200+ Free FRM Part I Practice Questions

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Question 1

Score: 0/0

According to GARP's Code of Conduct, which of the following is a Member's primary responsibility?

Maximize returns for their employer

Act with integrity and perform work with the highest level of professional skill

Follow local regulations even when they conflict with GARP standards

Prioritize client confidentiality over regulatory disclosure requirements

to track

2026 Statistics

Key Facts: FRM Part I Exam

42-47%

Historical Pass Rate

GARP

100 Qs

Exam Questions

4-hour CBT exam

200+ hrs

Recommended Study

GARP

80,000+

FRM Holders

Worldwide, GARP 2025

$1,000-1,200

Total Cost

Enrollment + both parts

4 years

Window for Part II

After passing Part I

The FRM Part I exam has a 42-47% pass rate, making it one of the most challenging risk management certifications. The 100-question exam covers four major areas: Foundations of Risk Management (20%), Quantitative Analysis (20%), Financial Markets and Products (30%), and Valuation and Risk Models (30%). Candidates pay a $400 enrollment fee plus $600-800 exam fee. There are approximately 80,000+ FRM holders worldwide. After passing Part I, candidates must complete Part II within 4 years.

Sample FRM Part I Practice Questions

Try these sample questions to test your FRM Part I exam readiness. Each question includes a detailed explanation. Start the interactive quiz above for the full 200+ question experience with AI tutoring.

1According to GARP's Code of Conduct, which of the following is a Member's primary responsibility?

A.Maximize returns for their employer

B.Act with integrity and perform work with the highest level of professional skill

C.Follow local regulations even when they conflict with GARP standards

D.Prioritize client confidentiality over regulatory disclosure requirements

Explanation: GARP's Code of Conduct requires Members to act fairly in all situations and to perform work with the highest level of professional skill. Members must act with integrity and avoid conflicts of interest. While local regulations must be followed, GARP standards apply when they are more stringent. Client confidentiality is important but does not override legal or regulatory disclosure obligations.

2Which type of risk arises from the possibility that a counterparty will fail to meet its obligations under a financial contract?

A.Market risk

B.Operational risk

C.Credit risk

D.Liquidity risk

Explanation: Credit risk is the risk that a counterparty will default on its obligations, resulting in financial loss. Market risk relates to losses from adverse price movements. Operational risk stems from failed internal processes, people, or systems. Liquidity risk involves the inability to meet cash flow obligations or sell assets without significant price concessions.

3In the Capital Asset Pricing Model (CAPM), the market risk premium is defined as:

A.The difference between the risk-free rate and the market return

B.The difference between the expected market return and the risk-free rate

C.The covariance between the asset and the market divided by market variance

D.The excess return of the asset over the risk-free rate

Explanation: The market risk premium in CAPM is defined as E(Rm) - Rf, which is the difference between the expected return on the market portfolio and the risk-free rate. This premium compensates investors for bearing systematic (non-diversifiable) market risk. The covariance divided by variance gives beta, while the excess return of the asset is the asset's risk premium.

4A portfolio manager holds a well-diversified portfolio. According to CAPM, which risk measure is most appropriate for evaluating this portfolio's exposure to systematic risk?

A.Standard deviation of returns

B.Beta

C.Variance of returns

D.Tracking error

Explanation: Beta measures an asset or portfolio's sensitivity to systematic (market) risk. For a well-diversified portfolio, unsystematic (idiosyncratic) risk is eliminated, leaving only systematic risk. Standard deviation and variance measure total risk, including diversifiable components. Tracking error measures deviation from a benchmark, not systematic risk exposure.

5The Barings Bank collapse (1995) is primarily attributed to which category of risk?

A.Market risk from adverse market movements

B.Credit risk from counterparty defaults

C.Operational risk from unauthorized trading and inadequate controls

D.Liquidity risk from inability to meet margin calls

Explanation: The Barings Bank collapse was primarily caused by operational risk. Nick Leeson engaged in unauthorized speculative trading and hid losses in an error account (88888). The bank's failure to implement adequate internal controls, separation of duties, and oversight mechanisms allowed the rogue trading to continue unchecked until the losses bankrupted the 233-year-old institution.

6Under the Sharpe ratio, which of the following portfolios would be considered most attractive?

A.Expected return 12%, standard deviation 15%

B.Expected return 15%, standard deviation 20%

C.Expected return 10%, standard deviation 10%

D.Expected return 8%, standard deviation 5%

Explanation: The Sharpe ratio is calculated as (expected return - risk-free rate) / standard deviation. Assuming a risk-free rate, we compare return-to-risk ratios: A=0.80, B=0.75, C=1.00, D=1.60. However, the question asks for the most attractive portfolio. Portfolio C offers the highest return per unit of risk (1.0), making it most efficient. Portfolio D has higher Sharpe ratio but lower absolute returns.

7Which of the following best describes Enterprise Risk Management (ERM)?

A.Managing market risk using derivatives

B.A siloed approach where each department manages its own risks

C.An integrated approach to managing risks across the entire organization

D.Focus on compliance with regulatory capital requirements only

Explanation: Enterprise Risk Management (ERM) is an integrated, comprehensive approach to managing all risks faced by an organization across business units, geographies, and risk types. It moves away from siloed risk management toward a holistic view that considers risk interdependencies and optimizes risk-adjusted returns at the enterprise level.

8A multi-factor model includes factors for market risk, size (SMB), and value (HML). According to Fama-French, which statement is correct?

A.Small-cap stocks always outperform large-cap stocks

B.Value stocks have historically provided higher returns due to higher risk

C.The size premium is no longer significant in modern markets

D.Growth stocks consistently outperform value stocks over long periods

Explanation: The Fama-French three-factor model shows that value stocks (high book-to-market ratio) have historically provided higher returns, which the model attributes to higher systematic risk associated with value companies. The size (SMB) and value (HML) factors capture these risk premiums. Small-cap and value outperformance is on average, not guaranteed.

9Credit risk transfer mechanisms include all of the following EXCEPT:

A.Credit default swaps (CDS)

B.Collateralized debt obligations (CDO)

C.Asset-backed securities (ABS)

D.Common stock issuance

Explanation: Common stock issuance is an equity financing method, not a credit risk transfer mechanism. CDS transfers credit risk from protection buyer to seller. CDOs and ABS are securitization vehicles that transfer credit risk to investors. Credit risk transfer involves moving credit exposure from one party to another through derivatives or structured products.

10A risk manager is calculating the information ratio. Which formula correctly represents this calculation?

A.Active return divided by active risk (tracking error)

B.Excess return divided by total risk (standard deviation)

C.Expected return divided by systematic risk (beta)

D.Portfolio return minus benchmark return

Explanation: The information ratio measures active return per unit of active risk. It is calculated as (portfolio return - benchmark return) / tracking error (standard deviation of excess returns). The Sharpe ratio uses excess return over risk-free rate divided by total risk. Beta measures systematic risk. Return minus benchmark is simply active return, not a ratio.

About the FRM Part I Exam

The FRM Part I exam is the first of two exams required to earn the Financial Risk Manager certification from GARP. It tests knowledge of risk management foundations, quantitative analysis, financial markets and products, and valuation and risk models. The exam focuses on conceptual understanding and quantitative applications in risk management.

Questions

100 scored questions

Time Limit

4 hours

Passing Score

~50% (scaled)

Exam Fee

$600-800 (exam) + $400 enrollment (GARP)

FRM Part I Exam Content Outline

20%

Foundations of Risk Management

Risk types, risk governance, CAPM, multifactor models, financial disasters, GARP Code of Conduct

20%

Quantitative Analysis

Probability, distributions, statistical inference, regression, time series, GARCH, Monte Carlo simulation

30%

Financial Markets and Products

Financial institutions, OTC vs exchange markets, forwards, futures, swaps, options, interest rates, FX

30%

Valuation and Risk Models

VaR, expected shortfall, volatility estimation, credit risk models, operational risk, stress testing

How to Pass the FRM Part I Exam

What You Need to Know

Passing score: ~50% (scaled)
Exam length: 100 questions
Time limit: 4 hours
Exam fee: $600-800 (exam) + $400 enrollment

Keys to Passing

Complete 500+ practice questions
Score 80%+ consistently before scheduling
Focus on highest-weighted sections
Use our AI tutor for tough concepts

FRM Part I Study Tips from Top Performers

1Master probability and statistics first — 20% of the exam requires strong quantitative skills

2Understand VaR calculation methods: parametric, historical simulation, and Monte Carlo

3Know the Greeks cold — delta, gamma, theta, vega, and rho are heavily tested

4Study financial disasters — Barings, LTCM, and 2008 crisis appear frequently

5Practice time series concepts: stationarity, autocorrelation, ARCH, and GARCH models

6Focus on derivatives pricing: forwards, futures, swaps, and options valuation models

7Review credit risk models: CreditMetrics, KMV, and reduced-form models

Frequently Asked Questions

What is the FRM Part I pass rate?

The FRM Part I pass rate historically averages 42-47%, making it one of the most challenging financial certifications. The exam tests both conceptual understanding and quantitative skills across four major topic areas. Pass rates fluctuate based on exam difficulty. The 2025 pass rate was approximately 45%.

What is the format of the FRM Part I exam?

The FRM Part I exam consists of 100 multiple-choice questions administered over 4 hours via computer-based testing (CBT). Questions are presented randomly and cover all four topic areas: Foundations of Risk Management (20%), Quantitative Analysis (20%), Financial Markets and Products (30%), and Valuation and Risk Models (30%).

How much does the FRM certification cost?

The FRM certification costs include: (1) a one-time $400 enrollment fee paid to GARP when registering for Part I, (2) exam fees of $600 (early registration) to $800 (standard registration) per part. Total minimum cost is approximately $1,600 for both parts with early registration. There are no annual membership fees required.

How long should I study for FRM Part I?

GARP recommends 200+ hours of study for Part I. Most successful candidates study 3-5 months, completing the official GARP readings and 1,000+ practice questions. The quantitative sections (40% combined) require strong math and statistics skills. Plan additional time if you need to review probability, statistics, or financial mathematics.

What is the hardest part of FRM Part I?

Many candidates find Quantitative Analysis (20%) and Valuation and Risk Models (30%) most challenging due to the mathematical complexity. Topics like GARCH models, option Greeks, VaR calculations, and credit risk models require strong quantitative skills. The Financial Markets and Products section (30%) is conceptually demanding but requires less advanced mathematics.

How long do I have to complete both FRM exams?

After passing Part I, you have 4 years to pass Part II. If you do not pass Part II within 4 years, your Part I result expires and you must retake both exams. There is no time limit to take Part I after enrollment. Once you pass both parts, you need 2 years of relevant work experience to earn the FRM designation.