The Part II topic areas

Part II covers six topic areas, GARP's program page says. Below is each one with what our lessons and questions practice in it. GARP's weights for each area are not on its public pages, so we state none.

Topic areas	6
Questions	80, equally weighted
Time	4 hours
Builds on	The Part I tools

Market Risk Measurement and Management

Estimating VaR and expected shortfall by historical simulation, weighting and parametric approaches; extreme value theory; backtesting and the traffic-light zones; VaR mapping; correlation risk; term structure models; volatility smiles; and the trading book capital rules.

Credit Risk Measurement and Management

Credit analysis and ratings; structural and reduced-form default models; credit VaR; retail scoring; counterparty exposure, netting and collateral; CVA; securitization and tranche losses; credit default swaps and spread risk.

Operational Risk and Resilience

Governance, taxonomy and controls; cyber, third-party, conduct and model risk; operational resilience and impact tolerances; loss data, scenarios and loss distributions; standardized capital; economic capital and RAROC; Basel ratios and buffers.

Liquidity and Treasury Risk Measurement and Management

Funding, market and contingent liquidity risk; the liquidity coverage and net stable funding ratios; liquidity-adjusted VaR; repos and haircuts; repricing and duration gaps; funds transfer pricing; deposits, early warning indicators and contingency funding.

Risk Management and Investment Management

Factor investing; alpha, benchmarks and the fundamental law; performance measures and attribution; hedge funds and due diligence; portfolio construction, risk budgeting and component VaR.

Current Issues in Financial Markets

The readings change from year to year. Our questions stay on the lasting ideas: climate risk, AI and model risk, digital assets and stablecoins, and how rate shocks and uninsured deposits can turn into a bank run.

Try 4 questions

Question 1Term structure models: drift, volatility and convexity

In the Vasicek model dr = k(theta - r)dt + sigma dW, the speed of mean reversion is k = 0.4 and the long-run rate is 4.5%. The current short rate is 6.0%. The annualized drift of the short rate is closest to:

Question 2Credit and other valuation adjustments

A netting set with a counterparty has a CVA of $1.20 million. A new trade with a stand-alone CVA of $0.40 million partly offsets the existing trades, and the netting set's CVA after adding it is $1.05 million. The CVA charge the bank should assign to the new trade is closest to:

Question 3Repos, collateral and haircuts

A borrower repos bonds with a market value of $100 million at a 5% haircut and receives $95 million in cash. The bonds' market value falls to $96 million. The lender requires the 5% haircut to be restored, and the borrower will meet the call by delivering more of the same bonds. The market value of additional bonds required is closest to:

Question 4Climate and sustainability risk

A bank lends to a coal-fired power producer. A government introduces a steep carbon price, and the producer's plants become uneconomic years before the end of their planned lives. Which type of climate risk has hit the bank's loan?

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Questions people ask

What are the six Part II topic areas?

Market Risk Measurement and Management; Credit Risk Measurement and Management; Operational Risk and Resilience; Liquidity and Treasury Risk Measurement and Management; Risk Management and Investment Management; and Current Issues in Financial Markets.

How much is each topic area worth?

GARP gives approximate weights in its Learning Objectives document, which is not on its public pages, so we do not state them. Our full mocks take 16 questions each from market, credit and operational risk, 12 each from liquidity and investment management, and 8 from current issues.

Does Part II use Part I material?

Yes. GARP says Part II focuses on applying the tools acquired in Part I.