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FRM Study Guide

FRM Study Guide

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Published by lmelo2

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Categories:Business/Law, Finance
Published by: lmelo2 on Jul 29, 2012
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2012 FRM
®
ExamPreparation Handbook 
The designation recognized by riskmanagement professionals worldwide
 
2012 Financial Risk Manager (FRM®) Exam Preparation Handbook© 2012 Global Association of Risk Professionals. All rights reserved.
1
Suggested Study Strategies for theFRM Examination
The purpose of this handbook is to assistFinancial Risk Manager (FRM®) candidatesin their preparation for the FRM Examina-tion by suggesting strategies for completingthe reading material outlined in the FRMStudy Guide and FRM AIM Statementsdocuments, which together form the blue-print for exam topic coverage.
About the FRM Examination
The FRM Examination is a practice-orientedexam offered by GARP (the Global Associa-tion of Risk Professionals) and designed toassess a candidate’s knowledge and under-stand-ing of the skills necessary to functioneffectively as a financial risk manager.GARP is governed by a Board of Trusteescomprised of top risk professionals andacademics from around the world. As aprofessional association with global mem-bership and an extensive professional andacademic chapter network, GARP is in aunique position to ascertain standards andassess evolving trends in risk managementpractices. To calibrate and benchmark itsunderstanding of the demands of the globalrisk management community, GARP alsoconducts formal job task analysis surveys todetermine the knowledge, skills and abilitiesrequired to function effectively as a finan-cial risk manager around the world.On an annual basis, GARP’s FRM Commit-tee, comprised of leading risk managementprofessionals and academics, establishesthe topic areas to be tested in the FRMExamination. The topic areas so determinedare then published in the FRM Study Guide.More detailed Knowledge Points associatedwith these topic areas are contained in theFRM AIM Statements, which are also pub-lished and made available to registeredFRM candidates.
Preparation for the Exam
The FRM Exam is a self-study program.In past exams, the typical successful FRMcandidate reports to have studied between200–400 hours. The exact amount of timethat is appropriate for any specific candi-date will, however, vary from candidate tocandidate depending on factors such aswork experience and knowledge base ofrisk management and finance.Due to the sizeable amount of materialcovered in the exam, it is important that acandidate create a weekly study schedulethat is designed to spread out learningof the material over an extended period.Cramming for the exam in the few weeksleading up to it is not recommended. In thispreparation handbook, we recommend astudy plan for each part of the FRM Exami-nation. Each plan is split into 20 sessionsintended to serve as a blueprint for thecandidate in structuring their own scheduleand pacing themselves for the exam.
The purpose of this handbook is to assist FRM candidates in their preparation for the FRM Examinationby suggesting strategies for completing the reading material outlined in the FRM Study Guide and FRM AIM  Statements documents, which together form the blueprint for exam topic coverage.
 
2
© 2012 Global Association of Risk Professionals. All rights reserved.2012 Financial Risk Manager (FRM®) Exam Preparation Handbook
Study GuideAIM Statementsand Practice ExamsFRM ExamStructure
The Study Guide contains a full listing of all the readings that are recommended as preparationfor the FRM Examination. In addition, Key Concepts appear as bullet points at the beginning ofeach section of the Study Guide and are intended to help candidates identify the major themesand knowledge areas associated with a particular section.The AIM Statements contain all of the suggested readings and Key Concept information thatare in the Study Guide as well as more detailed Knowledge Points that form the basis for theFRM Examination questions. To facilitate a candidate’s preparation, each Knowledge Point inthe AIM Statements is associated with a suggested reading from the Study Guide which sup-ports and explains it. Candidates who compare the Key Concepts to the Knowledge Points willnote that in most cases several Knowledge Points are related to each broader Key Concept.Thorough preparation for the Examination based on the readings listed in the Study Guide,focused on an understanding of the Knowledge Points described in the AIM Statements isstrongly recommended.The FRM Examination consists of two parts—Part I and Part II—that are both offered twice ayear on the third Saturday of May and November. Part I is an equally-weighted 100 questionmultiple-choice exam offered in the morning of the exam day and Part II is an equally-weighted 80 question multiple-choice exam offered in the afternoon of the exam day.Both Part I and Part II have a maximum allowable time for completion of four hours.It is important to note that Part I and Part II of the FRM Examination must be passedsequentially. Therefore, while it is possible to sit for both parts of the Examination on the sameday, a candidate must receive a passing score on Part I of the Examination before GARP willscore his or her Part II Examination. Most candidates elect to take Part I and Part II on separateexam administration days.
Part I of the FRM Examination covers the fundamental tools and techniques used in riskmanagement and the theories that underlie their use. Specific areas of coverage and theirweighting in the exam are:
Foundations of Risk Management
(20%)
.
This area focuses on a candidate’s knowledge offoundational concepts of risk management and how risk management can add value to anorganization. An understanding of the trade-off between risk and return, the construction ofefficient portfolios, fundamental asset pricing models, and enterprise risk management frame-works are covered. To ensure that important lessons from history are not lost, a review ofmajor financial disasters from the past is included in this section. To emphasize the importanceof ethics as a fundamental requirement for sound risk management, applications of the GARPCode of Conduct to professional situations are covered in this section as well.
Quantitative Analysis
(20%)
.
This area tests a candidate’s knowledge of basic probability andstatistics, regression and time series analysis, and various quantitative techniques useful in riskmanagement such as Monte Carlo methods, volatility forecasting models, and Value-at-Riskestimation.

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