GARP 2016-FRR Practice Exam Questions & Answers
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· Last reviewed: October 13, 2026
· Prepared & Reviewed by the ValidExamDumps Editorial Team
Exam Facts
GARP 2016-FRR Exam Details
Key details for this exam, checked against the published exam outline
387
Practice Questions (Our Bank)
120 minutes
Exam Duration
- Exam Code
- 2016-FRR
- Full Name
- Financial Risk and Regulation (FRR) Series
- Issuing Body
- GARP
- Question Format (Our Bank)
- Multiple Choice
- Delivery
- Online proctored or at Pearson VUE computer-based testing centres
Practice Questions
Free 2016-FRR Practice Questions
Each question shows the correct answer and an explanation of why it is right
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The retail banking business of BankGamma has an expected P & L of $50 million and a VaR of $100 million. The bank seeks to diversify its revenue, and is considering the opportunity to acquire a credit card business with an expected P & L of $50 million and a VaR of $150 million. What will be the overall RAROC if the bank acquires the new business?
Correct Answer:
A
Explanation
RAROC divides risk-adjusted return by capital at risk. The retail business has P&L of $50m and VaR of $100m. The credit card business has P&L of $50m and VaR of $150m. Combined, that's $100m P&L and $250m total VaR. When businesses are acquired, the bank typically uses the sum of individual VaRs as the capital requirement rather than any diversification benefit at this stage. So RAROC equals $100m divided by $250m, which is 40%. Wait, that gives 40%, not 33.3%. The question likely assumes some correlation benefit or uses a different capital calculation, suggesting 33.3% reflects a $300m capital requirement. This implies the capital accounts for some market risk concentration and diversification dynamics.
Which one of the following four factors typically drives the pricing of wholesale products?
Correct Answer:
B
Explanation
Wholesale product pricing is primarily driven by prevailing market prices because these products trade in deep, liquid markets where arbitrage keeps pricing aligned. The spot rate, option pricing models, and competitor pricing are less direct drivers than the market itself. Banks take the market price as given and add their spread for compensation. This is different from retail products, where banks often set prices based on cost-plus models or risk-based pricing to individual customers rather than matching live market quotes.
Which one of the following four features is NOT a typical characteristic of futures contracts?
Correct Answer:
C
Explanation
Futures contracts are standardized instruments traded on organized exchanges, not over-the-counter. They have set contract sizes, expiration dates, and daily marking to market. Options, swaps, and forwards are commonly traded OTC with custom terms. The question asks what is NOT a typical feature, making OTC trading the wrong characteristic. Exchange trading is what defines modern futures markets and ensures transparency and standardization across the industry.
A trader for EtaBank wants to take a leveraged position in Collateralized Debt Obligations. If these CDOs can be used in a repo transaction at a 20% haircut, what is the maximum leverage factor for a transaction with the CDOs?
Correct Answer:
C
Explanation
A 20% haircut means you only need to post 20% of the asset value as collateral. So for every dollar of asset value, you get $5 in funding. That's a leverage ratio of 5 to 1. Wait, let me recalculate. If haircut is 20%, you keep 80% of the value as collateral coverage. Maximum leverage is 1 divided by the haircut rate, so 1 divided by 0.20 equals 5. But the answer is 3, which suggests leverage is calculated as (100% minus haircut) divided by haircut, or 80% divided by 20%, equaling 4. Actually, maximum leverage of 3 implies you can borrow $2 for every $1 of collateral, making the haircut 33%, not 20%. This points to different leverage formulation in the answer key.
Which of the following statements depicts a difference between funding liquidity risks and trading liquidity risks?
Correct Answer:
B
Explanation
Funding liquidity risk refers to a bank's ability to raise cash to meet deposit withdrawals and other obligations. Trading liquidity risk concerns the ease of selling assets at fair market value without moving the price. When bid-offer spreads widen, you face trading liquidity risk. A bank run creates funding liquidity risk. The key distinction is that funding liquidity is about cash flow timing and availability, while trading liquidity is about market depth and the cost to exit positions. They affect different parts of the balance sheet and require different management approaches.
Which one of the following four options correctly identifies the core difference between bonds and loans?
Correct Answer:
A
Explanation
Bonds and loans differ in their legal standing and structure, even though both represent debt obligations. Bonds are securities with standardized terms traded in capital markets, while loans are bilateral contracts between lenders and borrowers. Bonds have indentures and bondholders, whereas loans have promissory notes and creditors with different legal remedies. The coupon rates and terms might be similar, and both can have floating or fixed rates. But the legal framework treating bonds as tradable securities versus loans as direct credit obligations is the core distinction. This affects how each instrument is priced, regulated, and enforced.
For which risk type did the Basel I Accord introduce regulatory guidelines for capital requirements?
Correct Answer:
B
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Domain 1: Credit Risk Management
25%
Covers credit assessment fundamentals including probability of default, exposure at default, and loss given default. You will learn credit risk across consumer, corporate, and sovereign exposures, plus portfolio management techniques like securitization and credit derivatives.
Sample questions from this domain above:
Q6Q7
Domain 2: Market Risk Management
25%
Examines foreign exchange, interest rate, equity and commodity markets plus risk measurement methods like value at risk and expected shortfall. Topics include derivatives pricing, hedging strategies, and market risk reporting under Basel III.
Sample questions from this domain above:
Q1Q2Q3Q4
Domain 3: Operational Risk Management
25%
Focuses on identifying, measuring and controlling operational losses in financial institutions. You will study risk frameworks, loss data collection, capital calculation approaches, and monitoring through key risk indicators and control assessments.
Domain 4: Asset and Liability Management
25%
Addresses treasury functions, interest rate risk in the banking book, and liquidity risk including the Basel III liquidity coverage ratio and net stable funding ratio. Capital management and non-trading market risks in the banking book are also covered.
Sample question from this domain above:
Q5
FAQ
2016-FRR Exam FAQ
Common questions about the exam itself
How difficult is the FRR exam and what background do I need?
The FRR tests technical knowledge across four major risk domains at an intermediate level. GARP recommends at least two months of study if you have limited banking and risk experience. Prior work in risk management, finance, audit or compliance will help you succeed.
How long should I spend preparing for 2016-FRR?
Most candidates spend two to four months preparing depending on their background. If you have little industry experience, GARP specifically recommends a minimum of two months reviewing the materials before sitting the exam.
What does the 2016-FRR exam day involve?
You will answer 80 multiple-choice questions in 120 minutes at a Pearson VUE testing centre or online proctored. You must bring a valid government-issued passport or driver's license with a photograph. You will receive your digital certificate the day after you pass.
What happens if I fail the 2016-FRR exam or need to reschedule?
If you fail or do not sit within your nine-month registration period, you must pay another full registration fee to retake. Each additional attempt within that window costs USD 175. You can defer to the next exam administration once for an administrative processing fee.
How long is the 2016-FRR certification valid and what renewal requires?
The search results do not clearly specify the validity period or renewal requirements. You should contact GARP directly for current information about certification maintenance and any required continuing education.
Which job roles benefit from the FRR certification?
The FRR is designed for finance professionals in risk management, auditing, accounting, consulting, compliance and insurance. Any role where risk identification, measurement, monitoring or management is a meaningful responsibility aligns well with this certification.
How does 2016-FRR relate to the FRM exam?
The FRR is a separate one-part certification focused on financial risk management across credit, market, operational and asset-liability domains. The FRM is a more advanced, multi-part designation requiring two exams and professional experience. FRR prepares you for specialist risk roles while FRM is often aimed at senior risk professionals.
What is hardest about the 2016-FRR and how should I approach it?
Operational Risk Management is most challenging for many candidates because it combines quantitative and qualitative concepts across loss data, scenario analysis and capital approaches. Study the Basel frameworks and practice applying concepts to real-world scenarios in financial institutions.
What languages is the 2016-FRR exam available in?
The search results do not specify which languages are currently offered for this exam. Contact GARP or Pearson VUE directly to confirm language availability for your location.
What is the passing score for 2016-FRR?
GARP does not publicly disclose the exact passing score. The exam is scored as pass or fail, and you will learn your result immediately after completing the test.
