FRM Part 1 Practice Questions — All Questions

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

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

Market risk stems from changes in market prices and rates.

Good risk management aims to:

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

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

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