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Financial Risk Manager (FRM) is a professional designation offered by the GARP (Global Association of Risk Professionals) to investment professionals who complete one examination.
Financial risk management is the practice of creating economic value in a firm by using financial instruments to manage exposure to risk, particularly credit and market risk. Similar to general risk management, financial risk management requires identifying the sources of risk, measuring risk, and plans to address them. As a specialization of risk management, financial risk management focuses on when and how to hedge using financial instruments to manage costly exposures to risk.
Recently, because of the adoption of the Basel Accord, risk management has become very rewarding place in finance. In order to standarize risk managing qualifications GARP (but also some other organizations like PRMIA) offered certification program for people interested in Financial Risk Management. Currently FRM and PRM certificates are the most prestigous and respected designations in this discipline.
In order to be certified as a Financial Risk Manager (FRM) and be able to use the FRM acronym after your name, the following is required:
- A passing score on the FRM Examination.
- Active membership in the Global Association of Risk Professionals.
- A minimum of two years experience in the area of financial risk management or another related field including, but not limited to, trading, portfolio management, academic or industry research, economics, auditing, risk consulting, and/or risk technology.
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Governing body for FRM examination is GARP Association.
The Global Association of Risk Professionals (GARP) is a not-for-profit association consisting of 68100 individuals around the world who are involved in financial risk management. Members come from over 100 countries, and work in regional and global banks, asset management firms, insurance companies, central banks, securities regulators, hedge funds, universities, large industrial corporations and multinationals.
Contact Details:
Global Association of
Risk Professionals
111 Town Square Place
Suite 1215
Jersey City,New Jersey 07310
USA
+1 201.719.7210
E-mail : frm@garp.com • Internet: www.garp.com
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The Candidates are required to pass a single exam covering whole curriculum. The price of the exams depends on the date of payment. For FRM Exam in 2007 prices are as follows:
| Registration Deadlines |
New Candidate |
Returning Candidate |
Early Registration
(March 3 - April 30, 2008)
23.59 EDT (New York time) |
USD 550.00
(USD 400 for exam, USD 150 for GARP membership fee*) |
USD 450.00
(USD 300 for exam, USD 150 for GARP membership fee*) |
Standard Registration
(May 1 - August 31, 2008)
23.59 EDT (New York time) |
USD 700.00
(USD 550 for exam, USD 150 for GARP membership*) |
USD 550.00
(USD 400 for exam, USD 150 for GARP membership*) |
Late Registration
(September 1 - October 15, 2008)
23.59 EDT (New York time) |
USD 950.00
(USD 800 for exam, USD 150 for GARP membership*) |
USD 750.00
(USD 600 for exam, USD 150 for GARP membership*) |
Candidates register online - payment by Credit Card is recommended but other payment methods are also available.
The exam in 2007 will be held in following examination sites:
| United States |
Canada |
| California, Los Angeles |
Montreal |
| California, San Francisco |
Toronto |
| DC, Washington |
Surrey |
| Florida, Gainesville |
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| Georgia, Columbus |
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| Hawaii, Honolulu |
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| Illinois, Chicago |
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| Massachusetts, Boston |
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| Michigan, Ann Arbor |
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| New York, New York City |
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| North Carolina, Charlotte |
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| Ohio, Columbus |
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| Pennsylvania, Philadelphia |
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| Texas, Dallas |
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| Texas, Houston |
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| Washington, Seattle |
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| Rest of the World |
| Australia, Melbourne |
Jordan, Amman |
| Australia, Sydney |
Korea, Seoul |
| Austria, Vienna |
Kuwait, Kuwait City |
Bahrain, Manama Town
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Lebanon, Beirut |
Belgium, Sint Stevens-Woluwe
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Luxembourg |
| Bermuda, Hamilton |
Malaysia, Kuala Lumpur |
| Brazil, Sao Paulo |
Mexico, Mexico City |
| China, Beijing |
New Zealand, Auckland |
| China, Hong Kong |
Nigeria, Lagos |
| China, Shanghai |
Oman, Muscat |
| China [ROC], Taiwan |
Pakistan, Karachi |
| Cyprus, Nicosia |
Philippines, Manila |
| Czech Republic, Prague |
Poland, Warsaw |
England, London
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Russia, Moscow |
| France, Paris |
Scotland, Glasgow |
| Germany, Frankfurt |
Singapore, Singapore |
| Germany, Munich |
South Africa, Johannesburg |
India, Bangalore
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Spain, Madrid |
India, Mumbai/Bombay
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Sweden, Stockholm |
| India, New Delhi |
Switzerland, Geneva |
| Indonesia, Jakarta |
Switzerland, Zurich |
| Ireland, Dublin |
Thailand, Bangkok |
| Israel, Tel Aviv |
The Netherlands, Utrecht |
| Italy, Milan |
Turkey, Istanbul |
| Japan, Tokyo |
United Arab Emirates, Dubai |
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West Indes, Jamaica |
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Calendar
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The FRM exam is a practice-oriented examination. Its questions are derived from a combination of theory, as set forth in the readings, and “real-world” work experience. Candidates are expected to understand risk management concepts and approaches and how they would apply to a risk manager’s day-to-day activities.
The FRM examination is also a comprehensive examination, testing a risk professional on a number of risk management concepts and approaches. It is very rare that a risk manager will be faced with an issue that can immediately be slotted into one category. In the real world, a risk manager must be able to identify any number of risk-related issues and be able to deal with them effectively.
The FRM Examination is a 5-hour, approximately 140 question multiple-choice examination. The examination is split into two sections, each is 2.5 hours in length. The exam is given in booklet form. Questions are not put into categories. FRM Candidate is expected to be able to address risk-related issues in a comprehensive way. Questions will be presented as if the candidate to address and formulate a response to an issue in a real-world environment.
The FRM Body of Knowledge for the examination:
I. Quantitative Analysis – 10% |
Estimating parameters of distributions
Extreme value theory; basic principles
Hypothesis testing
Linear regression and correlation
Mean, standard deviation, correlation, skewness, and kurtosis
Monte Carlo analysis
Probability distributions
Statistical properties and forecasting of correlation, covariance, and volatility |
II. Market Risk Measurement and Management – 30% |
Derivatives on fixed-income securities, interest rates, foreign exchange, equities, and commodities
Emerging market risks including currency crises
Identifying and measuring risk exposures
Interest rate, foreign exchange, equity, and commodity risks
Interest rates and bond pricing
Measuring and managing corporate exposures, including cash flow at risk
Risk budgeting
Stress testing
Valuation and risk analysis of futures, forwards, swaps, and options
Value-at-Risk |
III. Credit Risk Measurement and Management – 25% |
Analyzing special purpose vehicles and securitizations
Bankruptcy including offsets and priority rules
Contingent claim approach and the KMV Model
Counterparty risks
Credit derivatives
Credit ratings
Credit risk management models
Credit spreads
Default probabilities
Interest rates and yields
Margining
Netting
Portfolio credit risk
Settlement risk |
IV. Operational and Integrated Risk Management, Legal – 25% |
Aggregated distributions
Allocation of risk capital across the firm
Basel II Accord
Correlations across market, credit, and operational risk
Definition of risk capital
Differences between market and operational VaRs
Evaluating the performance of risk management systems
Hedging operational risk using financial engineering
Implementation risks of risk management
Internal models approach for market risk
Insuring operational risk
Legal risk
Liquidity risk
Measuring firm-wide risk
Benefits and costs of firm-wide risk management
Severity and frequency distributions for operational risk
Types of operational risk
Workflow in financial institutions |
V. Risk Management and Investment Management – 10% |
Traditional investment risk management
Return metrics (Sharpe ratio, information ratio, VaR, relative VaR, tracking error, survivorship bias)
Implementing VaR
Benchmarking asset mixes |
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GARP Association prepared number of materials to faciliate a learning process of a candidate:
- Study Guide - freely available document that outlines the topics and subtopics covered in the FRM exam.
- Applying Instructional Materials Statements (AIMS) – freely available to paid 2007 FRM candidates.
- 2007 FRM Practice Exams
However, probably the most useful is the The FRM Handbook, 4th Edition by Philippe Jorion. This Financial Risk Manager Handbook shall be considered to be a basic material for all FRM Candidates. It covers most of the FRM examination topics at the appropriate level:
Additional Handbooks recommended by GARP in the Study Guide are of less importance.
Most of FRM candidates participate in FRM preparation courses. Review sessions are offered by a number of third party companies:
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If you have any question about the FRM you may ask it on our FRM Forum. Alternatively GARP provides register-only FRM Forum.
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