FRM Part 1 Practice Questions Practice Test
Frequently asked questions
How many FRM Part 1 Practice Questions practice questions are here?+
A full bank of original FRM Part 1 Practice Questions practice questions across the official content areas, weighted like the real exam, with explanations. Free, no signup.
What is the FRM Part 1 Practice Questions exam like?+
A multiple-choice exam. Practice by topic here, then take the full timed mock exam to gauge readiness.
Are these the real exam questions?+
No. Every question is 100% original, written from public primary sources with explanations. We never copy real exam questions or paid prep material.
Can I study in Chinese or Spanish?+
PrepPass practice is in English, 中文 and Español. The official exam is in English — switch the question language to English any time to rehearse the exact terminology you'll see on test day.
Sample practice questions
A few real questions from this free bank, with full explanations. Use the practice tool above for the whole set.
- 1. Foundations of Risk Management
The risk that a counterparty fails to meet its financial obligations is:
- a.Market risk
- b.Credit risk
- c.Liquidity risk
- d.Model risk
Answer: b
Explanation: Credit (default) risk is the risk a counterparty does not pay as agreed.
- 2. Foundations of Risk Management
The risk of loss from movements in prices, rates, or volatility is:
- a.Market risk
- b.Operational risk
- c.Legal risk
- d.Reputation risk
Answer: a
Explanation: Market risk stems from changes in market prices and rates.
- 3. Foundations of Risk Management
The risk that an asset cannot be sold quickly without a large price concession is:
- a.Credit risk
- b.Market risk
- c.Operational risk
- d.Liquidity risk
Answer: d
Explanation: Liquidity risk is the difficulty of transacting without moving the price.
- 4. Quantitative Analysis
The normal distribution is:
- a.Symmetric and bell-shaped
- b.Always skewed right
- c.Uniform
- d.Bimodal by definition
Answer: a
Explanation: The normal distribution is symmetric and bell-shaped around its mean.
- 5. Quantitative Analysis
Variance is:
- a.The square root of the mean
- b.Always negative
- c.The same as correlation
- d.The square of the standard deviation
Answer: d
Explanation: Variance equals the standard deviation squared.
- 6. Financial Markets & Products
A key difference between futures and forwards is that futures are:
- a.Exchange-traded and marked to market daily
- b.Always customized and unregulated
- c.Never settled
- d.Options, not obligations
Answer: a
Explanation: Futures are standardized, exchange-traded, and marked to market daily; forwards are OTC.
- 7. Financial Markets & Products
Using derivatives to reduce an existing exposure is called:
- a.Speculating
- b.Arbitraging
- c.Leveraging
- d.Hedging
Answer: d
Explanation: Hedging uses derivatives to offset an existing risk exposure.
- 8. Valuation & Risk Models
A key limitation of VaR is that it:
- a.Says little about the size of losses beyond the threshold
- b.Cannot be computed
- c.Only applies to stocks
- d.Guarantees no larger loss
Answer: a
Explanation: VaR does not describe the magnitude of losses in the tail beyond the threshold.
- 9. Valuation & Risk Models
Expected shortfall (conditional VaR) measures:
- a.The best-case gain
- b.The median return
- c.The risk-free rate
- d.The average loss given that losses exceed the VaR threshold
Answer: d
Explanation: Expected shortfall averages losses in the tail beyond VaR.
- 10. Credit & Operational Risk
Expected credit loss is commonly modeled as a function of:
- a.Probability of default, loss given default, and exposure at default
- b.Only the coupon
- c.Only the maturity
- d.The stock price alone
Answer: a
Explanation: Expected loss ≈ PD × LGD × EAD.