FRM® Part 2 Practice Exam
FRM Part 2 practice exam with 80 questions covering all six GARP content areas: market risk (20%), credit risk (20%), operational risk (20%), liquidity risk (15%), investment management (15%), and current issues (10%). Approximately 45-50% pass rate.
About the FRM Part 2 Exam
The FRM Part 2 exam applies the quantitative tools from Part 1 to real-world risk management scenarios across five major domains: market risk, credit risk, operational and liquidity risk, risk management in investment management, and current issues in financial markets. Part 2 is more applied and scenario-based than Part 1, requiring candidates to demonstrate how risk frameworks operate in practice at financial institutions.
The exam contains 80 equally weighted multiple-choice questions with a 4-hour time limit. The pass rate is approximately 55–60% — higher than Part 1 because candidates who reach Part 2 are more experienced and better prepared. The Current Issues section updates annually and covers emerging risks and regulatory developments that GARP considers relevant to risk professionals.
FRM Part 2 Topic Breakdown
| Topic | Weight | Key Areas |
|---|---|---|
| Market Risk Measurement and Management | 20% | VaR models in practice, ES, backtesting, stress testing, FRTB |
| Credit Risk Measurement and Management | 20% | PD/LGD/EAD, credit VaR, CDS, securitization, Basel credit risk |
| Operational and Resilience Risk | 20% | Op risk types, AMA, Basel op risk charges, cyber risk, BCP |
| Liquidity and Treasury Risk | 15% | Funding liquidity, LCR/NSFR, liquidity stress testing, ILAAP |
| Risk Management and Investment Management | 15% | Factor models, alpha/beta, hedge fund risk, risk budgeting, attribution |
| Current Issues in Financial Markets | 10% | Annually updated: climate risk, crypto, regulatory developments |
Sample FRM Part 2 Questions
1. Under the Basel III framework, the Liquidity Coverage Ratio (LCR) requires banks to hold sufficient High-Quality Liquid Assets (HQLA) to cover:
2. A bank estimates that a corporate counterparty has a 1-year probability of default of 2%, a loss given default of 45%, and an exposure at default of $10,000,000. The expected loss (EL) is:
3. Which of the following best describes Expected Shortfall (ES) compared to Value at Risk (VaR)?
Study Tips for the FRM Part 2 Exam
Market risk and credit risk together account for 40% of Part 2 and build directly on Part 1 material. For market risk, focus on advanced VaR applications, backtesting (Kupiec test, Basel traffic light approach), Expected Shortfall, and the Fundamental Review of the Trading Book (FRTB). For credit risk, master the PD/LGD/EAD framework, credit VaR, CDS pricing, and Basel's standardized vs. IRB credit risk approaches.
The Current Issues section is unique to FRM Part 2 and updates annually — review GARP's current reading list directly. Recent exam windows have focused on climate risk and its integration into risk frameworks, digital assets and cryptocurrency risks, LIBOR transition, and systemic risk. Don't skip this section; it typically accounts for 8–10 questions. Bionic Turtle is widely considered the best third-party prep provider for Part 2's quantitative depth.
Comparing credentials? See the CFA Level 1 and CAIA Level 1 practice exams.
Frequently Asked Questions — FRM Part 2
What is the FRM Part 2 pass rate?
The FRM Part 2 pass rate is approximately 55–60% — higher than Part 1's ~43%. Candidates who reach Part 2 have already demonstrated quantitative competency, and the applied nature of Part 2 questions can be easier for those with practical risk management experience.
Starting your FRM journey? FRM Part 2 builds on FRM Part 1 — make sure you have a solid foundation in quantitative analysis, financial markets, and valuation before sitting for Part 2.
How is FRM Part 2 different from Part 1?
Part 1 builds the foundational toolkit — statistics, derivatives pricing, VaR, fixed income. Part 2 applies those tools to the practice of risk management at financial institutions: Basel III capital and liquidity requirements, credit risk modeling, operational risk frameworks, liquidity risk management, and investment risk. Part 2 also has a Current Issues section that updates annually.
What is Expected Shortfall and why is it replacing VaR?
Expected Shortfall (ES), also called CVaR, is the average loss given that the loss exceeds the VaR threshold. It is preferred over VaR for two reasons: (1) it is a coherent risk measure (satisfies subadditivity, meaning the ES of a portfolio is never more than the sum of individual ESs), and (2) it captures tail risk better than VaR, which ignores the magnitude of losses beyond the threshold. The Basel FRTB framework mandated the shift from VaR to ES for internal models.
What is the Basel LCR requirement?
The Liquidity Coverage Ratio (LCR) requires banks to hold High-Quality Liquid Assets (HQLA) equal to at least 100% of net cash outflows over a 30-day stress period. It is designed to ensure banks can survive a short-term liquidity crisis without central bank support. HQLA are divided into Level 1 (no haircut) and Level 2A/2B (with haircuts). The LCR has been fully phased in at 100% since 2019.
What is the FRTB and how does it affect FRM Part 2?
The Fundamental Review of the Trading Book (FRTB) is a Basel III/IV reform package that overhauled how banks calculate market risk capital requirements. Key changes include: replacing VaR with Expected Shortfall as the primary risk measure, introducing a more rigorous Internal Models Approach (IMA) with P&L attribution tests, and a revised Standardized Approach. FRTB is heavily tested in FRM Part 2 market risk and represents a major shift in risk management practice.
How long after passing Part 1 do I have to pass Part 2?
You must pass FRM Part 2 within 4 years of passing Part 1. If you do not pass Part 2 within 4 years, your Part 1 result expires and you must retake Part 1 before sitting for Part 2 again. After passing both exams, you must complete 2 years of relevant professional work experience to be awarded the FRM designation.
What work experience is required to earn the FRM designation?
After passing both FRM exams, you must demonstrate 2 years of full-time work experience in financial risk management or a related field. Eligible experience includes positions in risk management, portfolio management, trading, research, or consulting with a significant financial risk management component. Experience must be verified by a supervisor.