FRM Part 1 Practice Questions — All Questions

The risk that a counterparty fails to meet its financial obligations is:

• a.Liquidity risk
• b.Market risk
• c.Credit risk✓
• d.Model risk

Credit (default) risk is the risk a counterparty does not pay as agreed.

The risk of loss from movements in prices, rates, or volatility is:

• a.Reputation risk
• b.Legal risk
• c.Market risk✓
• d.Operational risk

Market risk stems from changes in market prices and rates.

Good risk management aims to:

• a.Ignore tail events
• b.Eliminate all risk
• c.Maximize risk for higher returns
• d.Take risks deliberately and be compensated for them✓

Risk management is about taking appropriate, well-understood, compensated risks.

The risk that an asset cannot be sold quickly without a large price concession is:

• a.Operational risk
• b.Credit risk
• c.Liquidity risk✓
• d.Market risk

Liquidity risk is the difficulty of transacting without moving the price.