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2021 FRM Learning Objectives – Part 10

Estimated reading time: 3 minutes

 

Introduction

We present part 10 of the learning outcomes, as prescribed by GARP.

 

Current Issues in Financial Markets

This area focuses on current issues that have a strong impact on financial markets.

The broad knowledge points covered in Current Issues in Financial Markets include the following:

Reference rates

Artificial intelligence (AI), machine learning, and “big data”

Risk management implications of COVID-19

Phasing out of Libor

Climate risk

Cyber resiliency in the wider financial system

 

Beyond LIBOR

Describe the features comprising an ideal benchmark.

Examine the issues that led to the replacement of LIBOR as the reference rate.

Examine the risks inherent in basing risk-free rates (RFR’s) on transactions in the repo market.

 

Machine Learning: A Revolution in Risk Management and Compliance?

Describe the process of machine learning and compare machine learning approaches.

Describe the application of machine learning approaches within the financial services sector and the types of problems to which they can be applied.

Analyze the application of machine learning in three use cases:

  • Credit risk and revenue modeling
  • Fraud
  • Surveillance of conduct and market abuse in trading

 

Artificial intelligence and machine learning in financial services

Describe the drivers that have contributed to the growing use of FinTech.

Describe the possible effects and potential benefits and risks of AI and machine learning on financial markets and how they may affect financial stability.

Describe the use of AI and machine learning in the following cases:

  • Customer-focused uses
  • Operations-focused uses
  • Trading and portfolio management in financial markets
  • Uses for regulatory compliance

 

Climate Change: Physical Risk and Equity

From the perspective of physical risk, describe the channels through which climate change can affect financial stability.

Explain how climate change and climate risk have affected equity prices and equity valuations.

Discuss how country characteristics such as insurance penetration and economic development impact the extent to which climatic disasters affect equity prices.

 

Central Banking and Financial Stability in the Age of Climate Change

Describe the concept of “green swan”, how it differs from “black swan” and why climate change is considered a ‘green swan” event.

Explain why climate change is a threat to price stability.

Explain why climate change is a threat to financial stability by describing the ways physical and transition risks can materialize.

Discuss the measures that should be considered by members of the financial safety net under the risk, time horizon and system resilience approaches as well as the limitations of these measures.

 

Disruptions in Debt Markets in the COVID-19 Crisis and the Fed’s Response

Describe the evolution of bond and CDS prices during March-April 2020.

Compare the developments in debt markets during the Great Financial Crisis of 2008-2009 and during the COVID-19 crisis.

Explain the effects of frictions and arbitrage limitations on price movements in debt markets during March-April 2020.

Explain the Fed’s interventions in debt markets during March-April 2020 as well as the rationale for and effects of these interventions.

 

Global Financial Stability Report: Markets in the Time of COVID-19

Describe the developments in financial and commodity markets during March-April 2020.

Discuss the global financial vulnerabilities intensified by the slowdown in economic activity and tightened financial conditions following the COVID-19 outbreak.

Explain the various monetary and financial policy responses to COVID-19 as well as the future steps that should be taken.

 

AML and Cyber Resilience Measures

Explain the increase of cyber threats faced by financial institutions because of the Covid-19 crisis.

Explain the cyber resilience measures taken by international and national financial authorities in response to the increased cyber threats since the outbreak of Covid-19.

Explain the anti-money laundering (AML) and anti-terrorism financing (ATF) measures taken by international and national financial authorities in response to the increased ML and TF risks since the outbreak of Covid-19.

 

Replacing LIBOR

Explain the key issues that could cause systemic disruption when LIBOR ends.

Explain the current state of the transition and the challenges that lie ahead.

Describe the government institutions’ role in the transition.

 

Cyber Risk and the U.S. Financial System

Explain the direct costs of and the spillovers caused by a cyber-attack.

Explain how cyber shocks can get amplified through financial networks.

Discuss the policy responses that can be implemented against cyber events.

 

In closing

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