frm_candidate_guide_2013-web.pdf

FRM Candidate Guide20131The Financial Risk Manager(FRM)designation is the most globally respected and widely recognizedcertification for financial risk management.The FRMProgram ensures that Certified FRMs have masteredthe necessary skills and knowledge to succeed intodays rapidly changing global financial industry.Toachieve the status of Certified FRM,candidates mustpass a rigorous two-part,practice-oriented examina-tion and have two years of qualified work experience.The FRM Exam is updated twice a year to be reflectiveof the latest trends in the global financial markets and is designed by a group of distinguished risk professionals and academics with diverse professionalbackgrounds.By preparing for the FRM Exam,you willgain knowledge that is useful on the job every day.The FRM Exam Part I curriculum covers the tools usedto assess financial risk:Quantitative analysisFundamental risk management conceptsFinancial markets and productsValuation and risk modelsThe FRM Exam Part II curriculum focuses on the application of the tools acquired in Part I through a deeper exploration of:Market risk managementCredit risk managementOperational and integrated risk managementInvestment risk management Current market issuesAfter passing the FRM Exam Part II,candidates mustdemonstrate a minimum of two years of risk-relatedfull-time professional experience to become a Cert-ified FRM.No other financial risk designation requires its candidates to demonstrate related professional experienceso becoming a Certified FRM means considerably more than passing a test.Achieving FRM certification provides you with a career-long way to expand your professional oppor-tunities within the world of finance.You will becomepart of a network of Certified FRMs in over 90 countries.Moreover,employers know that CertifiedFRMs have the relevant knowledge with which to anticipate,respond and adapt to critical issues,providing them with an edge in their career and professional development.OverviewThe FRM Program is a career-long professional resource that positions Certified FRMs as the standard-bearers of the risk profession.Enrolling in the FRM Program is straightforward;candidates register for the FRM Exam online via the GARP website.Thereare no educational or professional prerequisites to register forthe FRM Exam.The two-part FRM Exam tests progressive,cumulative knowl-edge.The concepts tested on Part I of the FRM Exam are neededfor Part II.Once a candidate has passed Part I,they have fouryears to pass Part II.If a candidate does not pass the Part II Examwithin that four-year time frame,they will be required to re-sit forPart I.If a candidate chooses to sit for both Part I and Part II onthe same day,the candidate must pass Part I in order for GARPto mark the Part II Exam.After passing both parts of the FRM Exam,a candidate must satisfy a work experience requirement to become certified anduse the FRM designation.FRM candidates must demonstrate aminimum of two years of professional full-time work experiencein the area of financial risk management or another related fieldincluding,but not limited to:trading,portfolio management,faculty academic,industry research,economics,auditing,riskconsulting,and/or risk technology.A list of sample job titles thatGARP uses for certification purposes is available on our website.GARPs Continuing Professional Education(CPE)program pro-vides Certified FRMs with a formal means to meet the growingdemands of their profession while ensuring the ongoing integrityof their certification.The CPE Program requires 40 credit hoursto be earned every two years.Although the FRM CPE Program is voluntary,Certified FRMs are encouraged to enroll in the program the year they are certified.PART I EXAM4 hours/100 questionsPART II EXAM4 hours/80 questionsDemonstrate 2 Years Related Work ExperienceVoluntary Continuing Education 40 hours/2 years2The FRM Exam 4On an annual basis,GARPs FRM Committee,com-prised of prominent global risk management profes-sionals and academics,establishes the topic areas tobe tested in the FRM Exam.Further,to calibrate andbenchmark its understanding of the demands of theglobal risk management community,GARP conductsformal job task analysis surveys to deter-mine the knowledge,skills and abilities required to function effectively as a fin-ancial risk manager around the world.Once topic areas are determined,they arepublished in the FRM Study Guide.Moredetailed knowledge points associatedwith these topic areas are contained inthe FRM AIM Statements,which are madeavailable to registered FRM candidates.FRM Exam StructureThe FRM Exam consists of two partsPart I and Part IIthat are both offeredtwice a year on the third Saturday of May and November.Part I is an equally-weighted 100 question multiple-choiceexam offered in the morning of the Exam day and PartII is an equally-weighted 80 question multiple-choiceexam offered in the afternoon of the Exam day.BothPart I and Part II each have a maximum allowable timeof four hours for completion.It is important to note that Part I and Part II of the FRMExam must be passed sequentially.Therefore,while itis possible to sit for both parts of the examination onthe same day,a candidate must receive a passingscore on Part I before GARP will mark his or her Part IIexamination.Most candidates elect to take Part I andPart II on separate Exam administration days.FRM Exam Part I ContentPart I of the FRM Exam covers the fundamental toolsand techniques used in risk management and the theories that underlie their use.Specific areas of cov-erage and their weighting in the FRM Exam Part I are:Foundations of Risk Management(20%)This area focuses on a candidates knowledge of foundational concepts of risk management and how risk management can add value to an organization and includes:An understanding of corporate risk governance and the trade-off between risk and returnThe construction of efficient portfoliosFundamental asset pricing modelsEnterprise risk management frameworks Data quality managementA review of major financial disasters To emphasize the importance of ethics as a fundamental requirement for sound risk management,applications of the GARP Code of Conduct to professional situations are covered in this section as wellQuantitative Analysis(20%)This area tests a candidates knowledge of basic probability and statistics,regression and time series analysis,and various quantitative techniques useful in risk management such as:Monte Carlo methodsVolatility forecasting modelsValue-at-Risk estimation Financial Markets and Products(30%)This area tests the candidates knowledge of financial products and the markets in which they trade,including:Futures and forwardsEquity options,swaps,and other derivatives Commodities Currencies Corporate bonds and interest ratesA basic understanding of arbitrage arguments and hedging related to these financial productsIn 2012:FRM candidates came from 136 different countries and territories There were a record 32,166 registrations for the FRM Exam Top 10 countries/regions with the most FRM candi-dates:China,India,U.S.,South Korea,Hong Kong,Canada,United Kingdom,Singapore,Taiwan,GermanyStructure and Content5Valuation and Risk Models(30%)This area will test a candidates knowledge of valuation techniques and risk models.This includes:Basic bond valuation and bond hedgingValuation using binomial treesAn understanding of the Black-Scholes-Merton model Value-at-Risk(VaR)Expected and unexpected loss estimationStress testing FRM Exam Part II Content Part II of the FRM Exam further applies the tools andtechniques covered in Part I and delves more deeplyinto major sub-areas of risk management.Specificareas of coverage include:Market Risk Management(25%)This section tests a candidates knowledge of market risk measurement and management tech-niques.These include:Fixed-income interest rate sensitivitiesVolatility exposuresValue-at-Risk(VaR)and backtesting VaRExpected shortfall(ES)Correlations and copulasParametric and non-parametric estimation methodsExtreme value theory(EVT)Exotic options and mortgage-backed securities Credit Risk Management(25%)This area focuses on a candidates understanding of credit risk management with some focus given to structured finance and credit products such as collateralized debt obligations and credit deriva-tives.Knowledge of counterparty risk is also tested,as well as default risk and methodologies used to measure it,such as Credit VaR.Operational and Integrated Risk Management(25%)This section addresses a candidates know-ledge of two areas of increasing importance for many firmsoperational risk management and integrated risk management.This includes:Coverage of the tools and techniques necessary to measure,manage,and mitigate operational riskEconomic capital allocationEnterprise risk management(ERM)Knowledge of critical issues related to liquidity risk management,model risk,loss data model-ing and IT infrastructure,stress testing,and risk appetiteImportantly,this section also tests a candi-dates knowledge of key regulations the major international regulatory frameworks relevant to risk managers today,such as BaselRisk Management and Investment Risk Management(15%)This area focuses on a candidates knowledge of risk management techniques applied to the investment management process.Topics such as portfolio construction and performance analysis are covered,as well as risk budgeting and portfolio and component VaR.Issues related to hedge funds and private equity investments are also covered.Current Issues in Financial Markets(10%)The candidate is expected to familiarize him/herself with the readings from this section,approaching each paper critically as a risk manager equipped with the knowledge from the other sections.This area of the Exam will test a candidates knowledge of the material covered by each paper.Recent topics have included:Sovereign Risk and Financial CrisisFlash CrashFinancial Innovation and Its Issues6Exam DatesIn 2013,the FRM Exam will be offered on May 18,2013and November 16,2013.Registration PeriodsCandidates can register online for the FRM in one ofthree registration periods:Early,Standard,and Late.There is a difference in price between the three peri-ods,which are detailed in the“Fees”section below.Registering for Part IICandidates can only register for FRM Part II after theyhave successfully passed Part I,unless they register to sit for both parts on the same day.It is possible toregister to take both the FRM Exam Part I and Part IIon the same day since Part I is always offered in themorning and Part II in the afternoon.Please note that if a candidate elects to take Part II on the same day as Part I,their Part II will not bemarked by GARP unless they first pass Part I.The reason for this is that the FRM Exam tests progressive,cumulative knowledge;the concepts tested in Part Iare needed for Part II.FeesWhen registering for the FRM Exam for the first time,candidates pay both an enrollment fee and anExam fee.The enrollment fee covers the basic costs associatedwith developing the FRM Program and administeringthe FRM Exam.Candidates are required to pay the enrollment fee when they initially register for the FRM Program.The enrollment fee is to participate in the FRM Program,not to sit for the individualExams,so you will not need to pay the enrollment fee again when registering for the FRM Exam Part II.Additionally,the enrollment fee entitles you to a complimentary one year GARP Individual Membership(a US$195 value).Fees can be paid via secure online payment,by check(if drawn on a U.S.bank and payable in U.S.dollars),or by wire transfer.More information about fees can be found on GARPs website.DeferralsAn FRM candidate may only defer their Exam registration once to the next test date.Please note:A deferral to the next examination date must be submitted by the last day of registration.For example,the last day of registration for the May Exam is April 15;for the November Exam the last day of registration is October 15.There is an administrative processing fee of US$100 that accompanies each Exam deferral.This fee must be payable via credit card at the time of your request.Suggested readings will change from Exam year to Exam year.More information on deferring the FRM Exam can befound on GARPs website.ScholarshipsGARP offers scholarships to full-time students and university faculty taking the FRM Exam Part I only.The scholarship program is not available for the FRMExam Part II and does not cover the FRM Program enrollment fee.Additional information on eligibility requirements can be found on GARPs website.Registering for the FRM ExamBefore Registration:A ChecklistBefore registering for the FRM Exam,we suggest that you:Ensure that your current government-issued photo ID matches the name under which you are registering for the Exam.Only a current and valid government-issued form of identification,which must include a photograph of the FRM candidate,will be accepted for identification purposesfor example,a country-issued passport or a driverslicense.GARP will not accept work/employer identification cards,a learners permit or even a student identification card.The name on your government-issued identification(passport,drivers license)must be exactly the same as the name on your Exam registration.For example,the name 李学成 cannot be used to register for the Exam;Xuecheng Li would be the correct name to use to register using the phonetic alphabet.Familiarize yourself with key FRM Exam deadlines.Learn about GARPs Exam policies.Decide where to take your Exam.Review,understand and agree to GARPs Code of Conduct and Candidate Responsibility Statement.If needed,request special accommodations for Americans with Disabilities(ADA),or request an alternative Exam date for religious reasons(RAD).92%of candidates who sat for the May 2012 FRM Exam would recommend that their colleaguesalso sit for the FRM Exam.8To help candidates prepare for the FRM Exam,GARPprovides study materials,practice Exams,and infor-mation on approved,third-party Exam preparationproviders.Due to the sizeable amount of material covered in the Exam,we suggest that you create aweekly study schedule that is designed tospread out learning of the material overan extended period.Cramming for theExam in the few weeks leading up to it is not recommended.Candidates preparation times will varybased on their prior professional experi-ence,academic backgrounds,and famil-iarity with the concepts tested on thecurriculum.Therefore,it is difficult to recommend a particular number of hoursto dedicate to studying.For some guid-ance,a survey conducted of May 2012FRM Exam Part I candidates indicatesthat,on average,individuals devotedabout 240 hours to Exam preparation.Individual figures,however,varied from less than 100hours(10%)to more than 400 hours(14%).Recommended Study PlansThe FRM Exam Preparation Handbook was developedto assist FRM candidates in their preparation for theFRM Exam by suggesting str