What are different parts of FRM

FRM Part 1

FRM Part 1 had a pass rate of roughly 45 percent in the past. The difficulty level is comparable to the CFA level 1 exam, and the pass percentage is also comparable.

FRM Part 1 introduces a candidate to various risk strategies and tools in general. It examines four key areas:

Risk Management Foundations (weighted at 20 percent )

Quantitative Evaluation (weighted at 20 percent )

Markets and Products in the Financial Sector (weighted at 30 percent )

Weighted Valuation and Risk Models (30 percent )

Foundation: This section provides candidates with knowledge of risk management ideas and how risk management offers value to a firm/company. The following are some of the concepts covered in this class:

  • Risk management in the workplace and the risk-reward connection
  • Models for valuing assets
  • Portfolio construction is both efficient and effective.
  • Risk management that works
  • Data management that is of high quality
  • Ethics and the relevance of ethical behaviour and conduct are discussed in a professional setting.

Quantitative Analysis: Because it emphasises on ideas like regression analysis, models used to forecast volatility, and time series analysis, which apply knowledge learned in probability and statistics classes, this topic is best suited for those having a background in those subjects.

Financial Market and Products: This section teaches how to trade and where to trade financial markets (money markets, futures, options, swaps, futures and forwards, commodities, currencies, corporate and government bonds and their interest rates, capital markets, derivatives, and so on). It also gives a candidate a basic understanding of hedging and arbitrage, which is useful in avoiding financial risks.

Models of valuation and risk

This section introduces a candidate to several risk valuation and analysis models. The following are the primary subtopics covered in this area:

  • Binomial trees can be used to appraise securities.
  • How to use the Black-Scholes-Merton (BSM) model to evaluate the value of options
  • Extensive stress testing
  • How can you figure out how much money you’re putting at risk? (VaR)
  • How to calculate a portfolio’s anticipated loss (EL) and unexpected loss (UL)
  • How to evaluate bonds and protect yourself against bond losses

FRM Part 2

The implementation of the risk concepts and strategies described in FRM Part 1 is the subject of FRM Part 2.

Part 2 of the FRM assesses a candidate’s knowledge in five primary areas, as listed below:

  • Measurement and Management of Market Risk (weighted at 20 percent )
  • Measurement and Management of Credit Risk (weighted at 20 percent )
  • Operational and Integrated Risk Management (weighted at 20 percent ) (weighted at 20 percent )
  • Management and Measurement of Liquidity and Treasury Risk (weighted at 15 percent )
  • Management of Risk and Investment (weighted at 15 percent )
  • Issues Affecting Financial Markets Right Now (weighted at 10 percent )

Measurement and Management of Market Risk: As the name suggests, this section teaches candidates how to measure and manage market risk. The following are some of the subtopics discussed in this section:

  • methods of parametric estimation,
  • Methods of non-parametric estimation,
  • Value at risk (VaR) and projected shortfall: how to quantify and test (ES),
  • Short-term interest rate forecasting models,
  • The smile of volatility in the options markets, and so on.

Measurement and Management of Credit Risk

Credit products, such as debt obligations and credit derivatives, are the focus of this discussion. It teaches applicants how to calculate credit value at risk and how to determine default and counterparty risk.

Risk Management: Operational and Integrated

Many enterprises and businesses are beginning to pay more attention to this area. It assesses a candidate’s understanding of the risks of running a business. The following are some of the sub-topics covered in this section:

The following are some of the sub-topics covered in this section:

  • Risk managers’ operations are governed by a set of rules and regulations.
  • This section delves deeper into stress testing.
  • Loss and Risk Liquidity and Enterprise Risk Management Data Modeling
  • Tools and procedures for detecting, measuring, and mitigating operational risk

Management and Measurement of Liquidity and Treasury Risk

This is a brand-new subject in the 2020 curriculum. It focuses on liquidity and treasury management, or, to put it another way, the quantity of cash on hand that financial institutions require to stay solvent and in operation.

Management of Risk and Investment

The emphasis in this area is on the risk management approaches used in the Investment Management process. This section provides applicants skills for building portfolios, analysing portfolio performance, and estimating the value at risk (VaR) and expected shortfall (ES) of portfolios.

Financial Markets: Current Issues

The exam’s current issues section assesses the candidate’s knowledge gained in the previous sections. The most important subtopic in this field is financial innovations. These chapters are updated once a year to incorporate the most recent academic research in risk management.