Professional Behavior and Communication Development Course 2-page summary/reflection of class

FRMCandidateGuide.pdf

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FRM® Candidate Guide

2017

Introduction

Using the FRM to Enhance Your Career

Exam Development, Structure, and Content

Registration

Preparation

Sitting for the FRM Exam

Frequently Asked Questions

The Financial Risk Manager (FRM®) designation is the world’s most highly respected certifi cation for professionals who manage risk.

Introduction

For 20 years, the FRM has set the global standard for risk management. Developed by the world’s leading risk

practitioners, the designation signifies a mastery of the essential skills and knowledge needed to help organizations

succeed in today’s rapidly changing financial landscape.

The FRM challenges candidates to understand and apply a range of knowledge and skills necessary to function

effectively as a risk manager. Its curriculum is updated annually by a group of distinguished risk professionals and

leading academics with diverse backgrounds, ensuring that the designation meets the evolving demands of the

financial industry.

Currently, more than 40,000 Certified FRMs are employed internationally at nearly every major bank, asset

management firm, hedge fund, consulting firm, and regulator in the world. More than 1,000 organizations had five or

more FRM registrations in 2015, illustrating the rapidly increasing demand for professionals trained in measuring and

managing financial risk.

By achieving your FRM certification, you will be joining a network of professionals in more than 190 countries and

territories worldwide, giving you a way to expand your professional opportunities throughout your career. Moreover,

employers know that FRMs have the knowledge needed to anticipate and respond to critical issues, providing them

with an edge in their career and professional development.

} Foundations of Risk Management

} Quantitative Analysis

} Financial Markets and Products

} Valuation and Risk Models

} Market Risk Measurement and Management

} Credit Risk Measurement and Management

} Operational and Integrated Risk Management

} Risk Management and Investment Management

} Current Issues in Financial Markets

The FRM Exam Part I covers the tools used to assess financial risk:

The FRM Exam Part II focuses on the application of the tools acquired in the FRM Exam Part I through a deeper

exploration of:

www.garp.org/frm

FRM Exam Part I 4 hours/100 questions

FRM Exam Part II 4 hours/80 questions

Demonstrate 2 years’ related work experience

Voluntary continuing education 40 hours/2 years

Earn your FRM Certification

Earning your FRM certification The first step to becoming an FRM is passing a rigorous, two-part exam. To enroll in the program, register for the FRM

Exam online via the GARP website. Both parts of the FRM Exam are offered twice a year, in May and November. Once

you pass the FRM Exam Part I, you have four years to pass Part II.

After achieving a passing score on both parts of the FRM Exam, candidates must demonstrate a minimum of two years

of full-time work experience in finance or a related field to complete their certification. Related work experience may

include: trading, portfolio management, academia, industry research, auditing, risk consulting, or risk technology. If

you have questions about whether your work experience qualifies, please contact [email protected].

Once certified, we strongly recommend that FRMs keep their skills and knowledge up to date by participating in

GARP’s Continuing Professional Development (CPD) program. The program offers FRMs a framework to help them

stay ahead of the curve through ongoing education, and encourages participants to earn 40 credit hours every two

years to maintain the integrity of their certification. Although participation in the CPD program is voluntary, it is

considered best practice for FRMs to participate in the program throughout their career.

www.garp.org/frm

Who should consider the FRM certification? Professionals The FRM helps professionals in risk management, investment management, or other critical areas of the financial

services industry broaden their knowledge of the different types of financial risk and enhance their current

skill set. Those who are just beginning their careers benefit from the breadth of the curriculum, which exposes

candidates to the major strategic aspects of risk management. More established practitioners often choose to

become Certified FRMs in order to ensure that they are apprised of the latest trends in risk management, or they

want to challenge themselves by testing their knowledge against an elite pool of risk managers.

Career Changers Whether you work in financial risk or are interested in transitioning to a risk role, becoming an FRM can help accelerate

your career. Professionals from non-finance or non-risk roles become FRMs in order to develop specialized, practical

knowledge that can be applied in the global financial market. Undertaking the rigorous course of study to become an

FRM signals a commitment to an area of financial services that is growing rapidly across the globe.

Students Students with an interest in finance may elect to sit for the FRM Exam during or immediately after completing their studies.

The FRM Program can complement their prior coursework or help them develop a foundation of specialized knowledge that

goes beyond their academic curriculum. Since the FRM Exam is practitioner-driven, students realize that earning the FRM

designation demonstrates to future employers that they are able to master complex real-world challenges.

www.garp.org/frm

4 www.garp.org/frm

*This reading is freely available on the GARP website.

Using the FRM to Advance Your Career

As an FRM, you’ll have a competitive advantage that can help you stand out to employers. By passing the Exam and carrying

your certification, you’ll demonstrate that you possess the knowledge and tools necessary to assess and manage the

challenges associated with the dynamic financial services industry. The FRM designation is by far the best known and most

respected designation for financial risk, with 25 of the top 25 banks in the world having a significant presence of FRMs.

Benefits of the FRM Mastering the FRM curriculum requires discipline and represents a significant commitment to the risk management

profession. Because of this, FRMs are considered leaders in the industry with a strong commitment to professional

excellence. Using the designation in your professional communications emphasizes accomplishment, and sets you

apart in a crowded market.

} Demonstrate your knowledge

Earning your certification testifies that you have the necessary skills to effectively assess and manage financial risk.

} Highlight your experience

The designation testifies that you have worked in the field for at least two years, signaling to employers that you

have the experience necessary to succeed.

} Join an elite group

You’ll be part of a network of like-minded professionals, allowing you to expand your career opportunities.

} Enhance your reputation

All FRMs are expected to adhere to the GARP Code of Conduct*, letting employers know that FRMs will help

safeguard their firms’ reputations.

Exam Development, Structure, and Content

Exam Development The FRM Program is developed under the guidance of the FRM Committee, which is comprised of prominent global risk

management professionals and academics. The FRM Committee establishes the topic areas to be tested on the Exam

on an annual basis. To further align with industry needs and calibrate our understanding of the demands of the global

risk management community, we also conduct formal job task analysis surveys designed to determine the knowledge,

skills, and abilities required of effective risk managers. This process helps ensure that successful candidates are

prepared to effectively contribute to their organizations.

Exam Structure The FRM Exam is a two-part, paper-and-pencil, multiple choice exam. The FRM Exam Part I consists of 100 equally

weighted questions and is offered in the morning. The FRM Exam Part II consists of 80 equally weighted questions

and is offered in the afternoon. Candidates are allotted four hours to complete each exam and have the option to

complete both parts in one or two cycles. The exams are offered in person in American English, twice a year in May and

November at approximately 100 exam sites around the world. The FRM Exam is a comprehensive, practice-oriented

assessment that covers the fundamental tools and techniques used in risk management, their underlying theories, and

the major sub-areas of risk.

www.garp.org/frm

FRM Exam Part I

This area focuses on a candidate’s knowledge of

foundational concepts of risk management and how

risk management can add value to an organization and

includes:

• Basic risk types, measurement and management tools

• Creating value with risk management

• The role of risk management in corporate governance

• Enterprise Risk Management (ERM)

• Financial disasters and risk management failures

• The Capital Asset Pricing Model (CAPM)

• Risk-adjusted performance measurement

• Multifactor models

• Data aggregation and risk reporting

• Ethics and the GARP Code of Conduct

Financial Markets and Products | 30%

This area tests the candidate’s knowledge of financial

products and the markets in which they trade including:

• Structures and functions of financial institutions

• Structure and mechanics of OTC and exchange markets

• Structure, mechanics, and valuation of forwards,

futures, swaps, and options

• Hedging with derivatives

• Interest rates and measures of interest rate sensitivity

• Foreign exchange risk

• Corporate bonds

• Mortgage-backed securities

Quantitative Analysis | 20%

This area tests a candidate’s knowledge of basic

probability and statistics, regression and time series

analysis, and various quantitative techniques useful in

risk management such as:

• Discrete and continuous probability distributions

• Estimating the parameters of distributions

• Population and sample statistics

• Bayesian analysis

• Statistical inference and hypothesis testing

• Estimating correlation and volatility using EWMA and

GARCH models

• Volatility term structures

• Correlations and copulas

• Linear regression with single and multiple regressors

• Time series analysis and forecasting

• Simulation methods

Valuation and Risk Models | 30%

This area will test a candidate’s knowledge of valuation

techniques and risk models such as:

• Value-at-Risk (VaR)

• Expected shortfall (ES)

• Stress testing and scenario analysis

• Option valuation

• Fixed income valuation

• Hedging

• Country and sovereign risk models and management

• External and internal credit ratings

• Expected and unexpected losses

• Operational risk

Foundations of Risk Management | 20%

Topics and Weights

Exam Content

www.garp.org/frm

This section tests a candidate’s knowledge of market risk

measurement and management techniques. These include:

• VaR and other risk measures

• Parametric and non-parametric methods of

estimation

• VaR mapping

• Backtesting VaR

• Expected shortfall (ES) and other coherent risk

measures

• Modeling dependence: Correlations and copulas

• Term structure models of interest rates

• Discount rate selection

• Volatility: Smiles and term structures

Credit Risk Measurement and Management | 25%

This area focuses on a candidate’s understanding

of credit risk management with some focus given

to structured finance and credit products such as

collateralized debt obligations and credit derivatives.

Areas of knowledge include:

• Credit analysis

• Default risk: Quantitative methodologies

• Expected and unexpected loss

• Credit VaR

• Counterparty risk

• Credit derivatives

• Structured finance and securitization

Operational and Integrated Risk Management | 25%

This section addresses a candidate’s knowledge of

two areas of increasing importance for many firms—

operational risk management and integrated risk

management. This includes:

• Principles for sound operational risk management

• Enterprise Risk Management (ERM) and enterprise-

wide risk governance

• IT infrastructure and data quality

• Internal and external operational loss data

• Methods of determining operational risk capital

• Model risk and model validation

• Extreme value theory (EVT)

• Risk-adjusted return on capital (RAROC)

• Economic capital frameworks and capital planning

• Liquidity risk measurement and management

• Failure mechanics of dealer banks

• Stress testing banks

• Third-party outsourcing risk

• Regulation and the Basel Accords

Risk Management and Investment Management | 15%

This area focuses on a candidate’s knowledge of risk

management techniques applied to the investment

management process, including:

• Factor theory

• Portfolio construction

• Portfolio risk measures

• Risk budgeting

• Risk monitoring and performance measurement

• Portfolio-based performance analysis

• Hedge funds

Market Risk Measurement and Management | 25%

FRM Exam Part II

Topics and Weights

Current Issues in Financial Markets | 10%

The candidate is expected to be familiar 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 candidate’s knowledge of the material

covered by each paper. Recent topics include:

• Bitcoin and virtual currencies

• Market and funding liquidity

• Algorithmic trading and fixed income market

algorithmic trading

• Negative policy rates

• Energy economies and corporate debt

www.garp.org/frm

Registration

In 2017, the FRM Exam will be offered on May 20 and November 18. The cost to register for the Exam varies based on the

registration period, and you must register online. While it is possible to sit for both parts of the Exam on the same day,

your FRM Exam Part II will not be graded unless you first pass the FRM Exam Part I.

Scholarships GARP offers a scholarship program, open to full-time graduate-level students and university faculty taking the FRM Exam

Part I. All scholarship candidates must register and pay the enrollment fee and exam registration fees prior to submitting

their application. Candidates who are awarded a scholarship will be refunded the cost of the exam registration fee only. More

information on eligibility and the application process can be found on GARP’s website.

Fees First-time registrants for the FRM Exam are required to pay an enrollment fee (the cost associated with developing

and administering the Exam) and an exam fee (the cost to sit for each Exam). Returning registrants need only pay the

exam fee for subsequent registrations.

Registration fees include a complimentary one-year GARP Individual Membership for first-time registrants (a US $195

value), but do not include the cost of study materials. 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.

New Candidate Returning Candidate

$750 Enrollment Fee: $400

Exam Fee: $350

Early Registration

May 2017 Exam: Dec. 1-Jan. 31

Nov 2017 Exam: May 1-July 31

$350 Enrollment Fee: $0

Exam Fee: $350

$875 Enrollment Fee: $400

Exam Fee: $475

Standard Registration

May 2017 Exam: Feb. 1-Feb. 29

Nov 2017 Exam: Aug. 8-Aug. 31

$475 Enrollment Fee: $0

Exam Fee: $475

$1050 Enrollment Fee: $400

Exam Fee: $650

Late Registration

May 2017 Exam: Mar. 1-Apr. 15

Nov 2017 Exam: Sept. 1-Oct. 15

$650 Enrollment Fee: $0

Exam Fee: $650

Earning your FRM Certification

www.garp.org/frm

Deferrals An FRM candidate may only defer each exam registration once to the next test date. Please note:

} A deferral to the next exam date must be submitted by the last day of registration. For example, the last day of

registration for the May Exam is April 15, and for the November Exam, the last day of registration is October 15.

} There is an administrative processing fee of US $150 that accompanies each exam deferral. This fee is payable by

credit card only at the time of your deferral request.

} Required readings change from year to year.

More information on deferring the FRM Exam can be found on GARP’s website.

Exam Locations The FRM Exam Part I and Part II are offered in person at more than 100 exam sites around the world. While the cities

generally remain the same, locations within each city may change from year to year. A complete list of exam sites is

available on the GARP website.

Important Steps

Identification Make sure you have a current (non-expired), original, valid, government-issued passport or driver’s license with a photograph (other types of identification cards will not be accepted) that will not expire by the exam date.

Guidelines Familiarize yourself with the FRM Exam deadlines and policies listed online.

Location View the list of examination sites online.

Accommodations If needed, you may request necessary accommodations per the Americans with Disabilities Act (ADA) or an alternative exam date for religious reasons through Religious Alternate Date (RAD).

www.garp.org/frm

Preparation

GARP provides study resources, practice exams, and information on approved, third-party Exam Preparation Providers

to help FRM candidates get ready for the Exam. Due to the sizeable amount of material covered in the Exam, we

suggest that you create a weekly study schedule to spread out study hours over an extended period. Preparing for the

Exam at the last minute is strongly discouraged.

Preparation time will vary based on your prior professional experience, academic background, and familiarity with the

concepts tested on the curriculum. For past Exams, a majority of candidates report spending anywhere between

100 to 400 hours studying, with an average spending about 275 hours on exam preparation.

Study Materials } The free FRM Study Guide summarizes all recommended readings for the FRM Exam. In addition, key concepts

appear as bullet points at the beginning of each section, and are intended to help you identify the major themes and

categories associated with a particular section.

} The free FRM Learning Objectives document provides a comprehensive framework to guide candidates in their

self-study preparation for the FRM Exam. It contains information and approximate weightings for each of the broad

knowledge domains covered by the Exam, specific curriculum readings associated with each knowledge domain, and

individual learning objectives for each reading. Every FRM Exam question maps to at least one learning objective,

making the FRM Learning Objectives document a vital study resource that should be referred to regularly during

exam preparation.

} The free FRM Practice Exams are available for Part I and Part II on the GARP website. They provide a good sense of

the question types to expect when sitting for the actual FRM Exam, and will allow candidates to estimate how much

time they can expect to spend answering individual questions. Each Practice Exam contains questions, answer keys,

and detailed explanations for all answers. It is strongly recommended that candidates replicate exam day conditions

when taking each Practice Exam.

GARP offers a number of free study resources, including: the Study Guide, Learning Objectives, and Practice Exams

www.garp.org/frm

} The FRM Books cover the readings and key themes that make up the core of the FRM curriculum. Exam questions

are based solely on the material in the current year’s FRM curriculum and Learning Objectives, making the books

essential for Exam preparation. Please note: the online readings are part of the curriculum and will be tested.

} The Weekly Study Plan is available on the GARP website and off ers a customizable sample framework. We

encourage you to use this study plan as a foundation and modify based on your study schedule and areas of strength

or weakness.

Exam Preparation Providers You may wish to study with the assistance of an FRM Exam Preparation Provider (EPP), an offi cially recognized center

that may off er courses online or in person.

GARP provides a list of approved EPPs on our website as a service to FRM candidates. Please note that GARP does

not endorse, promote, review, or warrant the accuracy of the products or services off ered by providers of FRM-related

information, nor does it endorse any pass rates claimed by the EPP. Further, GARP is not responsible for any fees or

costs paid by the user to an EPP.

Study Groups While the FRM curriculum is designed to be a self-study program, many fi nd that studying with their peers positively

impacts their exam preparation. You can connect with other candidates to form study groups by joining our Facebook

or LinkedIn groups. Alternatively, many GARP Chapters now facilitate study group sessions that enable FRM

candidates in the same city or region to meet each other. To see if a Chapter is hosting an event near you, please visit

the Chapters section of our website.

www.garp.org/frm

The FRM Exam is designed to assess a candidate’s ability to measure and manage risk in a real-world environment.

Sitting for the FRM Exam

What to Bring on Exam Day: } Printed Exam Admission Ticket

} Current (non-expired), original, valid, government-issued photo identification as described below

} GARP-approved calculator

The FRM Exam is a pencil-and-paper multiple choice exam offered exclusively in American English and in person to

ensure fairness and consistency for all candidates globally.

Identification Only a current, valid, government-issued passport or driver’s license, which must include your photograph, will be

accepted for identification purposes on exam day. The name on your passport or driver’s license must be exactly the

same as the name on your exam registration. For more information, visit our website.

What GARP Provides: } Two wooden pencils

Exam Duration Each part of the FRM Exam is four hours long. The FRM Exam Part I consists of 100 multiple-choice questions and Part

II consists of 80 multiple-choice questions. Part I is offered in the morning session and Part II in the afternoon session

of each exam administration.

Food and drink containers may not be opened in the testing room. All food and drinks must be consumed outside the

testing room.

www.garp.org/frm

The following items may be carried in your pockets or in transparent plastic bags. Plastic bags must be placed under

your chair and may be accessed during the Exam.

} Wallet (or money purse)

} Calculator batteries

} Pencil sharpeners

} Eyeglasses

} Earplugs

} Medicine

} Tissues

} Other medically necessary items

Optional:

Prohibited Items In order to maintain the integrity of the testing process, no electronics, including wearable technology, are permitted

inside the exam room. Additionally, baggage of any kind, writing instruments, and pencil cases may not be brought

into the testing room. A designated area for these items will be provided. You will not have access to them during the

Exam but may access them during lunch or at the conclusion of the Exam. A full list of permitted and prohibited items

can be found on the GARP website.

Scoring the Exam There are no penalties for incorrect answers. Candidates sitting for both parts of the FRM Exam on the same day must

pass the FRM Exam Part I first before the FRM Exam Part II will be graded.

Exam Violations GARP seriously reviews each and every Exam Violation Report. Some of the violations that have resulted in an Exam

Violation Report being filed and the candidate’s Exam subsequently not being graded include:

} Candidate began the Exam early

} Candidate opened the exam booklet early

} Candidate continued to write after the session ended

} Candidate brought a cellular telephone or smartphone into the exam room

} Candidate caught cheating

} Candidate violated GARP’s calculator policy

Exam Results Exam results are pass/fail and are sent via email approximately six weeks after the Exam is administered. Candidates

are provided with information about their quartile rankings for each section of the Exam.

Calculators Only GARP-approved calculators can be used during the Exam. Use of a non-authorized calculator during the Exam

will result in the candidate’s answer sheet not being graded, and the candidate will receive no score for the Exam.

Candidates may not consult the operator’s manual for their calculator during the Exam. Your calculator’s memory must

be cleared prior to the start of the Exam.

The only calculators approved for use during the FRM Exam are:

} Hewlett Packard 12C (including the HP 12C Platinum and the Anniversary Edition)

} Hewlett Packard 10B II

} Hewlett Packard 10B II+

} Hewlett Packard 20B

} Texas Instruments BA II Plus (including the BA II Plus Professional)

Please review GARP’s calculator policy on the website in advance of Exam day.

www.garp.org/frm

By earning your FRM certifi cation, you will join an elite network of highly skilled risk professionals around the globe.

Frequently Asked Questions

Q. How much time do I need to prepare for the Exam? A. Your preparation time will vary based on your experience and background, but on average, candidates spend

about 275 hours studying. In a recent survey, individual reports varied from less than 100 to more than 400 hours.

Q. How much work experience do I need to sit for the Exam? A. No work experience is required to sit for the Exam; however, you must have at least two years of professional

work experience to complete your certification and use the FRM designation.

Q. How quantitative is the Exam? A. The FRM Exam does have a quantitative component, but the concepts are presented in real-world situations

that risk managers face. The level of mathematical difficulty is on par with an advanced undergraduate or

introductory graduate level finance course at most universities.

Q. What is the difference between the FRM and the Chartered Financial Analyst (CFA)? A. The two designations attest to different skills and aspects of your capabilities, and complement each other

well. The FRM is focused on risk, and tests your knowledge of topics such as market risk, operational risk,

integrated risk management, valuation and risk models, and investment risk management. The CFA covers an

overview of financial topics, and does not cover risk in the same depth as the FRM. Many professionals choose

to demonstrate their mutual competencies by earning both designations, especially given the prominent role of

risk management in the global financial industry.

Q. Do you offer any exemptions for either part of the FRM Exam? A. No, we do not offer exemptions and cannot accept other designations in partial fulfilment of our requirements.

In order to obtain a true, objective representation of your risk management competency, we cannot rely on

assessments performed by other designation-granting organizations.

Q. What are my career prospects after becoming a Certified FRM? A. As the world’s most widely accepted risk management designation, the FRM differentiates you from your peers

and validates your knowledge of the tools and techniques demanded by the risk management profession. There

are currently more than 40,000 FRMs employed globally at nearly every major bank, asset management firm,

hedge fund, consulting firm, and regulator.

www.garp.org/frm

Q. In what languages can I take the Exam? A. The Exam is administered in American English only. We work hard to ensure all questions and instructions are

written clearly and concisely, and to avoid the use of colloquialisms that might be unfamiliar to non-native

American English speakers.

Q. Do I have to be a GARP Member to sit for the Exam? A. No, you do not have to be a Member to register or sit for the Exam. As part of your enrollment in the FRM

Program, you will receive a complimentary GARP Individual Membership and all its privileges, which can be

renewed automatically during your registration. Certified FRMs are offered a discounted membership rate in

recognition of their professional achievements and dedication to best practices in financial risk.

Q. Is continuing education mandatory for Certified FRMs? A. No, but we strongly recommend you participate in our Continuing Professional Development (CPD) program in

order to maintain the value of your certification. The program requires you to earn 40 credits every two years. In

general, one credit is awarded for every hour spent on a relevant educational activity.

www.garp.org/frm

About GARP

The Global Association of Risk Professionals

(GARP) is a non-profit organization that promotes

best practices in risk management through

education, training, media, and events. Our

programs and services address the critical need

for risk education that keeps pace with a rapidly

evolving industry, and provide expert knowledge

and global networking opportunities to risk

professionals in more than 190 countries and

territories worldwide. Our certifications are the

most highly respected designations in risk around

the world, and our courses provide professionals

with the essential knowledge they need to identify,

assess, and manage risk.

About GARP | The Global Association of Risk Professionals (GARP) is the leading globally recognized association

dedicated to the education and certification of risk professionals, connecting members in more than 190 countries

and territories. GARP’s mission is to elevate the practice of risk management at all levels, setting the industry

standard through education, training, media, and events.

Creating a culture of risk awareness®

Main Office 111 Town Square Place 14th Floor Jersey City, New Jersey 07310, U.S.A. +1 201.719.7210

London Office 2nd Floor Bengal Wing 9A Devonshire Square London, EC2M 4YN, U.K. +44 (0) 20 7397 9630