FRM Practice Questions: A Free Sample Question Bank

If you're studying for the FRM exam, the fastest way to find out what you actually know is to answer questions in the same style GARP uses — not just re-read notes. This page gives you a free set of FRM practice questions covering every major topic on both FRM Part 1 and Part 2, with full worked answers, so you can test yourself honestly before exam day.

Why practice questions matter more than re-reading

The FRM exam is entirely multiple-choice, and GARP writes questions to test application, not memorisation. That means the best preparation is doing questions under timed conditions, checking your reasoning against a worked answer, and going back to strengthen whatever topic tripped you up. Passive review — reading a textbook chapter twice — doesn't build the same exam-day instincts.

Before you dive into the questions, it helps to know exactly what you're being tested on. For a full breakdown of how Part 1 and Part 2 differ in structure and focus, see our FRM Part 1 vs Part 2 guide.

FRM Part 1 practice questions

Part 1 is 100 equally weighted multiple-choice questions across four topic areas: Foundations of Risk Management (20%), Quantitative Analysis (20%), Financial Markets and Products (30%), and Valuation and Risk Models (30%). Here's one original practice question for each.

1. Foundations of Risk Management

Question: A bank's risk management framework assigns day-to-day risk-taking to business units, independent risk oversight to a risk management function, and periodic assurance to internal audit. This structure is best described as:

A) The three lines of defence model
B) The Basel capital adequacy framework
C) Enterprise risk management aggregation
D) The value-at-risk control cycle

Answer: A. The three lines of defence model separates risk-taking (first line), risk oversight (second line), and independent assurance (third line, internal audit). It's a foundational governance concept tested throughout Part 1.

2. Quantitative Analysis

Question: A risk analyst tests the null hypothesis that a portfolio's daily returns have a mean of zero, using a sample of 250 trading days. The resulting p-value is 0.03. At a 5% significance level, the analyst should:

A) Fail to reject the null hypothesis, since 0.03 is a small number
B) Reject the null hypothesis, since the p-value is below the significance level
C) Increase the sample size before drawing any conclusion
D) Conclude the returns are normally distributed

Answer: B. When the p-value is lower than the chosen significance level (here, 0.03 < 0.05), the result is statistically significant and the null hypothesis is rejected. This kind of hypothesis-testing logic shows up repeatedly in the quantitative analysis section.

3. Financial Markets and Products

Question: An investor buys a European call option with a strike price of $50. At expiration, the underlying stock is trading at $42. The payoff to the investor is:

A) $8
B) -$8
C) $0
D) $50

Answer: C. A call option is only exercised when the underlying price is above the strike price. Since $42 is below the $50 strike, the option expires worthless and the payoff is $0 (the premium paid is a separate, sunk cost).

4. Valuation and Risk Models

Question: A bond has a modified duration of 6.5. If interest rates rise by 50 basis points, the approximate percentage change in the bond's price is closest to:

A) +3.25%
B) -3.25%
C) -6.5%
D) +0.5%

Answer: B. Using the duration approximation (% price change ≈ -duration × change in yield), -6.5 × 0.50% = -3.25%. Bond prices move inversely to interest rates, so a rate rise produces a price fall.

FRM Part 2 practice questions

Part 2 is 80 multiple-choice questions and shifts from foundational tools to applied risk measurement: Market Risk, Credit Risk, and Operational Risk each carry roughly 20%, with Liquidity and Treasury Risk and Investment Risk Management around 15% each, and Current Issues in Financial Markets making up the remainder.

5. Market Risk Measurement and Management

Question: A risk manager backtests a 99% one-day VaR model over 250 trading days and observes 6 exceptions. Under the Basel traffic light framework, this result would most likely fall into which zone?

A) Green zone
B) Yellow zone
C) Red zone
D) The framework does not apply to VaR backtesting

Answer: B. At a 99% confidence level over 250 days, roughly 2-3 exceptions are expected. 6 exceptions is elevated enough to fall in the yellow zone (typically 5-9 exceptions), signalling the model should be reviewed, though it isn't an automatic red-zone failure.

6. Credit Risk Measurement and Management

Question: A loan has a probability of default of 2%, an exposure at default of $1,000,000, and a loss given default of 40%. The expected loss on this loan is:

A) $8,000
B) $20,000
C) $40,000
D) $400,000

Answer: A. Expected loss = PD × EAD × LGD = 0.02 × $1,000,000 × 0.40 = $8,000. This formula is one of the most frequently tested relationships in the credit risk section.

7. Operational Risk and Resilience

Question: A bank suffers a large loss after a rogue trader conceals unauthorised positions for months. Under Basel's operational risk event-type classification, this loss is most likely categorised as:

A) External fraud
B) Internal fraud
C) Business disruption and system failures
D) Clients, products and business practices

Answer: B. Losses caused by an employee acting to defraud, misappropriate assets, or circumvent regulations or company policy fall under internal fraud — a distinct category from external fraud, which involves a third party.

8. Liquidity and Treasury Risk Measurement and Management

Question: A bank's Liquidity Coverage Ratio (LCR) is calculated as high-quality liquid assets divided by total net cash outflows over a 30-day stress period. If a bank reports an LCR of 90%, this means:

A) The bank holds more liquid assets than it needs and exceeds the regulatory minimum
B) The bank's liquid assets cover 90% of its projected 30-day net outflows, below the typical 100% minimum
C) The bank has no liquidity risk
D) The ratio is unrelated to Basel III requirements

Answer: B. Basel III generally requires banks to hold an LCR of at least 100%. A ratio of 90% signals a shortfall against that minimum and would typically require remedial action.

How to use these practice questions effectively

Getting the most out of practice questions is about process, not just answers:

• Time yourself. Part 1 gives you roughly 2.4 minutes per question and Part 2 gives you roughly 3 minutes — practising under that constraint from early in your prep builds real exam pacing.
• Always read the explanation, even when you're right. Getting the correct answer for the wrong reason is a common trap, especially in the quantitative and valuation sections.
• Track your weak topics. If you consistently miss questions in one area (credit risk formulas, for example), that's exactly where your remaining study time should go.
• Retest after review. Come back to topics you got wrong a week later to confirm the concept actually stuck, not just that you memorised one answer.

Where to find a full FRM question bank

Eight questions are a starting point, not a full prep plan. A proper question bank needs hundreds of questions across every topic weighting, with detailed explanations and progress tracking so you know exactly where you stand before exam day. Learnsignal's FRM course includes a full practice question bank alongside video lessons and tutor support for both Part 1 and Part 2, and you can see current course options on our FRM pricing page.

FAQ

How many practice questions should I do before the FRM exam?

Most successful candidates work through several hundred practice questions per part, revisited more than once, rather than doing a small set only one time. Volume matters less than consistently reviewing what you got wrong.

Are GARP's official practice exams enough on their own?

GARP's official practice exams are a valuable final check closer to exam day, but most candidates supplement them with a larger question bank earlier in their study plan to build familiarity with every topic, not just a sample.

Is FRM Part 2 harder than Part 1?

Part 2 tests application rather than foundational recall, which many candidates find more demanding — but it also has fewer questions (80 vs. 100) and you only sit it after passing Part 1. See our FRM Part 1 vs Part 2 comparison for a full breakdown, and our FRM pass rate guide for how the two parts compare in outcomes.

Ready to move from practice questions to a structured study plan? Explore Learnsignal's FRM course for a full question bank, video lessons, and tutor support for both parts of the exam.