FRM 2026 Part II Credit Risk Measurement and Management Credit Derivatives Free Quiz 1

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FRM 2026 Part II Credit Risk Measurement and Management Credit Derivatives Free Quiz 1

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FRM 2026 Part II Credit Risk Measurement and Management Credit Derivatives Free Quiz 1

Practice FRM 2026 Part II Credit Risk Measurement and Management MCQs from Credit Derivatives. Get instant results with Explanation.

General10 MCQs

1. What are credit derivatives?

A. Credit derivatives transfer market riskB. Credit derivatives transfer credit risk from one party to anotherC. Credit derivatives are used only for speculationD. Credit derivatives are not regulated

2. What is a credit default swap (CDS)?

A. A CDS is a loan agreementB. A CDS is a type of equity derivativeC. A CDS provides protection against default of a reference entityD. A CDS does not involve periodic payments

3. What is the CDS spread?

A. CDS spread is the premium paid for protection, reflecting credit riskB. CDS spread is the recovery rateC. CDS spread is the same as the interest rateD. CDS spread is fixed for all entities

4. What are the standard credit events in a CDS?

A. Credit events are only bankruptcyB. Credit events are not defined in CDS contractsC. Credit events include only failure to payD. Credit events include bankruptcy, failure to pay, and restructuring

5. What are the settlement methods in a CDS?

A. Physical settlement involves cash payment onlyB. Physical settlement involves delivery of the defaulted bondC. Cash settlement involves delivery of the bondD. Settlement methods are not specified in CDS

General10 MCQs

6. What is a total return swap (TRS)?

A. TRS is the same as a CDSB. TRS transfers only default riskC. TRS transfers both credit and market risk of the reference assetD. TRS does not involve interest payments

7. What is a credit-linked note (CLN)?

A. A CLN is a debt instrument with embedded credit derivative, where principal can be reduced on credit eventB. A CLN is the same as a CDSC. A CLN does not involve principal reductionD. A CLN is not a credit derivative

8. What is a basket CDS?

A. A basket CDS covers a single entityB. A basket CDS is the same as a single-name CDSC. A basket CDS does not have multiple reference entitiesD. A basket CDS covers a portfolio of reference entities with different trigger conditions

9. What is the approximate relationship between CDS spread, PD, and recovery rate?

A. CDS spread = PD × Recovery rateB. CDS spread ≈ PD × (1 - Recovery rate)C. CDS spread = PD + Recovery rateD. CDS spread = Recovery rate / PD

10. What is the recovery rate in a CDS?

A. Recovery rate is always 100%B. Recovery rate is not used in CDS pricingC. Recovery rate is the amount recovered after default, typically 20-60%D. Recovery rate is constant for all entities

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Conducting Body: Global Association of Risk Professionals GARP

Frequency: three times a year: May, August, and November | Time: 240 Minutes

Negative Marking: No

⚡ Test Pattern (Total: 100 MCQs):

Foundations of Risk Management: 25 MCQs
Quantitative Analysis: 25 MCQs
Financial Markets and Products: 25 MCQs
Valuation and Risk Models: 25 MCQs

Merit Formula: -

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