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FRM Study Guide & Weekly Planner: Levels 1 and 2

Estimated reading time: 4 minutes

 

Introduction

In preparing for your GARP FRM Exams, we always ask students to plan ahead with a manageable FRM Study Guide so that no time will be wasted in trying to cover all the necessary areas before exam day.

We encourage you to pace yourself to ensure that adequate time will be available for practicing exams questions beforehand.

Please use the following information only as a general timeline guide.

 

Guide for: Level 1 Examination

 

Weeks 1 – 3

Part I: Foundations of Risk Management – Weight 20%

  • Basic risk types, measurement and management tools
  • Creating value with risk management
  • The role of risk management in corporate governance
  • Enterprise Risk Management
  • Financial disasters and risk management failures
  • The Capital Asset Pricing Model
  • Risk-adjusted performance measurement
  • Multi-factor models
  • Data aggregation and risk reporting
  • Ethics and the GARP Code of Conduct
  • Practice Questions: End of Week 3

 

Weeks 4 – 7

Part I: Quantitative Analysis – Weight 20%

  • 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
  • Volatility term structures 
  • Correlations and copulas
  • Linear regression with single and multiple regressors 
  • Time series analysis and forecasting
  • Simulation methods
  • Practice Questions: End of Week 7

 

Weeks 8 – 10

Part I: Financial Markets and Products – Weight 30%

  • Structure and functions of financial institutions
  • Structure and mechanics of OTC and exchange markets
  • Mechanics, structure and valuation of options
  • Hedging with derivatives
  • Interest rates and measures of interest rate sensitivity
  • Foreign exchange risk
  • Corporate bonds
  • Mortgage-backed securities
  • Practice Questions: End of Week 10

 

Weeks 11 – 14

Part I: Valuation and Risk Models – Weight 30%

  • Value-at-Risk
  • Expected shortfall
  • Stress testing and scenario analysis
  • Option valuation
  • Fixed income valuation
  • Hedging
  • Country and sovereign risk models
  • External and internal credit ratings
  • Expected and unexpected losses
  • Operational risk
  • Practice Questions: End of Week 14 and up to Exam Day

 

Guide for: Level 2 Examination

 

Weeks 1 – 4

Part II: Market Risk Measurement and Management – Weight 20%

  • VaR and other risk measures
  • Modeling dependence: correlations and copulas
  • Term structure models of interest rates
  • Volatility: smiles and term structures
  • Practice Questions: End of Week 4

 

Weeks 5 – 7

Part II: Credit Risk Measurement and Management – Weight 20%

  • Credit analysis
  • Default risk: Quantitative methodologies
  • Expected and unexpected loss
  • Credit VaR
  • Counter-party risk
  • Credit derivatives
  • Structured finance and securitization
  • Practice Questions: End of Week 7

 

Weeks 8 – 10

Part II: Operational Risk and Resiliency – Weight 20%

  • Principles for sound operational risk management
  • Risk appetite frameworks and enterprise risk management
  • Risk culture and conduct
  • Analyzing and reporting operational loss data
  • Model risk and model validation
  • Risk-adjusted return on capital
  • Economic capital frameworks and capital planning
  • Stress testing banks
  • Third-party outsourcing risk
  • Risks related to money laundering and financing of terrorism
  • Regulation and the Basel Accords
  • Cyber risk and cyber-resilience
  • Operational resilience
  • Practice Questions: End of Week 10

 

Weeks 11 – 12

Part II: Liquidity and Treasury Risk Measurement – Weight 15%

  • Liquidity risk principles and metrics
  • Liquidity portfolio management
  • Cash-flow modeling, liquidity stress testing and reporting
  • Contingency funding plan
  • Funding models
  • Funds transfer pricing
  • Cross-currency funding
  • Balance sheet management
  • Asset liquidity
  • Practice Questions: End of Week 12

 

Weeks 13 – 14

Part II: Risk Management and Investment Management – Weight 15%

  • Factor theory
  • Portfolio construction 
  • Portfolio risk measures
  • Risk budgeting
  • Risk monitoring / performance measurement
  • Portfolio-based performance analysis
  • Hedge funds
  • Practice Questions: End of Week 14

 

Week 15

Part II: Current Issues in Financial Markets – Weight 10%

  • Credit loss provisioning, IFRS 9/CECL
  • Machine learning and “big data”
  • Central clearing and risk transformation
  • The failure of covered interest rate parity
  • FinTech credit
  • Corporate culture
  • Practice Questions: End of Week 15 and up to Exam Day

 

The importance of our guide

Financial risk management is a discipline of critical importance in the business world. In an environment where risk is evolving and unavoidable with each passing day, companies need risk professionals with the highest skills.

GARP is a renowned body that governs the globally recognized program. As a result of this recognition, may firms around the world seek out certified risk experts to boost their risk management capabilities.

Having said that, you will recognize that to reach such a high status, the need for a guide becomes critical. We do not encourage our students to blindly pick up their books and read without a plan.

This challenge is quite difficult and careful preparation is needed.

 

A note on the format of the program

GARP’s course is uniform all across the world. The certification is self-taught; there is no classroom training. It takes 300+ hours for many to thoroughly review the study materials for both levels.

Self-learning calls for utmost dedication among candidates and this requires a great study guide. 

Once you register for the exams, GARP avails guides that include the syllabus, study materials, study guide and a list of third party providers.

The curriculum receives yearly updates to meet the changing needs of risk management in the outside world.

 

Other professional qualifications

The structure of all academic programs varies from institution to institution. However, many are simply examination-preparation programs. This is not so with the Financial Risk Manager course.

Unlike the self-study nature of the risk management course, its counterparts typically entail classroom learning.

In other programs, professors and researchers engage students in a variety of teaching techniques to help them in their studies. These range from lectures, workshops, seminars and tutorials.

However, in the FRM program, you are expected to be disciplined in such a way that you simply have to arm yourself with a quality study guide and get things done!

Fortunately, there are a few higher learning institutions that allow students to sit for GARP’s exams after going through the program. (So, fret not, there is help available).  

 

Preparation for professional life

The Financial Risk Manager program is rigorous, focusing on critical topics in risk management. Even so, most candidates must often manage work, nurture their families and pursue the certification, all at once.

It is in doing these things that professionals get to hone their ‘soft skills’ (such as time management and self-supervision) that are highly valued by employers.

Certified individuals are also committed to the GARP’s code of conduct, which aims to curb risk through proper moral behavior in the profession. These experts can also work under pressure.

The rigorous exams and the preparation process help to forge incredibly sharp-witted individuals.

 

The need for these credentials

In the face of tightening strings in the financial world, from regulations to other uncertainties, risk management has become more crucial for the survival of companies.

Many times bottom lines have tanked due to poor risk management techniques. GARP’s certification has incredibly high standards for success. Both levels are a thorough screening process.

The FRM program guarantees that when you pass the exam, you will have a high level of expertise on a global scale.

Just like passing the bar to become a lawyer, the same is gradually becoming of the FRM certification by GARP. No matter how many degrees you attain in any given field, professional certification is still essential.

Thank you for reading our guide! A free downloadable form is available right here and be sure to go though our other articles for more information on the Financial Risk Manager Examinations. 

 

Take care and best wishes,

The QuestionBank Family