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FRM

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The difficulty of the FRM exams, to an extent, can be assessed by the percentage of people clearing and not clearing the exams.

Approximately 46% of the candidates that take the Part 1 exam and 58% of the candidates that take the Part 2 exam clear it every year. The pass rate for Part 2 is naturally higher as these candidates are mostly those who have cleared the Part 1 exam. Let’s delve deeper to understand what makes the FRM exams challenging:

What is the exam structure?

ExamFRM Part 1FRM Part 2
Number of Questions (MCQs)10080
Duration4 hours4 hours
Topics Tested46
Time available per question2.4 minutes3 minutes
  • Part 1 focuses on the tools that are required to assess financial risk, while Part 2 focuses on the application of those tools.
  • There is no negative marking in either of the exams.
  • Time management remains a challenge for most candidates in both parts. While the time available per question is a bit more in the Part 2 exam, since the questions are much more qualitative, time management remains a big hurdle.
  • You can expect an extract of a situation which is followed by a set of questions related to it.
  • Questions from all the subjects are jumbled up, so the order of attempting the paper does not matter.

What is the pass percentage of FRM exam?

The FRM exam results do not tell you about the number of questions that you have answered correctly. The result, however, tells you whether you passed or not, followed by your subject-wise quartiles.

The quartile system of assessment judges your performance in relation to the fellow candidates.

QuartilePercentileInterpretation
1st75th-100thExcellent
2nd50th-75thGood
3rd25th-50thFair
4th0-25thPoor

Generally, since the pass rates are close to 50%, it is considered safe if your scores in each subject fall above the 50th percentile (i.e. in the 1st and 2nd quartiles). There is no exact way to know how many questions you need to answer correctly to clear the exam, however, as a thumb rule, answering 75% of the questions correctly is said to be a safe score.

Naturally, it is more important to score in the 1st and 2nd quartiles in the sections that hold maximum weightage. For details on weights and for analysis of the different sections of the exam, check out FRM Part 1 – Details and FRM Part 2 – Details.

Difficulty COmparison of FRM and CFA

  • This is a very commonly asked question by many candidates who are planning on, or, are already enrolled with the CFA Institute. Obviously, the difficulty is subjective, especially when the two exams have different curriculums – while one is focused on the “returns”, the other focuses on the “risk”.
  • However, the FRM exams are heavier on the quantitative side so they might seem difficult for those who dread quants as a subject.
  • The CFA curriculum is bulkier and it is much more comprehensive. This is one reason why certain portions of FRM may seem a bit dry.
  • Based on the difficulty level of the questions, both FRM Part 1 and Part 2 exams are considered a notch tougher than the CFA level 1 exam. But that makes the average scores of candidates higher in the case of the latter.
  • The 2nd and 3rd levels are said to be tougher than both the FRM exams, but there is no meaningful comparison that could be done.
  • If you’re studying from the Schweser Material, the level of questions asked in the exams are significantly higher than those that appear in the question banks. This disparity in the difficulty levels is relatively smaller if you look at the Schweser notes for CFA.
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Tips that could make the frm exam less difficult for you

It cannot be denied that studying for the FRM would be easier for you if you are already working in the field of risk management. However, the curriculum does not assume that to be the case for all the candidates and it starts everything from the very beginning. Despite this, many do not clear the exams and some of the possible barriers can be removed by:

  • Do not under-estimate the difficulty of the exams
    Many candidates find the exam to be more difficult than they expected. As already mentioned above, the level of questions in the exam is significantly tougher than the ones that you will find at the back of every reading in the Schweser textbooks or the Schweser question banks. The question banks of Bionic Turtle are a bit tougher than those seen in the actual exams but it is advisable to practice from there. Scoring high on the Schweser mock exams can often create over-confidence while it does not represent the true difficulty of what is to come. The institute releases its sample paper approximately a month before the exam. That should help you correctly gauge the type of questions asked.
  • Don’t give correct answers to the wrong questions
    Another problem that occurs is that candidates do not read the questions properly. Since these are multiple-choice questions, every question will have 4 options, of which one will be correct. However, the other 3 options are not random and are given based on the common mistakes that you might make while answering, or, while reading the questions.  To be safe from reading the question incorrectly, it is advisable to encircle or mark the key-words in the question so that you do not mark the ‘false’ option for a question that is asking for the ‘true’ choice, for example. Breaking down the question also aids in comprehensively understanding the problem at hand.
  • Don’t repeat your mistakes
    Assuming that you are practicing throughout your preparation, you should be making a list of mistakes that you made while solving questions. (For example – “Forgot to remove the negative sign from the final answer”, “Forgot to add back the xyz”, “Used the xyz formula incorrectly”, or “forgot to clear the pre-written values in the calculator”, etc.). If you make a list of the common mistakes that you commit and look at this list a week and a day before the exam, you should be more conscious of double-checking on these areas that are critical specifically for you. This should reduce your error rate on the exams.
  • Manage your time well
    Since the paper does not have any negative marking, it does not make sense to leave any question unanswered. You can try to mark the relevant facts in a question. This shall help you remove all the irrelevant information. The ability to do so shall come with practice. Also, attempting in irregular order is useless as questions are jumbled. Therefore, sticking to a specific order is advisable. Obviously, spending too much time on one question can be very detrimental.
  • Make a schedule and stick to it
    Ultimately, the exams are crack-able and you need to customize a plan based on the number of days that you have available to study and the number of readings you need to cover, after leaving 15-20 days for revision. You can arrive at the number of chapters you need to finish per week and this includes practicing from the question banks otherwise you might surprise yourself toward the end when you look at the degree of disconnect between your study and answering the questions on the exam. Naturally, these plans should be realistically achievable and should supersede your day-to-day excuses.

It makes complete sense for you to evaluate whether or not pursuing the FRM certification is going to be worthwhile for you. After all, you will roughly be devoting 500 hours in studying, shelling out $1,000 – $1,500 for the fees and a couple of years in obtaining an experience that is relevant to this certification.

Naturally, the worth of this certification, like any other, would be different for different individuals and there is no universal answer to this question.

You can, however, make an informed decision based on your specific situation, which can be categorized as follows –

Currently not working in the field of Risk Management but want to make a career shift?

This is one of the best reasons to opt for the FRM certification. It is possible – your work might not even be remotely related to the management of financial risk. You could be working in IT, for example.

Now, if you want a career transition into financial risk management, you need to first land an interview for a role in risk management and then you can think about clearing it. The first bit is non-personal and you do not get a face-to-face chance to sell yourself to the interviewer.

However, having cleared the FRM exams does tell the company about your seriousness towards the risk management function and blurs the missing ‘appropriate’ background for the field.

Conversely, if you are trying to make a big shift from a fairly unrelated field, there are genuine chances that you might not land the interview. Since the HRs do not spend a lot of time at one CV during the screening process, it is very advantageous to have a stellar certification that catches their eye.

Once you’ve landed the interview, then too, the FRM exam would help you as it makes you highly skilled in managing financial risk.

BUT, clearing the exams does not guarantee a job. You need to have a very good understanding of the subject matter and it is, therefore, highly recommended to study from a practical viewpoint.

Since the FRM readings are revised year after year to keep up with the most relevant practices in the field of risk, it does prepare you better from a practical standpoint too.

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Pursuing or done with cfa?

In the finance industry, there is a term called “The Triple Crown”. For those uninitiated, it means having cleared 3 of the most coveted certifications in the field – CFA, FRM & CAIA.

Although you could be a leading top-tier investment management company without having pursued any of these certifications, the chances of doing so increase with more with a crown on your head that speaks about the depth of your knowledge.

It is argued that the CFA curriculum contains all that is needed for investment management. However, its focus revolves more around the generation of returns. The FRM curriculum, however, tells you how you could minimize your risk.

For you to be a better investment manager, you need to effectively balance both these requirements collectively.

Therefore, for those seeking to enter investment management, pursuing FRM along with CFA would be helpful in the long run.

For an in-depth comparison, read CFA vs FRM – a detailed comparison.

Interested in Financial Services at large but not willing to be restricted to the risk management domain?

This is tricky. While in Part 1 of the FRM curriculum, you will learn a great deal about the basics of finance, the Part 2 exam is tailored specifically into applied risk management techniques.

Overall, the final decision in this situation should be based upon where you stand in your career at the moment.

If you are an undergraduate student who is willing to break into the financial services industry, initial progress with the CFA program would be a better option than FRM.

However, if bagging an immediate job is not at the top of your priority list, and you are looking at the big picture, at senior Risk Management roles, having a good understanding of financial risk (even when that is not the main function of your job) shall help you have a wider helicopter view than you normally would and give you an edge over someone who has not pursued the certification.

After all, there has been increasing emphasis on the importance of risk management, especially after the great financial crisis in the previous decade.

Have an MBA degree, are interested in Risk Management, but do not recall what you studied in B-School?

If you are interested in working in financial risk but are not sure that you have the required level of knowledge and expertise to enter and excel, or, are rusty with the risk management that you studied at school, then pursuing the FRM would be a very smart decision to make.

Since the FRM curriculum is revised yearly so as to translate the latest trends and practices of the sector to all candidates, this certification will help you learn from a curriculum that has direct practical applications as well as state-of-the-art knowledge resources to excel in this field.

Not to mention, for the purpose of increasing traction on your resume, it would be a cherry on the top of the cake – that is your MBA degree.

Pursuing CA, and are curious about its synergies with FRM?

Expertise in risk management coupled with advanced knowledge and understanding of financial statements brings about great synergies for risk managers.

Since the FRM is an application-based course, it would broaden the thinking horizon of a CA student. Moreover, most of the senior positions in risk management at top-tier investment banks like Credit Suisse, UBS, et cetera are held by chartered accountants.

To your surprise, too many of them also hold the FRM certification alongside it. Fundamentally, risk management involves an in-depth analysis of the annual reports and financial statements of an enterprise in light of the Basel norms.

Regardless to say that the CA curriculum does give its students an edge in the analysis of financial statements.

Bottom Line

If you are passionate about risk management, you should go for it.

However, it is possible that you do not belong to any of the above mentioned situations. As a thumb rule, if you are working in financial services, then you could always have some indirect benefit.

But in many situations, it might not be worth your time to spend so much time and money towards it – especially if you are desperately looking for a generic entry-level role in finance.

In the long run, however, it makes sense for investment management professionals to pursue it along with the CFA charter.

It is good to know the structure of exam before beginning preparation. This should further allay your doubts as to whether or not the FRM certification would be useful for you. You should find yourself in a better place while studying the interconnected chapters as you would be able to understand how each one of them contributes to the whole.

SYLLABUS

In the Part 2 exam, the syllabus builds further on the fundamentals covered in the first part. You will specialize in risk management specifically and try to connect the learnings to real-world applications of the risk management function.

The part 2 exam consists of 6 subjects namely:

SubjectWeightage
Market Risk Measurement & Management20%
Credit Risk Measurement & Management20%
Operational & Integrated Risk Management20%
Liquidity & Treasury Risk Management15%
Investment Management15%
Current Issues in Financial Markets10%

Now let’s have a brief look at various components of the FRM Part 2 Syllabus –

Market Risk Measurement & Management

  • Under this section, you will learn about the different methods of calculating the ‘VaR (value at risk) estimate’. To test its authenticity, you learn about back-testing which tests the accuracy of the estimate when applied to the available empirical data. In the real-world scenario, this is very useful to test the efficiency of the estimate. Since the FRM curriculum greatly focuses on the banking industry, the concerned Basel norms and their implications in making estimates have also been subsequently discussed.
  • Another set of chapters discusses the ‘correlation estimate’ in detail. It includes the different types of correlations that can be calculated as well as the real-world characteristics exhibited by this estimate. We then discuss ‘Copulas’ as an alternate estimate to correlations.
  • The final set of chapters focuses on interest rates. This shall build upon your knowledge from the fixed income section of the Part 1 exam. You use the binomial model to value bonds. It discusses models that determine the movement of interest rates.

Credit Risk Measurement & Management

  • To begin with, this part introduces you to the credit risk industry. It talks about the meaning of ‘credit risk’, discusses several methods of its evaluation and the typical mitigants.  It also acquaints you with the kind of skills that the job of a ‘credit analyst’ commands and how credit risk management is done within the banking industry.
  • Next, you learn about the methodologies used by rating agencies to arrive at their ratings. You learn the ways of measuring credit risk and the models that are used to calculate the credit risk of portfolios.
  • Then, it discusses the counter-party credit risk. Say you entered into a futures contract with a person ‘X’. The credit risk will arise for that person who ultimately has a negative futures position. This topic covers the collateral requirements w.r.t such risks and their pricing.
  • Once you’ve gotten a hang of the majority of things, you finally learn about structured products like Collateralized Debt Obligations (CDOs), Credit Default Swaps (CDSs). Et cetera that are created with the help of a process called securitization and used to transfer and mitigate credit risk from one party to another.

Operational & Integrated Risk Management

  • This section starts with explaining the importance of operational risk management and how IT infrastructure is critical to maintaining the quality of risk data. These chapters are majorly theoretical.
  • You’ll learn about the calculations regarding the economic capital of an enterprise (i.e. the amount of equity that it requires to stay solvent).
  • From the perspective of a banking organization, you shall also learn to compute the risk-adjusted return on capital.
  • Then, you learn about liquidity risk and how it adds to the VaR estimate. You also learn its impact on the balance sheets of banking companies. Finally, you evaluate the quality of the risk measures.
  • There are banks called ‘Dealer Banks’ which have been discussed under this subject. They take opposite positions in transactions. You will learn about the risks unique to such banks.
  • Basel norms have been discussed in detail – the calculations regarding the VaR for Operational, Market & Credit risks and the amount of economic capital to be maintained by the banks accordingly.

Liquidity & Treasury Risk Management

  • This is a new section introduced in the year 2020. It discusses the different types of liquidity risks and their sources. You will also learn about the Warning Indicators that help prepare for such risks.
  • It explains the ways of management of liquidity reserves as well as those of managing intraday liquidity. Through the process of stress testing and improved risk reporting, better estimates of liquidity risk can be calculated. It is also useful to plan contingency funds for liquidity crises. This has been discussed subsequently. You will also learn about repurchase agreements and how they could bring about counterparty credit risks and liquidity risks.
  • Finally, you will learn more about the management of interest rate risks and the concerned asset-liability management. It also analyses the shortage of US Dollars in the financial crisis.

Investment Management

  • Building upon the Portfolio Theory covered in the Part 1 exam, this section starts with analyzing different factors that impact the portfolio returns. You learn the impact that illiquid assets bring to the overall portfolio risk.
  • The next chunk of readings is interrelated to the VaR portion covered in the 1st Book (i.e. Market Risk Measurement & Management). Portfolio performance evaluation using key ratios have also been discussed.
  • Besides, you’ll learn further on hedge funds and the different strategies that they follow. You will learn how good due diligence can help avoid the fund failures that have happened in the past.

Current Issues in Financial Markets

  • This final section witness a change year after year due to the underlying efforts of the FRM committee to discuss the issues and research papers that are most relevant among risk professionals at the point in time the exams are to be given. The syllabus for a given year, however (i.e. May and November) does not see any significant changes.
  • As of 2020, this covers topics such as risks relevant to blockchain technologies and FinTech companies and their financial stability. It discusses the presence of Artificial Intelligence, Machine Learning, Digital money, etc. and the risks associated with them.

FEES

Considering that a candidate has already paid the one-time enrollment fee of $400, the fee to take the Part 2 exam is:

Early$350
Standard$475
Late$650
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EXAM PATTERN

  • In total, the Part 2 exam consists of 80 questions to be answered in a period of 4 hours. Thus, on an average, a candidate has 4 minutes to answer a question.
  • Similar to Part 1, questions in Part 2 are also indirect. It is possible that there may be a set of linked questions based on a given scenario mentioned.
  • The pass rate for the Part 2 exam is approximately 50% and it must be noted that the results of the Part 2 exam are not declared if the candidate has not cleared the Part 1 exam.
  • While there is no set ‘pass percentage’, based on past results, it is said that answering 60 questions correctly is generally considered a safe score.
  • There is no negative marking in the exam.

SALARIES AND JOBS

According to certain estimates, the average salary of an FRM charter-holder in India is somewhere close to INR 10,00,000 per year. Meanwhile, the overall average salaries for charter-holders in the USA stands at $99,000 per year. However, these numbers vary for different job profiles and increase with the level of experience.

Typically, the majority of FRMs are employed in the banking industry due to the huge transactions that they enter into and the amount of capital that they manage. However, FRM jobs are not just restricted to the banking sector. For detailed information about the job prospects after FRM, visit – FRM: Scope, Salary & Jobs.

It is a good idea to have a helicopter-view of the exam before you begin your preparation. This should further allay your doubts as to whether or not this certification would be useful for you.

In this article, we will cover the Syllabus, Fees and Exam structure of FRM Part 1. We will also have a look at the Job opportunities after clearing Part 1, if any (You might be in for a surprise!)

SYLLABUS

Having a basic framework in mind about the overall picture of things covered in Part – 1, you should find yourself in a better place while studying the interconnected chapters as you would be able to understand how each one of them contributes to the whole. Being aware shall also keep you from questioning “What’s the use of studying this?” at various points of time during your preparation.

The part 1 exam consists of 4 subjects namely:

SubjectWeightage
Foundations of Risk Management20%
Quantitative Analysis20%
Financial Markets and Products30%
Valuation and Risk Models30%

1. Foundations of Risk Management

  • To begin with, it talks about the meaning of risk and the various types of risks that are faced by organizations in general. It also explains the various quantitative and qualitative methods of measuring and managing such risks. it familiarizes you with the way in which firms manage these risks as well as the structure followed by banks and other financial institutions to ensure proper governance is in place .
  • It also talks about the transfer of credit risks (risk that the opposite party does not meet its end of obligation in a contract) from one firm to another through the use of certain financial products called ‘credit derivatives’. You will also learn about the significance of such products in the 2007-09 global financial crisis. 
  • One of the most important portions in this subject is on the ‘Portfolio Theory’ that explains how investors who are risk-averse invest in the markets and aim at maximizing their risk adjusted returns (returns earned per unit of risk taken).
  • An important part of this subject deals with learning about the past financial disasters – what triggered them and how they can be prevented from recurring in future.
  • Lastly, it talks about the institute’s code of conduct which all the members must abide by. Although this subject is majorly theoretical in nature, the questions asked in the exam are fairly application based. You should not be surprised to come across questions in the form of case studies that require for you to have a thorough understanding of the subject.

2. Quantitative Analysis

  • This subject starts with acquainting the uninitiated with the concept of ‘Time Value of Money’ (which means that the value of $1 today is not the same as the value of $1 two years from now). Since forecasting what could happen is an important task in risk management, you will find a couple of chapters dealing with ‘probability’. 
  • As the role of a risk manager involves dealing with large amounts of past financial data, this subject also explains certain basic concepts of statistics and how these tools could be used to analyze and interpret data to make decisions about future. You will also learn about the various types of distributions that a data set may correspond to. Based on these distributions, you will then learn to test the likeliness of various hypotheses which you may come up with while making the day to day decisions in a financial institution.
  • Another group of chapters in this subject deal with the concept of regression. This helps you predict the value of one variable by looking at it as a function (or outcome) of certain other variables. For example, you might be expressing the value of the sales of a company as a result of the amount of advertisement expenditure spent by it. This technique helps build relationships between dependent variables and put them into mathematical equations. This is further used in the chapters about time-series analysis where you forecast data based on shifts in time period.
  • The subject also has a few readings that deal with forecasting of the volatility and correlations that exist between various asset classes. This is crucially important while managing the risk for a company and is explained in much detail in the fourth subject.

3. Financial Markets & Products

  • Here, first you’ll learn about various financial institutions – commercial banks, investment banks, insurance companies, hedge funds, mutual funds, et cetera.
  • Majorly, in this section, the focus is on different types of derivative products (financial products that derive their value from an underlying asset) – forwards, futures, options and swaps. All these derivatives are explained in detail along with their application in the overall risk mitigation process. The discussion on options is continued further in the fourth book.
  • The other important portion of this subject deals with the concepts relating to fixed income. Fixed income products include bonds, Mortgage Backed Securities (MBS), et cetera. These topics are also extensively explained in this book.

4. Valuation & Risk Models

  • A measure that is very frequently used by the banking industry is the VaR (Value at Risk). This subject elaborates in detail about the different ways in which it is possible to arrive at this measure. This measure could typically tell us – “There are 99% chances that the amount of losses would not go beyond $1 million in the next 1 year”. In this case, $1 million was  the VaR. 
  • It also discusses about various rating agencies, the types of ratings given and the mechanism based on which these ratings are awarded. You study risk on an overall country level based on various macroeconomic trends. Besides, there is also a discussion on credit risk – (the risk that the counter party shall not meet its end of the obligation on time) and operational risk. 
  • The most important portion here deals with the fixed income products. This is a detailed extension of the fixed income securities introduced in the previous book. This explains in detail, the relationship between the prices of fixed income products to interest rates in general. After studying this, you shall be able to value fixed income securities like bonds.
  • Finally, you will also find readings that are an extension of the options portion from the previous book. These deal with the valuation of options using mathematical models. You also learn about the various factors that go into the determination of value of options.

FEES

Considering that a candidate has already paid the one-time enrollment fee of $400, the fee to take the Part 1 exam is:

Early $425
Standard $550
Late$725
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EXAM PATTERN

  • The FRM Part 1 exam consists a total of 100 Multiple Choice Questions (MCQs) questions to be answered in a span of 4 hours. Thus, effectively, a candidate has 2.4 minutes to answer a question.
  • These questions are mixed in terms of difficulty. There might be questions that may simply require the application of a formula. However, there may also be questions that require the application of a concept learned in a real-life case.
  • More often than not, it has been observed that the chapters that are theoretical in nature invite more complex questions in the exam. It is therefore advisable to focus on the concept-clarity while studying all the chapters.
  • The pass rate for the exam is approximately 40%.

Must ReadHow to Prepare for FRM Exam?

SALARIES & JOBS

Since the Part 1 curriculum is a building block for the specialized risk management syllabus in the Part 2, it is unlikely to land a job in the field of Risk Management after clearing the Part 1 exam alone. It is therefore important to clear both the exams to be fit for most risk management roles.

The questions on the FRM exam are fairly application-based, which means that a thorough understanding of the concepts is quite essential. Ultimately, the quality of preparation would be determined by the number of hours spent, more so on the focus given on practice questions.

In order to pass the FRM exam with surety, you need to have a clear preparation strategy tailored specifically for you. The following points should help you formulate yours:

Knowing your personal short-term goals

Typically, it is believed that the FRM exam requires more than 300 hours of preparation. But this number would vary person-to-person depending on the familiarity one has with the topics covered and their grasping speed. There are about 60 readings in the FRM Part 1 and 101 in the FRM Part 2 exam.

Naturally, some readings would require more time than others. For both the exams, you would want to leave the last 20 days of your preparation for revision (since the FRM syllabus is fairly vast, there is a lot of information that you must be thorough with on the day of your exam).

You can divide the total number of readings by the number of days you have left after deducting the 20 days for revision. This would give you the number of chapters that you need to do per day.

For most people, it is not possible to study 7 days a week. This is more common for those who’re writing the exam alongside their routine job. They can make a fair estimate of the number of readings they need to do per day based on the ‘true’ number of days that they can devote to studying per week.

Choice of study material

Once you have the ‘number’ of topics that you need to complete on a per-day or a per-week basis, you need to decide on the study resources that you plan on using. There are numerous resources available on the internet – but studying from too many sources would only confuse you more. The most famous preparation providers for the FRM exam include:

  •  GARP Readings – GARP readings are obviously are the most thorough resource for studying for the exam. However, because of its extensive nature and complex language used, the institute material is not preferred by most – owing to the constraints on the time available for preparation.
  •  Bionic Turtle – This is a favorite resource for many and one of the most famous preparation providers for the exam. It is believed to have the biggest question bank. The level of questions in the Bionic Turtle is a tad bit above the level of questions asked in the exam. Therefore, a complete practice of these questions would help you easily answer most questions that you would encounter in the exam.
  •  Kaplan Schweser – One of the most famous FRM preparation providers, Kaplan is widely known for the simplicity with which all the concepts are being explained in the notes. Studying from the Schweser notes would be much easier than most other sources. However, the level of questions you would come across in their question banks may not be sufficient to clear the exam with surety. The questions in the actual exams are a bit tougher.

My Take – Study the concepts from the notes given by Schweser so as to have a good grasp of the concepts. However, to increase the chances of clearing the exam, it is highly advisable to practice the questions from the question banks provided by Bionic Turtle.

Video Classes and Lectures

Depending on your personal preference, some of you may feel more comfortable to have a classroom experience when studying for the exam. There are numerous preparation providers for the FRM. You can find out the trainer that suits you the best. Some of the most popular FRM preparation providers include:

  • The WallStreet School – The Wallstreet School is an approved Prep Provider of GARP. The course covers HD Videos, Summarized notes, question banks and Mock tests. Their uniqueness lies in the fact that they also inculcate practical knowledge in the course since the trainers themselves are Risk Managers in renowned companies such as HSBC and Blackrock.
  • Kaplan – Kaplan is another approved Prep provider of GARP. It delivers the course in both Recorded and Instructor Led Live format. Their Prep course also include Multiple quizzes and tests. You can retain the access to their material if you fail in the FRM exam, till the time you clear it.
  • Wiley – Wiley gives the access to the study material till the time you clear the exam, even if it’s a repeat attempt. Apart from videos and notes, the course comes with an adaptive test planner which will help you make a blueprint of your preparation strategy. Their concepts are covered using bit sized videos which makes them easy to grasp.

How to study?

It is very important to have a comprehensive understanding of most, if not all of the readings in order to pass the exam.

A common problem while preparing is that there are a lot of topics that are interrelated. This could be a problem for those uninitiated. The key here is to not bother too much if there is a term that you come across in one of the chapters that you do not completely understand.

It is quite likely that it would be covered extensively in the subsequent chapters. You uncheck all your doubts while you’re revising, as, at that point, you will not have a problem in understanding certain portions of some chapters that are somewhat interrelated.

Another habit that will go a long way while preparing, specifically towards the time when you’re nearing the date of the exam is making your own summarized notes after you are done studying a chapter. This is essentially important as you will not find time to study each and everything again in the last 20 days that you have earmarked for revision.

Therefore, it shall help if you have kept out a few sheets that contain all the formulas and a few important concepts in your own handwriting and symbolisms (a mind map, if you will) that helps you recall that topic in the shortest span of time possible.

How to practice?

A common mistake that candidates make is leaving practice for later. The level of questions to be practiced is fairly complex and they also supplement your overall understanding of the chapter. This is because the questions are often in the form of situations wherein you may apply something that you have studied.

It is therefore recommended that the practice for one chapter is done right after studying it. In the event that the time is available, one should also try to solve the questions more than once.

GARP also releases a sample paper approximately a month before the exam. Solving this paper should give you a fair idea about the overall level of paper and the type of questions being asked in the exam.

Since the curriculum keeps experiencing changes year after year, it is possible that many questions in the past year question papers do not fall within the ambit of the syllabus relevant for you. This would be more for older years’ papers.

Bottom Line

With a majority of FRM candidates being working professionals, it becomes difficult to stick to a study-routine every day. It is however important to accomplish your short-term goals at least on a weekly basis. There can be numerous permutations as to which days of the week you could to spend in watching videos, and on which days you can study from the book and solve questions.

But the ultimate key to clear the exam lies in being consistent in reaching your short-term goals and making your own notes (in any from) so that they help you recall the chapters quickly during the last days of revision.

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The Financial Risk Manager ® (FRM) is a leading certification in the field of risk management awarded by the Global Association of Risk Professionals (GARP), USA. With ever-increasing competition in the job markets, it is all-the-more crucial for professionals to exhibit that their knowledge and skills correspond to the international standards. Earning the FRM certification helps a risk manager prove such value to his/her employer.

Scope:

The curriculum entails a specialized knowledge of risk management techniques, quantitative and qualitative skills that helps a professional to specialize in certain roles.

Typically, the work done by FRMs today include:

  • Managing Market Risk (managing losses that occur due to factors that affect the overall financial markets, e.g. change in interest rates, recession, natural calamities, etc.)
  • Managing Credit Risk (managing the risk of default or delay in the repayment of borrowed funds – this is significant primarily in the banking companies)
  • Recognizing threats to an organization and taking steps to minimize them
  • Estimating the quantum of risk being faced by a company
  • Making relevant recommendations to the management to minimize the risk

Based on a survey, only 50% of the total tasks of FRMs is spent managing the various risk.

Moreover, as the case is in most jobs, as the experience level increases, the role sees a gradual shift from performing risk managing tasks to managing people who perform such tasks.

The FRM certification helps to build certain skillsets among the professionals who take up this course. Skillsets which are common to most certified Financial Risk Managers are:

  • Research & Strategy : FRMs are known for appreciating lessons learned from the historical financial situations whilst also assessing the current fundamentals and use their quantitative and qualitative techniques to deliver forward-looking insights.
  • Trading : In the field of trading of securities, an FRM is able to look beyond the face value performance of a security or a portfolio. By penalizing securities having excessive risk exposures, an FRM can maximize the return earned per unit of risk. Given an overall risk appetite of the portfolio, the trader then can allocate the risk to more efficient alternatives, which earn a higher return per unit of risk taken.
  • Model Building & Valuation : They also exhibit an understanding of specific limitations faced by various risk models and assure to validate any model that is in use for the purpose of effective risk management.
  • Product Management : FRMs are also equipped to identify and manage risks associated with the product being offered by the company. These may include the risk of uncertainty regarding the demand for the product, productions costs overruns, loss of sales to competitors stemming from testing, production, or shipping delays. Unless managed, such risks may adversely impact the financial performance of an enterprise.
  • Portfolio Management : FRMs use a risk-aware framework when they evaluate the financial performance of a portfolio in which they make use both of their technical and strategic know-how.

Risk managers may also add value to most organizations by working in certain functions such as – Audit, Treasury, Regulatory Compliance, Accounting & Control. They could consult clients by providing them insights on their risk appetite and help them maximize their returns on a risk-adjusted basis.

Employers:

Naturally, the need for risk management would be very rare in a manufacturing company, for instance. The major demand for risk management professionals stems mostly from the banking industry (ICICI bank, J.P. Morgan, etc.), insurance industry, credit rating agencies (Moody’s, CRISIL, etc.) and certain financial institutions (organizations that deal with huge amounts of money – hedge funds, investment banks, etc.).

However, companies in the energy, as well as the IT sector also deal with various types of risk and therefore have a need for a risk management function. The following snapshots include some of the companies and banks that are known for recruiting most of the FRM candidates.

  • Top Companies which recruit FRMs are ICBC, HSBC, Citigroup, KPMG, Deutsche Bank, Credit Suisse, UBS, PWC
  • Top Banks which recruit FRMs are Chinese Construction Bank, JP Morgan Chase, Wells Fargo, Bank of Americe, Banco Santader

Salaries:

The salaries for FRMs differs across countries on account of factors such as cost of living, demand for jobs, etc. Besides, the quantum of pay also varies across different job profiles at which FRMs are majorly employed.

According to the estimates, the average salary of an FRM charter-holder in India is somewhere close to INR 10,00,000 per year. However, this number varies for different job profiles and increases with the level of experience as shown below:

Meanwhile, the overall average salaries for charter-holders in the USA stands at $99,000 per year. A closer look into the specifics for various profiles and experience levels can be seen below:

According to the U.S. Bureau of Labor Statistics, “the core functions of financial managers, including risk management and cash management, are expected to be in high demand over the next decade” which shall bring about some growth in the overall salary levels for FRM charter-holders.

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Most of the students who are in their college graduation and want to make a career in finance ask the question of whether they should pursue CFA or FRM or both as a career option.

It is one of the hottest topics during your college days and is a debate that has been there for a long time now. Let’s try to understand each course in detail and then decide as to what suits you the best.

Which is more SUitable?

Firstly I’ll be giving a glimpse into both the courses from a broad perspective.

CFA is the most generic international course in finance, as it covers every topic of finance in absolute detail and it is the most highly recognized and respected course in the field of finance throughout the world. CFA is best suited for students who want to build their career in :

  • Equity Research
  • Investment Banking
  • Mergers & Acquisitions
  • Private Equity
  • Corporate Finance
  • Portfolio Management
  • Financial Advisory

Roles related to equity research, portfolio management is where you research and identify some investments that best suits your client’s interests and manage their money in order to generate returns for them. Investment banking is where you help corporate companies in fund raising, consultation, Merger and Acquisitions, etc.

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FRM, on the other hand, is a very niche course that is focused entirely in risk management. FRM also is recognized internationally and is a highly respected course. FRM is conducted by GARP which was founded in the year 1996 and is headquartered in New Jersey U.S.A. FRM is best suited for profiles like :

  • Credit Risk
  • Market Risk
  • Operational Risk
  • Banking and Treasury
  • Quant Trading

All these roles might seem a little scary and confusing to some of you who are a complete newbie in financial markets. To give a brief on these roles related to risk management is where you access and analyze various types of risks and take precautionary measures to avoid risks beyond a certain limit.

Verdict – To sum it all up one should pursue FRM as a career option if he/she is more inclined towards risk management and quants. On the other hand, CFA as a career option should be pursued if one is more inclined towards equity markets. CFA also covers some portion of risk management but is not that deep as FRM is.

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Difference between CFA and FRM

CriteriaCFAFRM
EligibilityMust be in the final year or have a bachelor degree/ 4 years of work experience in any fieldNo work experience or educational qualification is required
Exam DetailsLevel – I 240 MCQ Questions Exams held in June & December Level – 2 120 MCQ Questions Exams held only in June Level – 3 10 essay type questions and 60 MCQ Questions Exams held only in JunePart – 1 100 MCQ Questions Exams held in May & November Part – 2  80 MCQ Questions Exams held in May & November
Passing RatesLevel – I     42% Level – 2    45% Level – 3    52%Part 1   43% Part 2   54%
Time taken2-3 Years1 year
Fees$450 Registration Fees (Valid Throughout) $700/$1,000/$1,350 for each level depending on the time of registration$400 Registration fees (Valid for 4 Years) $350/$475/$650 for each Part depending on the time of registration

Which is more Difficult CFA or FRM?

Candidates who have done both CFA & FRM usually state that FRM is comparatively more difficult as the questions in FRM are all application based as there is very little theory in FRM. Although the course structure of CFA is lengthier and takes much more time to prepare. The most common reason candidates say that FRM is more difficult is due to the use of advanced mathematics which is not required in CFA. So, if you are good in mathematics and you are keen on a future related to it, FRM is a better choice for you.

CFA and FRM Subjects

In total CFA has 10 subjects for Level 1 & 2and 7 subjects for Level 3

FRM has a total of 4 subjects for Part 1 & 5 subjects for Part 2 

CFAFRM
Ethical and Professional Standards (Level 1,2,3)Foundations of Risk Management (Part 1)
Quantitative Methods (Level 1,2)Quantitative analysis (Part 1)
Economics (Level 1,2,3)Financial Markets and Products (Part 1)
Financial Reporting and Analysis (Level 1,2)Valuations and Risk Models (Part 1)
Corporate Finance (Level 1,2)Market Risk Measurement and Management (Part 2)
Equity Investments (Level 1,2,3)Credit Risk Measurement and Management (Part 2)
Fixed Income (Level 1,2,3)Operational and integrated Risk Management (Part 2)
Derivatives (Level 1,2,3)Risk Management and Investment Management (Part 2)
Alternative Investments (Level 1,2,3)Current Issues in Financial Markets (Part 2)
Portfolio Management (Level 1,2,3)                                        –

Top few firms that recruit CFA and FRM

  • Deutsche bank
  • Citi Group
  • Goldman Sachs
  • J.P. Morgan Chase
  • Morgan Stanley
  • HDFC Bank
  • ICICI Bank
  • SBI Bank
  • Black Rock
  • Mirae Asset Management
  • Morning Star
  • Nomura
  • CRISIL
  • Care Ratings
  • Bloomberg
    And many more

Average CFA Salary/Package Vs FRM Salary in India

CertificationCFAFRM
Level  1 / Part 13- 4+ Lakhs P.A.3- 4+ Lakhs P.A.
Level  2 / Part 26- 10+ Lakhs P.A.6- 10+ Lakhs P.A.
Level 312+ Lakhs P.A.
Charter Holder12-18+ Lakhs P.A.12-16+ Lakhs P.A.

As you can see on the salary side both the courses are almost similar. Also, note these figures are based on assuming that the candidate is a fresher in the industry.

In a world where education is gaining increasing importance, super-specializations are the way to go. For those in the Finance Industry, FRM is one of the courses that can help you land the right job or get the promotion that’s been evading you! 

In this article we’re going to brief you regarding everything you need to know about the FRM Course, right from its curriculum and fees to the scope and eligibility criteria for its membership. 

What is FRM?

Before we get into the details of the course curriculum, it is better to understand what the course is about, its ultimate objective and who the course is best suited for. 

FRM stands for Financial Risk Manager. The FRM Program is a course offered by the Global Association of Risk Professionals (GARP, USA). This course is designed to help professionals better equip themselves to understand and manage risks faced by businesses which leads to a career specialized in Risk Management.

FRM Course Eligibility:

There is no basic criteria to undertake the FRM Examinations. A student in first year of Graduation is also eligible to appear for the FRM Part 1 exam. However, there are certain criteria to be fulfilled in order to obtain the FRM Certificate. 

In order To be eligible to get certified as a Financial Risk Manager, the following criteria need to be satisfied:

  • You must have cleared Level 1 and 2 of the FRM Program, within 4 years of applying for the Part 1 exam.
  • You must have a Minimum 2 years of relevant work experience in Risk profile, within 5 years of clearing Part 2 exam.

FRM Exam Pattern

The FRM exams (Both Parts) are held twice a year – on the third saturday of May and November. One can appear for both the parts on the same day. However, it is not recommended due to enormity of syllabus. In essence, a candidate can clear both levels of the examination within one year minimum. 

Given below is a table reflecting the exam pattern of the two parts of FRM Examination –

ParticularsFRM Part IFRM Part II
No. of Questions100 MCQs100 MCQs
Duration4 Hours4 Hours
TimingsMorningAfternoon
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FRM Course Fees

The Exam Fees depends on the level and as is common with several International Programs, offers a varied fee depending upon the deadline opted for – Early, Standard or Late. When you enroll for Part I exam, you need to pay a one-time enrollment amount of $400, which is not applicable in Part II.

Exam Level Enrollment Fees Early  Standard Late
Part I $400 $425 $550 $725
Part II 0 $350 $475 $650

FRM Curriculum:

The most important feature of any program is its curriculum. We’ve identified the key areas of study covered across the FRM Program.

FRM Part 1 Subjects:

TopicWeightage
Foundations of risk management 20%
Quantitative analysis 20%
Financial markets and products 30%
Valuation and risk models 30%

FRM Part 2 Subjects:

TopicWeightage
Market Risk Management 20%
Credit Risk Management 20%
Operational & Integrated Risk Management 20%
Liquidity and Treasury Risk Measurement and Management 15%
Risk management and investment management 15%
Current issues in financial markets 10%

Job Profiles and salary of FRM Charter :

Any profile that a FRM Charterholder gets into, will involve calculation of risk, some way or the other.

Take an example of a Risk Manager of an Insurance company. The Risk Manager would determine whether or not to extend an insurance cover to a particular asset, person or a business . He uses various quantitative tools to arrive at the decision. The FRM course teaches you such tools to arrive at such decisions.

Upon completion of the certification, regardless of the title given to you, your basic job profile would focus around Risk Analysis, Risk Identification and Risk Management for various investments and projects that you work on. 

  • Job profiles – Risk Analyst, Operation Risk officer, Risk consultant, Portfolio Manger, Credit risk specialists etc.
  • Average Salary – The Salary of FRM Charter depends upon the work experience, Job profile and the recruiter. Average salary of FRM is $99,000 in USA and INR 10,00,000 in India
  • Recruiters – Recruiters Include Investment Banks, Commercial Banks, Insurance companies and consulting firms such as HSBC, CITI, Goldman Sachs, JP Morgan, Allianz etc.
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Frequently Asked Questions (FAQs)

What is the salary of FRM Charterholer?

The Salary of FRM Charter depends upon the work experience, Job profile and the recruiter. Average salary of FRM is $99,000 in USA and INR 10,00,000 in India

What are the Job opportunities after FRM?

A FRM Charter can work in Job profiles such as Risk Analyst, Operation Risk officer, Risk consultant, Portfolio Manger, Credit risk specialists etc.

What is the Fees of FRM Exam?

Initial enrollment fees for FRM Exam is $400 . The additional registration fees for Part I is between $425 to $725 and for Part II is between $350 to $650 depending upon the deadline you want to apply in.