FRM® Sample Questions: Format, Topic, and Practice Guide

FRM® pass rates are low, roughly 50% to 55%. If you want to boost your chances of passing, the old adage is true here: practice makes perfect.

This guide walks FRM® candidates through the format, topics, and structure of the exam—and gives you 20 original, exam-style sample questions designed to reflect the tone and difficulty of the real thing. You’ll get 10 questions for FRM® Part I and 10 for Part II, each followed by the correct answer and a quick, clear explanation.

If you want to better understand what’s ahead and start practicing smart, you’re in the right place.

Key Takeaways

• Two-Part Exam Structure: The FRM® exam has two parts: Part I, with 100 questions, and Part II, with 80, each delivered in a computer-based, multiple-choice format.
• Real-World Focus: Questions are designed to reflect practical risk management scenarios, not just theoretical concepts, making it a practice-oriented exam.
• Core Topics Covered: The exam spans all major areas of financial risk, from the foundations of risk management to market risk measurement and current financial issues.
• Diverse Question Styles: You’ll encounter conceptual, calculation-based, and application questions—plus a few that test whether you’re really paying attention.
• Practice is Key: Sample questions, mock exams, and tracking your weak spots are essential strategies to increase your chances of passing the actual FRM® exam.

What Is the FRM® Exam Format?

Let’s start with the basics. The FRM® exam comes in two parts—each one a four-hour marathon of multiple-choice questions. Here’s the deal:

• FRM® Part I: 100 questions
• FRM® Part II: 80 questions
• All questions are multiple choice
• Computer-based testing (CBT) only

Yep, no essays, no calculators flying through the air like in college—just you, your knowledge, and your mouse.

The questions are equally weighted, which means no question is secretly worth more than the others. Each counts the same, so don’t waste too much time on any single question. Keep it moving.

FRM® Exam Topics: What’s Covered?

This exam isn’t just a test of memory—it’s a test of real-world problem-solving. The goal is to ensure you’re fluent in financial risk management concepts and can apply them in practice. The FRM® exam covers a wide range of topics, but here are the core subjects you’ll need to study to succeed.

FRM® Part I Covers

• Foundations of Risk Management
  Think core concepts—risk types, risk-adjusted returns, the infamous risk-free rate, and why risk management even matters.
• Quantitative Analysis
  Stats time! Expect formulas, the central limit theorem, normal distributions, and how to make data-based decisions.
• Financial Markets and Products
  Derivatives, bonds, futures, swaps—this is where the toolbox of the modern risk manager lives.
• Valuation and Risk Models
  How do you price things? How do you measure systematic risk? What’s the most appropriate test for different financial scenarios?

FRM® Part II Covers

• Market Risk Measurement and Management
  We’re talking value-at-risk, stress testing, scenario analysis—tools to handle big swings in the market.
• Credit Risk Measurement and Management
  From default probability to credit risk management, this section dives deep into lending and borrowing risk.
• Operational Risk and Resilience
  Think cyberattacks, fraud, and natural disasters. It’s about planning for when things go wrong and bouncing back fast.
• Liquidity and Treasury Risk
  What happens when there’s not enough cash to go around? That’s liquidity risk. Treasury management is the fix.
• Risk Management and Investment Management
  Here, you’ll see how financial risk managers help build safer, smarter portfolios.
• Current Issues in Financial Markets
  This part is a bit of a wildcard—it changes as the world does. If there’s a financial crisis or regulation shift, it could show up here.

What Are FRM® Questions Like?

Now, let’s get into the fun part: question types. Even though they’re all multiple choice, FRM® questions aren’t just trivia. They’re scenario-based, math-driven, and designed to trip you up if you don’t know your stuff.

Here’s what you’ll run into:

• Conceptual questions
  These test your understanding of risk principles. For example: What’s the best definition of the risk-free rate?
• Calculation questions
  You might have to apply formulas, like calculating a portfolio’s value-at-risk or solving for standard deviation.
• Application questions
  Expect questions that ask you to apply a concept in a real-world context. For instance, which risk measure would be most appropriate for a bank assessing mortgage risk?
• Trick questions
  Okay, not officially “trick” questions, but some are designed to test if you’re paying attention. The correct answer isn’t always the most obvious one.

How to Use Sample Questions and Mock Exams

Practice questions aren’t just practice—they’re a learning tool. Here’s how to make the most of them:

• Track your weak spots
  Did you bomb every credit risk question? Time to hit that section again in your FRM® curriculum.
• Simulate exam day
  Take a practice exam under test-day conditions: no distractions, strict timing, and no peeking at notes.
• Use multiple providers
  GARP offers official mock exams, but it’s smart to supplement with third-party study materials. They give you different wording and styles, which can sharpen your skills.
• Don’t memorize—understand
  If you’re just memorizing formulas without knowing what they mean, you’re gonna have a bad time. Focus on concepts and why they matter.

20 FRM® Sample Questions

FRM® Exam Part I Practice Questions

1. Which of the following best describes the primary objective of risk management in a financial institution?
   A) To eliminate all financial risk
   B) To maximize return regardless of risk
   C) To identify, measure, and control risk while optimizing return
   D) To comply with all financial regulations
   Correct Answer: C
   Risk management aims to balance risk and return, not eliminate risk entirely.
   
2. A portfolio has an expected return of 8% and a standard deviation of 12%. Assuming returns are normally distributed, what is the probability the return falls between -4% and 20%?
   A) 68%
   B) 95%
   C) 99%
   D) 84%
   Correct Answer: B
   This range represents ±2 standard deviations, which captures approximately 95% of a normal distribution.
   
3. Which risk measure accounts for both the probability and magnitude of extreme losses?
   A) Beta
   B) Sharpe Ratio
   C) Conditional Value-at-Risk (CVaR)
   D) Standard Deviation
   Correct Answer: C
   CVaR focuses on tail risk by measuring expected losses beyond the VaR threshold.
   
4. Which of the following instruments gives the buyer the right but not the obligation to sell an asset at a predetermined price?
   A) Call Option
   B) Put Option
   C) Forward Contract
   D) Interest Rate Swap
   Correct Answer: B
   A put option gives the right to sell at a specific strike price.
   
5. According to the Capital Asset Pricing Model (CAPM), what is the expected return on an asset?
   A) Risk-free rate
   B) Beta × Market return
   C) Risk-free rate + Beta × (Market return – Risk-free rate)
   D) Market return + Alpha
   Correct Answer: C
   CAPM calculates return based on the risk-free rate, beta, and market risk premium.
   
6. The primary purpose of stress testing is to:
   A) Determine short-term profits
   B) Calculate beta
   C) Evaluate potential losses in extreme but plausible scenarios
   D) Replace VaR models
   Correct Answer: C
   Stress testing helps firms understand their resilience under adverse conditions.
   
7. Which of the following is a weakness of Value-at-Risk (VaR)?
   A) It is not widely accepted
   B) It does not quantify expected losses beyond the threshold
   C) It cannot be calculated using historical data
   D) It includes subjective judgment
   Correct Answer: B
   VaR tells you the minimum loss with a certain confidence, but not how bad it could get beyond that.
   
8. What is the primary function of a futures clearinghouse?
   A) To issue bonds
   B) To provide leverage to investors
   C) To guarantee the performance of trades
   D) To act as a market maker
   Correct Answer: C
   Clearinghouses reduce counterparty risk by stepping in between buyers and sellers.
   
9. Which of the following statements is true regarding the central limit theorem?
   A) It requires a normal distribution of population data
   B) It applies only to small samples
   C) It allows sample means to be generally distributed if the sample size is large
   D) It proves causality between variables
   Correct Answer: C
   With a sufficiently large sample, the distribution of the sample mean approaches normality.
   
10. Duration measures a bond’s sensitivity to:
    A) Inflation
    B) Interest rate changes
    C) Credit spreads
    D) Market volatility
    Correct Answer: B
    Duration estimates how much a bond’s price will change with interest rate movements.

FRM® Exam Part II Practice Questions

11. Which of the following best explains basis risk in the context of hedging?
    A) The risk of the hedging instrument maturing early
    B) The risk that the hedge ratio is overestimated
    C) The risk that the hedge and the asset do not move perfectly together
    D) The risk of default by the counterparty
    Correct Answer: C
    Basis risk arises when a hedge doesn’t perfectly correlate with the underlying exposure.
    
12. A bank holds a loan portfolio with a high probability of default but low loss given default. Which metric best captures this?
    A) Credit exposure
    B) Value-at-Risk
    C) Expected Loss
    D) Recovery Rate
    Correct Answer: C
    Expected loss = PD × LGD × Exposure; it captures both the likelihood and severity of credit loss.
    
13. What is the primary goal of the liquidity coverage ratio (LCR) under Basel III?
    A) Reduce leverage
    B) Ensure banks can meet short-term obligations
    C) Eliminate liquidity mismatches entirely
    D) Increase profitability
    Correct Answer: B
    LCR ensures that banks hold enough high-quality liquid assets to cover net cash outflows over 30 days.
    
14. What does “wrong-way risk” refer to in counterparty credit exposure?
    A) Risk that market risk decreases while credit exposure increases
    B) Risk that counterparty exposure increases as its credit quality worsens
    C) Risk that a position becomes unhedged
    D) Risk from using the wrong discount rate
    Correct Answer: B
    Wrong-way risk is when exposure and counterparty credit risk increase together.
    
15. Which of the following is an operational risk event?
    A) A loan default due to recession
    B) An employee commits internal fraud
    C) Stock price declines due to poor earnings
    D) Losses from currency depreciation
    Correct Answer: B
    Operational risk includes internal fraud, system failures, and human error.
    
16. What is the purpose of a reverse stress test?
    A) To evaluate maximum upside
    B) To determine optimal portfolio allocation
    C) To identify scenarios that would cause business failure
    D) To assess the impact of small market fluctuations
    Correct Answer: C
    Reverse stress tests help firms identify extreme but plausible failure points.
    
17. When managing a hedge fund portfolio, which tool is most appropriate to align risk exposures with investor preferences?
    A) Net Present Value
    B) Beta
    C) Risk Budgeting
    D) Yield Curve
    Correct Answer: C
    Risk budgeting allocates risk strategically to achieve optimal risk-adjusted returns.
    
18. A bank performs a historical simulation for market risk. What is a limitation of this method?
    A) Requires constant recalibration
    B) Relies on assumptions of normality
    C) Doesn’t account for rare but plausible events
    D) Overemphasizes theoretical models
    Correct Answer: C
    Historical simulation is based on past data, which may not reflect future rare events.
    
19. A pension fund uses stress testing to evaluate portfolio resilience during an inflation shock. This is an example of:
    A) Scenario Analysis
    B) Sensitivity Analysis
    C) Backtesting
    D) Liquidity Adjustment
    Correct Answer: A
    Scenario analysis examines the impact of specific, often extreme, hypothetical events.
    
20. In investment management, tracking error is a measure of:
    A) Mispricing between cash and derivatives
    B) Deviation from a risk-free benchmark
    C) Performance deviation from a benchmark index
    D) Variance of the portfolio’s total return
    Correct Answer: C
    Tracking error quantifies how closely a portfolio follows its benchmark.

Conclusion: Why FRM® Sample Questions Matter

By now, you should have a clearer picture of what the FRM® exam looks like—and how to approach it with confidence. From the breakdown of question types to the 20 practice questions we walked through together, hopefully, you feel a little less anxious about exam day.

Use the sample questions to test your knowledge, identify weak areas, and get a feel for the format of the actual FRM® exam. Practice consistently, review your mistakes, and don’t forget to mix in complete mock exams and study materials from GARP or my top recommended FRM® prep courses reviewed here.

You’re already taking a solid step forward just by being here—now keep going. You’ve got this.

Curious about how much you should budget for your exam preparation journey? Take a look at my guide on FRM® certification costs.

FAQs