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Risk Management
FRM Part II Credit Risk Measurement and Management Exam Preparation
Study credit governance, scoring, default probability, Credit VaR, portfolio dependence, counterparty exposure, xVA, collateral, clearing and securitisation.
100 Practice Questions Detailed Study Notes Timed topic practice
Course syllabus information reviewed for 2026. Exams Academy is an independent education provider and is not affiliated with GARP.
Exactly what is included
- 100 practice questions across 5 mock exams · unlimited retakes
- Focus Learn · key areas, pitfalls, exam traps & key numbers
- Flashcards · fun, fast and effective recall
- Exam cheat sheet · key facts, rules and numbers by chapter
- Audio Learning · every chapter in audio
- AI Analyzer & Mentor · pinpoints your weak areas
- Study Mode Exams · learn while you train
- AI Chat trained specifically for this exam
- Study material organised by syllabus
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Syllabus
Module 1: Fundamentals of Credit Risk
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Credit risk, distress concepts, credit-generating transactions and exposed entities.
- • Insolvency, default and bankruptcy
- • Settlement and contingent exposure
- • Motivations for credit risk
Module 2: Governance
Three lines of defense, origination, assessment, approval and credit committees.
- • Guidelines and skills
- • Limits
- • Oversight
Module 3: Credit Risk Management
Policy, limits, classification, provisioning, IFRS 9 and workout.
- • Connected exposure
- • Expected credit loss
- • Management capacity
Module 4: Capital Structure in Banks
Expected and unexpected loss, portfolio contribution and economic capital.
- • PD, exposure and loss rate
- • UL contribution
- • Loss distribution
Module 5: Introduction to Credit Risk Modeling and Assessment
CAMEL, credit inputs, RWA, Merton, model families and RAROC.
- • PD, LGD and EAD
- • Distance to default
- • Risk-adjusted return
Module 6: Credit Scoring and Rating
Scoring, ratings, TTC/PIT, development, validation and agencies.
- • Issuer versus issue
- • Model lifecycle
- • Agency limitations
Module 7: Credit Scoring and Retail Credit Risk Management
Retail risk, scorecards, cutoffs, CAP/AR and risk-based pricing.
- • Mortgage assessment
- • Discrimination and calibration
- • Customer profitability
Module 8: Sovereign Default Risk
Country risk, local and foreign-currency default, ratings and market measures.
- • Default consequences
- • Sovereign ratings
- • Bond and CDS spreads
Module 9: Estimating Default Probabilities
Ratings, migration, hazard rates, recovery, CDS and Merton PD.
- • Marginal and cumulative PD
- • Real-world versus risk-neutral
- • Distance to default
Module 10: Credit Value at Risk
Transition-based Credit VaR, Vasicek, CreditRisk+, CreditMetrics and spread risk.
- • Loss definition
- • IRB framework
- • Model comparison
Module 11: Portfolio Credit Risk
Default dependence, single-factor models, joint default, simulation and granularity.
- • Asset versus default correlation
- • Conditional independence
- • Portfolio Credit VaR
Module 12: Credit Risk
Derivative exposure, CVA/DVA, mitigants, default models and Gaussian copula.
- • Replacement cost
- • Structural versus reduced form
- • Copula simulation
Module 13: Credit Derivatives
CDS, indices, options, baskets, synthetic CDOs and implied correlation.
- • Premium and protection legs
- • Standard coupons
- • Base correlation
Module 14: Derivatives
Exchange and OTC markets, clearing, ISDA, margin, CCPs and model risk.
- • Market structure
- • Collateralization
- • Systemic risk
Module 15: Counterparty Risk and Beyond
Counterparty versus lending risk, exposure, CVA, limits and xVA costs.
- • Margin period
- • Replacement cost
- • xVA components
Module 16: Netting, Close-Out and Related Aspects
Payment and value netting, close-out, set-off, compression and termination.
- • Netting sets
- • Risk reduction
- • Multilateral netting
Module 17: Margin (Collateral) and Settlement
CSA terms, margin calculations, haircuts, disputes, segregation and rehypothecation.
- • Threshold and MTA
- • Credit support amount
- • Collateral-created risk
Module 18: Central Clearing
Novation, multilateral offset, margin, default funds and the loss waterfall.
- • CCP risk management
- • Moral hazard
- • Bilateral comparison
Module 19: Future Value and Exposure
EE, PFE, EPE, exposure profiles, aggregation, collateral and funding.
- • Exposure metrics
- • Product profiles
- • Funding exposure
Module 20: CVA
CVA, DVA, BCVA, allocation, collateral and wrong-way risk.
- • CVA spread
- • Incremental and marginal CVA
- • Wrong-way models
Module 21: The Evolution of Stress Testing Counterparty Exposures
Loan, derivative and CVA stresses, stress loss, DVA and pitfalls.
- • CCR as credit and market risk
- • Stressed expected loss
- • Aggregation
Module 22: Structured Credit Risk
Tranches, waterfalls, correlated-default simulation and implied correlation.
- • Excess spread
- • Tranche sensitivity
- • Issuer and investor motives
Module 23: An Introduction to Securitisation
SPV structures, motives, enhancement, pool metrics and prepayment.
- • Trust and SPV mechanics
- • Performance measures
- • CPR and PSA
Interactive preview
Free GARP FRM Part II — Credit Risk Measurement and Management (Book 2) Practice Questions & Exam Preview
Try 15 GARP FRM Part II — Credit Risk Measurement and Management (Book 2) practice questions from Default, Counterparty Exposure and Credit Risk
Practice GARP FRM Part II — Credit Risk Measurement and Management (Book 2) exam questions with answers and explanations. The full course includes 5 mock exams and chapter study tools.
Exam Preview
Default, Counterparty Exposure and Credit Risk
Which statement correctly defines Credit risk?
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Flashcards
Card 1 of 10Chapter 1
Question
How should you explain Credit risk in FRM Part II credit-risk practice?
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Focus Learn
- Credit risk
- Obligor
- Insolvency
- Default
- Bankruptcy
- Settlement exposure
- Pre-settlement exposure
- Contingent exposure
- Corporate trade credit
- Taking credit risk
Chapter 1: Fundamentals of Credit Risk
Core ideas
Credit risk is loss caused by a counterparty's inability, unwillingness or failure to perform on time. The obligor owes the performance. Insolvency, default and bankruptcy are related but distinct: insolvency is a financial state, default is contractual non-performance and bankruptcy is a legal process. Loans and bonds are obvious sources, but trade credit, settlement, derivatives, guarantees and contingent commitments also generate exposure. Financial institutions, corporates and individuals can each be creditor or obligor.
Exam method
Name the obligation, obligor, exposure timing and loss mechanism. Decide whether the problem describes current nonpayment, a balance-sheet condition, a legal proceeding, settlement sequencing or future replacement cost. Then identify why…
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Key Benefits
Five Timed Book-Level Mock Exams
Test the 23-chapter book through five 20-question practice papers at the official Part II pace.
- ✓ 100 practice questions across 5 topical practice sets
- ✓ Mock 5 samples five questions from each earlier paper.
- ✓ Every answer includes a source-grounded explanation.
Credit Risk AI Tutor
Clarify default, dependence, exposure, collateral, xVA and structured-credit relationships.
- ✓ Compare scoring, ratings and default-probability methods.
- ✓ Review Credit VaR, copulas and portfolio dependence.
- ✓ Work through counterparty exposure, clearing, CVA and securitisation.
Active-Recall Revision
Strengthen memory with 252 flashcards and a 273-item searchable reference sheet.
- ✓ Ten focused chapter cards for every reading.
- ✓ Dedicated number-recall cards.
- ✓ Specific exam traps and close distinctions.
Detailed Chapter Summaries
Connect each measure with its inputs, workflow, interpretation and residual risk.
- ✓ Credit fundamentals, governance and modeling.
- ✓ Portfolio and counterparty credit risk.
- ✓ Collateral, xVA, clearing and structured credit.
Preview & See What You Will Get
Frequently Asked Questions
No. This course covers the Credit Risk Measurement and Management printed book. Candidates also need the other Part II books and the required Current Issues readings.
GARP describes Part II as 80 equally weighted multiple-choice questions completed in four hours across all Part II domains.
No. They are book-level topical practice. Full Part II practice should combine every domain and Current Issues in the official 80-question format.
The course preserves the official Part II pace of three minutes per question: 20 topical questions in 60 minutes.
No. GARP does not publish a fixed percentage pass mark. The platform uses 70% only as an internal mastery target.
No. Exams Academy is an independent education provider and is not affiliated with or endorsed by GARP.
You receive lifetime access to this course content with no recurring subscription fee.
Yes! Test your knowledge and review detailed explanations with the free GARP FRM Part II — Credit Risk Measurement and Management (Book 2) Mock Exam Preview below. It contains 15 exam-style questions covering Default, Counterparty Exposure and Credit Risk; the full course provides complete mock exams and syllabus coverage.
Exam Format & Details
| Assessment | Book-level topical practice: 20 multiple-choice questions in 60 minutes. The official FRM Part II exam covers all Part II domains with 80 equally weighted questions in four hours. |
| Duration | 60 Minutes |
Focused preparation for FRM Part II Book 2
Credit Risk Measurement and Management moves from credit fundamentals, governance and scoring into default probability, Credit VaR, portfolio dependence, derivatives and counterparty exposure, credit derivatives, netting, collateral, central clearing, xVA, stress testing and securitisation.
This course keeps all 23 chapters together as one book-level learning hub. Detailed summaries show the method and assumptions, 252 flashcards build active recall, the 273-item reference sheet supports fast review, and the AI tutor is grounded in the supplied Credit Risk Measurement and Management source.
Practise the book before combining all Part II domains
The five course mocks each contain 20 questions and run for 60 minutes, preserving the official Part II pace of three minutes per question. The five topical practice sets include 100 practice questions. The 70% platform result is a book-level mastery target, not an official GARP pass mark.
The official FRM Part II exam contains 80 equally weighted multiple-choice questions across all Part II domains and lasts four hours. Complete the other printed books and the required Current Issues readings before full Part II practice.
Who Is This For?
✓ Candidates preparing for the GARP FRM Part II examination
✓ Credit-risk, counterparty-risk, xVA and regulatory-capital analysts
✓ Candidates who want to complete and track each official Part II book separately
✓ Professionals strengthening default, collateral, clearing and securitisation skills
Preparation centre
GARP FRM Part II — Credit Risk Measurement and Management (Book 2) Exam Guides
Use these connected guides for the syllabus, exam format, booking and revision strategy.
Ready to Pass Your Exam?
Master this FRM curriculum book with source-grounded summaries, active recall and clearly scoped book-level practice before combining it with the rest of the curriculum.
GARP FRM Part II — Credit Risk Measurement and Management (Book 2)
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