Free FRM Part I: Financial Risk Manager Exam Questions and Answers
FRM Part I is the first of the two exams for GARP's Financial Risk Manager designation, the leading credential for risk professionals in banking and asset management. It is 100 multiple-choice questions in four hours, taken on computer in testing windows in May, August and November. It covers the tools of risk management in four areas: foundations of risk management, quantitative analysis, financial markets and products, and valuation and risk models. Part I and Part II can be sat on the same day, but Part II is only graded once Part I is passed. To be certified, candidates also need two years of relevant full-time work experience.
Looking for FRM Part I: Financial Risk Manager exam dumps or ExamTopics questions? These practice questions cover the same ground with verified answers and explanations, a downloadable PDF and a full practice test, kept current as GARP updates the exam.
Last updated: October 20, 2026
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Question #1
In the bias-variance tradeoff, increasing model complexity most likely:
Correct answer: A
Explanation
As model complexity increases, the model fits training data more closely, reducing bias (the error from overly simplistic assumptions). However, the model becomes more sensitive to the specific training data used, increasing variance (the error from sensitivity to small fluctuations in the training set). This is the fundamental bias-variance tradeoff.
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Question #2
The 2012 JPMorgan "London Whale" episode is most instructive as a warning about which combination of failures?
Correct answer: B
Explanation
The Chief Investment Office accumulated a large, concentrated synthetic credit-derivatives position while a newly implemented VaR model understated the risk, and valuation and control weaknesses allowed losses to accumulate before they were recognized. Unlike Barings, the traders acted within delegated authority; the failure was model risk plus inadequate independent oversight and position-limit discipline.
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Question #3
What is the Macaulay duration of a 5-year zero-coupon bond?
Correct answer: D
Explanation
Macaulay duration is the weighted average time to cash flows, where the weights are the present values of each cash flow as a fraction of price. A zero-coupon bond has a single cash flow at maturity, so 100% of the weight sits at year 5. Macaulay duration therefore equals the maturity: 5.00 years.
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Question #4
According to GARP's Code of Conduct, which of the following is a Member's primary responsibility?
Correct answer: B
Explanation
GARP's Code of Conduct requires Members to act fairly in all situations and to perform work with the highest level of professional skill. Members must act with integrity and avoid conflicts of interest. While local regulations must be followed, GARP standards apply when they are more stringent. Client confidentiality is important but does not override legal or regulatory disclosure obligations.
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Question #5
Which type of risk arises from the possibility that a counterparty will fail to meet its obligations under a financial contract?
Correct answer: C
Explanation
Credit risk is the risk that a counterparty will default on its obligations, resulting in financial loss. Market risk relates to losses from adverse price movements. Operational risk stems from failed internal processes, people, or systems. Liquidity risk involves the inability to meet cash flow obligations or sell assets without significant price concessions.
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Question #6
In the Capital Asset Pricing Model (CAPM), the market risk premium is defined as:
Correct answer: B
Explanation
The market risk premium in CAPM is defined as E(Rm) - Rf, which is the difference between the expected return on the market portfolio and the risk-free rate. This premium compensates investors for bearing systematic (non-diversifiable) market risk. The covariance divided by variance gives beta, while the excess return of the asset is the asset's risk premium.
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Question #7
A portfolio manager holds a well-diversified portfolio. According to CAPM, which risk measure is most appropriate for evaluating this portfolio's exposure to systematic risk?
Correct answer: B
Explanation
Beta measures an asset or portfolio's sensitivity to systematic (market) risk. For a well-diversified portfolio, unsystematic (idiosyncratic) risk is eliminated, leaving only systematic risk. Standard deviation and variance measure total risk, including diversifiable components. Tracking error measures deviation from a benchmark, not systematic risk exposure.
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Question #8
The Barings Bank collapse (1995) is primarily attributed to which category of risk?
Correct answer: C
Explanation
The Barings Bank collapse was primarily caused by operational risk. Nick Leeson engaged in unauthorized speculative trading and hid losses in an error account (88888). The bank's failure to implement adequate internal controls, separation of duties, and oversight mechanisms allowed the rogue trading to continue unchecked until the losses bankrupted the 233-year-old institution.
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Question #9
Under the Sharpe ratio, which of the following portfolios would be considered most attractive?
Correct answer: D
Explanation
The Sharpe ratio is (expected return - risk-free rate) / standard deviation, so it ranks portfolios by return earned per unit of total risk. Assuming a risk-free rate of 0% for comparison, the ratios are A = 12/15 = 0.80, B = 15/20 = 0.75, C = 10/10 = 1.00, and D = 8/5 = 1.60. Portfolio D has the highest Sharpe ratio (1.60), so it is the most attractive on a risk-adjusted basis even though its absolute return is the lowest. The Sharpe ratio deliberately rewards efficiency (return per unit of risk), not the highest raw return.
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Question #10
Which of the following best describes Enterprise Risk Management (ERM)?
Correct answer: C
Explanation
Enterprise Risk Management (ERM) is an integrated, comprehensive approach to managing all risks faced by an organization across business units, geographies, and risk types. It moves away from siloed risk management toward a holistic view that considers risk interdependencies and optimizes risk-adjusted returns at the enterprise level.
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Discussion
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FAQ
Learn More: https://www.garp.org/scr
- Q1: What is the FRM Part I: Financial Risk Manager exam?
- A: FRM Part I: Financial Risk Manager is a GARP certification exam. Judging by the questions in our bank, it concentrates on portfolio.
- Q2: How should I prepare for FRM Part I: Financial Risk Manager?
- A: Work through the FRM Part I: Financial Risk Manager practice questions here, checking your answer on each one, then sit the practice test to rehearse the exam under timed conditions before the real thing.
- Q3: Are these real FRM Part I: Financial Risk Manager exam questions?
- A: They are drawn from officially released past questions and from community members who have sat FRM Part I: Financial Risk Manager. Answers are verified and updated weekly.
- Q4: Where do I register for the FRM Part I: Financial Risk Manager exam?
- A: Register through GARP directly at https://www.garp.org/frm. Exampractice is not affiliated with GARP and does not administer the exam.
- Q5: Is there a free FRM Part I: Financial Risk Manager sample?
- A: Yes. Every FRM Part I: Financial Risk Manager page shows a free sample of real questions. Upgrading opens the full bank and the practice test.
- Q6: What are GARP Certification Exams?
- A: GARP (Global Association of Risk Professionals) Certification Exams validate your expertise in risk management, particularly in financial risk management and energy risk management. These certifications demonstrate your proficiency in identifying, assessing, and managing various types of financial risks.
- Q7: Why should I pursue GARP Certification?
- A: GARP Certification enhances your professional credibility, showcasing your skills and knowledge in risk management. This can lead to better job opportunities, higher salaries, and career advancement in finance, banking, and risk management sectors.
- Q8: What are the benefits of GARP Certification?
- A: Benefits include recognition as a certified risk professional, improved job performance, access to exclusive resources, continuing education opportunities, and staying current with the latest risk management practices and industry standards.
- Q9: Who should take GARP Certification Exams?
- A: Risk managers, financial analysts, compliance officers, investment professionals, and anyone involved in managing financial or energy risks should consider these certifications to validate their expertise and advance their careers.
- Q10: What types of GARP Certification Exams are available?
- A: GARP offers two main certification paths:
- Q11: How do I prepare for GARP Certification Exams?
- A: Preparation can include official GARP study materials, preparatory courses, practice exams, online tutorials, and hands-on experience in risk management.
- Q12: Where can I take GARP Certification Exams?
- A: GARP Certification Exams can be taken at authorized testing centers worldwide, providing flexibility to fit your schedule and location.
- Q13: How do GARP Certifications impact my career?
- A: GARP Certifications significantly boost your career by demonstrating your expertise to employers, making you a more competitive candidate for advanced roles and promotions in finance and risk management.
- Q14: Are there any prerequisites for GARP Certification Exams?
- A: While there are no formal prerequisites for taking the FRM or ERP exams, candidates typically benefit from having a strong foundation in finance, mathematics, and risk management concepts.
- Q15: How often do I need to recertify for GARP Certifications?
- A: GARP Certifications do not have a formal recertification process, but certified professionals are encouraged to engage in continuous professional development to stay updated with the latest industry practices and standards.