsethepracticeexamAnswersandExplanationstobetterunderstandthecorrectandincorrectanswersandtoidentifytopicsthatrequireadditionalreview.Consultreferencedcorereadi ngstopreparefortheexam.Remember:pass/failstatusfortheactualexamisbasedonthedistributionofscoresfromallcandidates,souseyou
17、rscoresonlytogaugeyourownprogressandlevelofpreparedness.Financial Ris kManagerExamination(FRM)PartII PracticeExam 201 7 GlobalAssociationofRiskProfessionals.Allrightsreserved.Itisillegaltoreproducethismaterial inanyformatwithoutpriorwrittenapprovalofGARP,GlobalAssociationof RiskProfessionals,Inc.4 F
18、inancial Ris kManagerExamination(FRM)PartII PracticeExam 201 7 GlobalAssociationofRiskProfessionals.Allrightsreserved.Itisillegaltoreproducethismaterial inanyformatwithoutpriorwrittenapprovalofGARP,GlobalAssociationof RiskProfessionals,Inc.5 SpecialInstructionsandDefinitions A.Unlessotherwiseindicat
19、ed,interestratesareassumedtobecontinuouslycompounded.B.Unlessotherwiseindicated,optioncontractsareassumedtobeononeunitoftheunderlyingasset.C.VaR=value-at-risk D.ES=expectedshortfall E.GARCH=generalizedauto-regressiveconditionalheteroskedasticity F.EWMA=exponentiallyweightedmovingaverage G.CAPM=capit
20、alassetpricingmodel H.LIBOR=Londoninterbankofferrate I.OIS=overnightindexedswap J.CDS=credit-default-swap(s)K.CCP=centralc ounterpartyorcentralclearingcounterparty L.MBS=mortgage-backed-security(securities)M.CDO=collateralizeddebtobligation(s)N.ERM=enterpriseriskmanagement O.RAROC=risk-adjustedretur
21、noncapital P.bp(s)=basispoint(s)Q.TheCEO,CFO,CIO,andCROaret hechiefexecutive,financial,investment,andriskofficers,respectively.R.Thefollowingacronymsareusedforselectedcurrencies:Acronym Currency Acronym Currency AUD Australian dollar INR Indian rupee CAD Canadian dollar JPY Japanese yen CNY Chinese
22、yuan MXN Mexican peso EUR euro SGD Singapore dollar GBP British pound sterling USD US dollar Financial Ris kManagerExamination(FRM)PartII PracticeExam 201 7 GlobalAssociationofRiskProfessionals.Allrightsreserved.Itisillegaltoreproducethismaterial inanyformatwithoutpriorwrittenapprovalofGARP,GlobalAs
23、sociationof RiskProfessionals,Inc.6 2017FRMPartIPracticeExam CandidateAnswerSheet 1.26.51.76.2.27.52.77.3.28.53.78.4.29.54.79.5.30.55.80.6.31.56.81.7.32.57.82.8.33.58.83.9.34.59.84.10.35.60.85.11.36.61.86.12.37.62.87.13.38.63.88.14.39.64.89.15.40.65.90.16.41.66.91.17.42.67.92.18.43.68.93.19.44.69.94
24、.20.45.70.95.21.46.71.96.22.47.72.97.23.48.73.98.24.49.74.99.25.50.75.100.Financial Ris kManagerExamination(FRM)PartII PracticeExam 201 7 GlobalAssociationofRiskProfessionals.Allrightsreserved.Itisillegaltoreproducethismaterial inanyformatwithoutpriorwrittenapprovalofGARP,GlobalAssociationof RiskPro
25、fessionals,Inc.7 1.Aninvestmentbankwithanactivepositionincommodityfuturesisusingthepeaks-over-threshold(POT)methodologyforestimatingVaRandES.Thebanksriskmanagershavesetathresholdlevelof3.00%toevaluateexcesslosses.Thechoiceofthethresho ld,theyargue,issuitableandconsistentwiththefindingthat5.00%oftheo
26、bservationsareinexcessofthethresholdvalue.TheriskmanagershaveconcludedthatthepositionsVaRusingthePOTmeasureis4.45%at99%confidencelevel.TheVaRestima teincorporatesthefollowingassumptionsgeneratedfromthemanagersempiricalanalysis:Parameter Symbol Value Lossthreshold u 3%Numberofobservations N 740 Numbe
27、rofobservationsthatexceedthreshold n 37 Scale 0.75 Shape(tailindex)0.22 GiventheVaRvalueandtheparameterassumptions,whichofthefollowingiscorrect?A.IncreasingthevalueofthetailindexlowersboththeESandtheVaR B.IncreasingthelossthresholdlevelincreasesboththeESandtheVaR C.ThevalueofESis 4.57%D.ThevalueofES
28、is5.71%2.Ariskmanagerisestimatingthemarketriskofaportfoliousingboththenormaldistributionandthelognormaldistributionassumptions.Themanagergathersthefollowingdataontheportfolio:Annualmean:15%Annual volatility:35%Currentportfoliovalue:EUR4,800,000 Tradingdaysinayear:252 Whichofthefollowingstatementsisc
29、orrect?A.Lognormal95%VaRislessthannormal95%VaRatthe1-dayholdingperiodby0.13%B.Lognormal95%VaR islessthannormal95%VaRatthe1-yearholdingperiodby 7.91%C.Lognormal99%VaRislessthannormal99%VaRatthe1-dayholdingperiodby1.43%D.Lognormal99%VaRislessthannormal99%VaRatthe1-yearholdingperiodby13.86%Financial Ri
30、s kManagerExamination(FRM)PartII PracticeExam 201 7 GlobalAssociationofRiskProfessionals.Allrightsreserved.Itisillegaltoreproducethismaterial inanyformatwithoutpriorwrittenapprovalofGARP,GlobalAssociationof RiskProfessionals,Inc.8 3.Ariskteamatan investmentbankusestheKMVmodeltoestimatethedistancetod
31、efaultandexpecteddefaultfrequencyinevaluatingdefaultconditionsofbothpotentialandexistingclientfirms.OnesuchclientcurrentlyhastotalassetsvaluedatUSD20billion,assetv olatilityof28%perannum,short-termdebtof USD7billion,andlong-termdebtofUSD6billion.Theexpectedreturnonthefirmsassetsis5%peryearandtherisk
32、freerateis1%peryear.Thefirmdoesnotpayanydividends.Theratingscheduleata 1-yearhorizonisshowninthetablebelow:ExpectedDefaultFrequency(EDF)RatingClass 0.02%0.04%AAA 0.04%0.10%AA/A 0.10%0.19%A/BBB+0.19%0.40%BBB+/BBB-0.40%0.72%BBB-/BB 0.72%1.01%BB/BB-Whatisthesuggestedcredit ratingofthefirmata1-yearhoriz
33、onusingtheratingscheduleprovided?A.AA/A B.A/BBB+C.BBB+/BBB-D.BBB-/BB 4.Ariskmanageriscomparingtheuseofparametricandnon-parametricapproachesforcalculatingVaRandisconcernedaboutsomeofthe characteristicspresentinthelossdata.Whichofthefollowingconditionswouldmakenon-parametricapproachesthefavoredmethodt
34、ouse?A.Scarcityofhighmagnitudelossevent B.Skewnessinthedistribution C.Unusuallyhighvolatilityduringthedataperio d D.Unusuallylowvolatilityduringthedataperiod Financial Ris kManagerExamination(FRM)PartII PracticeExam 201 7 GlobalAssociationofRiskProfessionals.Allrightsreserved.Itisillegaltoreproducet
35、hismaterial inanyformatwithoutpriorwrittenapprovalofGARP,GlobalAssociationof RiskProfessionals,Inc.9 5.LMTBankhasenteredintoa1-yearCDScontractwithanendowmentfund.Accordingtothecontract,LMTBankwillpaytheendowmentfund75%ofthefacevalueofabondissuedbyGTEChemicalCorporationimmediatelyafteradefaultbyGTECh
36、emical.TopurchasethisCDS,theendowmentfundwillpayLMTBanktheCDSspread,whichisapercentageofthefacevalue,onceattheendoftheyear.LMTBankestimatesthattherisk-neutraldefaultprobabilityforG TEChemicalis6%peryear.Therisk-freerateis3%peryear.Assumingdefaultscanonlyoccurhalfwaythroughtheyearandthattheaccruedpre
37、miumispaidimmediatelyafteradefault,whatistheestimatefortheCDSspread?A.457basispoints B.471basispoints C.468basispoints D.628basispoints 6.Ariskanalystatamid-sizehedgefundisevaluatingthecreditriskofseveraltradepositions.Thehedgefundspecializesincorporatedebtandrunsastrategythatutilizesbothrelativeval
38、ueandlong-onlytradesusingCDSandbonds.OneofthenewtradesatthehedgefundisaB-ratedlongbondvaluedatJPY10billion.Someofthehedgefundsnewestclients,includingtheB-ratedbondholders,arerestrictedfromwithdrawingtheirfundsforfouryears.Th eanalystiscurrentlyevaluatingtheimpactofvariousdefaultscenariostoestimatefu
39、tureassetliquidity.TheanalysthasestimatedthatthemarginalprobabilityofdefaultoftheB-ratedbondis7.7%inYear1;7.1%inYear2;6.6%inYear3;and6.1%inYear4.WhatistheprobabilitythatthebonddefaultsinYear4?A.4.9%B.5.7%C.6.1%D.6.9%Financial Ris kManagerExamination(FRM)PartII PracticeExam 201 7 GlobalAssociationofR
40、iskProfessionals.Allrightsreserved.Itisillegaltoreproducethismaterial inanyformatwithoutpriorwrittenapprovalofGARP,GlobalAssociationof RiskProfessionals,Inc.10 7.MDMBankisseekingtoenhanceitsenterpriseriskmanagementfunction.Inordertoachievethatobjectivethebankintroducesanewdecision-makingprocessbased
41、oneconomiccapitalthatinvolvesassessingsourcesofriskacrossdifferentbusinessunitsand organizationallevels.Whichofthefollowingstatementsregardingthecorrelationsbetweentheserisks iscorrect?A.Correlationsbetweenbusinessunitsareonlyrelevantindecidingtotalfirm-wideeconomiccapitallevelsandarenotrelevantford
42、ecisionsattheindividualbusinessunitorprojectlevel.B.Correlationsbetweenbroadrisktypessuchascredi t,market,andoperationalriskaregenerallywell understoodandareeasytoestimateattheindividualfirmlevel.C.Theintroductionofcorrelationsintofirm-wideriskevaluationwillresultinatotalVaRthat,ingeneral,is greater
43、thanorequaltoth esumofindividualbusinessunitVaRs.D.Theintroductionofcorrelationsintotheriskevaluation ofabanksloanbookwillresultintotalcreditVaRthat,ingeneral,islessthanorequaltothesumofindividualloancreditVaRs.8.Apensionfundhas reportedthatitsassetsandliabilitieswerevaluedatUSD840millionandUSD450mi
44、llion,respectively,atyear-end2015.Theassetswerefullyinvestedinequitiesandcommodities.Thefundsliabilities,constitutedentirelybyfixed-incomeobligation s,hadamodifieddurationof12years.In2016,theglobalslumpincommoditypricesaffectedthepensionfundassets,specificallycausingitsinvestmentinequitiesandcommodi
45、tiestolose30%oftheirmarketvalue.However,thesurprisingmonetarypolicyactionofthegovernmentthatledtotheincreaseininterestrateshadapositiveeffectontheperformanceoffixed-incomesecurities,causingyieldsonthefundsliabilitiestoriseby2.3%.Whatwasthechangeinthepensionfundssurplusin2016?A.USD-325.8million B.USD
46、-127.8million C.USD262.2million D.USD390.0million 9.A wealthmanagementfirmhasa portfolio consistingof USD48million i nvested in USequities and USD 35 million i nvested in emergingmarketsequities.The 1-d ay 95%VaR for eac hin d ivi d ual posi tion is USD 1.2million.The correl ation betw ee n the ret
47、urns of theUSequitiesandemergingmarketsequitiesis 0.36.W hile rebal ancin gtheportfolio,the managerincharge dec i de s to sell USD 8 million of theUSequitiesto buy USD 8 million oftheemergingmarketsequities.Atthesametime,theCROofthe firmadvisestheportfoliomanagertochangetheriskmeasurefrom1-day95%VaR
48、to10-day99%VaR.A ssuming that ret urns are normally d i stri buted and that the rebal ancing d oes not affec t the volatili ty of the in d ivi d ual equitypositions,byhowmuchwilltheportfolioVaRincreaseduetothecombined effec t of portfoliorebalancingandchangeinriskmeasure?A.USD4.529million B.USD6.258
49、million C.USD7.144million D.USD7.223million Financial Ris kManagerExamination(FRM)PartII PracticeExam 201 7 GlobalAssociationofRiskProfessionals.Allrightsreserved.Itisillegaltoreproducethismaterial inanyformatwithoutpriorwrittenapprovalofGARP,GlobalAssociationof RiskProfessionals,Inc.11 10.Theboardo
50、fdirectorsatBankPQPisevaluatingaproposalbyseniormanagementtorestructuretheoperationsofthebank.Ofkeyconcernisthefutureofthebanksconsumerlendingdivision,whichhasaloanportfolioamountingtoEUR180million.Thebankfundsthedivisionpredominantlyusingunstableretailandwholesaledeposits.Inanalyzingthecreditriskco
