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GARP FRM Syllabus Breakdown

Estimated reading time: 8 minutes

 

Introduction

Completing and mastering the FRM syllabus as prescribed by the Global Association of Risk Professionals (GARP) could be your golden ticket to a successful career in the finance world.

This course is structured to equip candidates with cutting edge risk management skills and practical knowledge, relevant in the current economic environment.

The syllabus receives yearly updates from the Association, entailing the Learning Objectives targeted for part 1 and 2 of the examinations. The former carries four segments, while the latter 2 has six segments.

Here is a breakdown of everything you need to know about the syllabus.

 

Level 1 Overview

For Level 1, the four areas of the syllabus is structured to create a solid foundation that helps candidates appreciate and master the concepts of Risk Management.

In the end, you will sit for an exam that entails 100 multiple choice questions, administered only in the English language.

You will also find that this part of the program generously challenges students on a mathematical basis in finance and risk management.

 

Segment 1: Foundations of Risk Management

This segment introduces candidates to an important area and entails over a dozen readings covering areas such as Market, Operational and Credit Risk, among others.

Perfecting your knowledge here will earn you a weight of 20% in the level 1 examination.

These concepts allow candidates who have no background in finance to level up their knowledge and be on par, or above, their peers in the industry.

There are few mathematical formulas involved in this section, but it does give you a bird’s eye view of financial management.

In summary, this entails topics such as:

  • Basic risk types, measurement and management tools
  • Creating value with risk management
  • Risk governance and corporate governance
  • Credit risk transfer mechanisms
  • The Capital Asset Pricing Model
  • Risk-adjusted performance measurement
  • Multifactor models
  • Data aggregation and risk reporting
  • Financial disasters and risk management failures
  • Ethics and the GARP Code of Conduct

 

Segment 2: Quantitative Analysis

Quantitative Analysis will introduce you to various financial quantitative techniques and weighs 20%. 

Subjects covered under this section include; Statistical Inference, Random Variables, Distributions and Hypothesis Testing, among others things.

An in-depth understanding of these parts is essential and will include topics such as:

  • Discrete and continuous probability distributions
  • Estimating the parameters of distributions
  • Population and sample statistics
  • Bayesian analysis
  • Statistical inference and hypothesis testing
  • Measures of correlation
  • Linear regression with single and multiple regressors
  • Time series analysis and forecasting
  • Simulation methods

 

Segment 3: Financial Markets and Products

Of four segments in part 1, this section ties for the largest at 30%, and therefore deserves a bit more in terms of your time allocation. The readings in this section also build a foundation for the Part 2 curriculum.

Preparation should involve lots of practice and review of a wide range of materials from GARP and third party providers. Areas covered include:

  • Structures and functions of financial institutions
  • Structure and mechanics of over-the-counter and exchange markets
  • Structure, mechanics and valuation of forwards, futures, swaps and options
  • Hedging with derivatives
  • Interest rates and measures of interest rate sensitivity
  • Foreign exchange risk
  • Corporate bonds
  • Mortgage-backed securities

 

Segment 4: Valuation and Risk Models

This part delves deeper into the methodology of risk management and assessment.

Through the readings in this section, candidates will be taken through Valuation Options, including Binomial Trees and Fixed Income Securities.

This segment can be highly theoretical and weighs in at 30%. Expect to see: 

  • VaR
  • Expected shortfall
  • Estimating volatility and correlation
  • Economic and regulatory capital
  • Stress testing and scenario analysis
  • Option valuation
  • Fixed income valuation
  • Hedging
  • Country and sovereign risk models and management
  • External and internal credit ratings
  • Expected and unexpected losses
  • Operational risk

 

Level 2 Overview

Level 2 of the course further develops on the concepts acquired in Level 1, diving deeper into Risk Management and focusing on practical scenarios.

The exam entails 80 multiple-choice questions and students are given 4 hours to complete this paper. There are 6 areas in this section.

 

Segment 1: Market Risk Measurement and Management

This segment has a 20% weighting in level 2 of the course and explores:

  • VaR and other measures
  • Modeling dependence: correlations and copulas
  • Term structure models of interest rates
  • Volatility: smiles and term structures
  • Fundamental Review of the Trading Book

 

Segment 2: Credit Risk Measurement and Management

Another challenging, yet equally essential, segment earning you a 20% weight, this part includes:

  • Credit analysis
  • Default risk: quantitative methodologies
  • Expected and unexpected loss
  • Credit VaR
  • Counter-party risk
  • Credit derivatives
  • Structured finance and securitization

 

Segment 3: Operational Risk and Resiliency

With a weight of 20%, this segment includes:

  • 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
  • Adjusted return on capital
  • Economic capital frameworks and capital planning
  • Stress testing banks
  • Third-party outsourcing
  • Risks related to money laundering and financing of terrorism
  • Regulation and the Basel Accords
  • Cyber risk and cyber-resilience
  • Operational resilience

 

Segment 4: Liquidity and Treasury Risk Measurement

With a weight of 15%, subtopics covered in this section include:

  • Liquidity 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

 

Segment 5: Risk Management and Investment Management

Here, candidates are exposed to various techniques in investment management and weighs 15%.

The areas covered include the application of:

  • Factor theory
  • Portfolio construction
  • Portfolio risk measures
  • Risk budgeting 
  • Risk monitoring and performance measurement
  • Portfolio-based performance analysis
  • Hedge funds

 

Segment 6: Current Issues in Financial Markets

This segment explores many of the current top-level financial issues faced within the industry today.

The GARP committee updates this section every year to equip candidates with the most relevant knowledge in risk management.

Recent topics in this area have revolved around:

  • Blockchain
  • Fintech Revolution
  • Artificial Intelligence, machine learning and big data
  • Climate change and financial risk
  • Reference rates

Mastering this segment will earn you 10%.

 

Learning Objectives

Every reading in the curriculum comes with learning objectives to guide students in the exam expectations from GARP.

The learning objectives outline the key areas all candidates should pay close attention to in the readings. Each year the learning objectives receive fresh updates.

Although it is usual that a large portion of the previous year’s content will carry over, GARP does add and remove items to the syllabus to aid with relevancy and being up-to-date with best practices.

 

Industry Relevance

GARP carries out continuous research and analysis to make sure that the program is relevant to the trends and needs in the current financial industry.

The process entails surveying and talking to professionals around the world. From these surveys, import input is gathered about the best skills necessary for successful financial management in the industry.

It is always expected that these inputs are integrated into the curriculum. The program, therefore, equips the candidate with relevant practical skills necessary for value addition and loss prevention in the present financial world.

The exam is then created through a rigorous research process by a certified committee of professionals to test your knowledge of the program. 

To increase your chances of success in the exams, you are strongly advised to adhere to the latest syllabus as updated on their website. You are expected to study all the readings and follow all the learning objectives for each topic.

 

GARP Study Materials and Guides

All the syllabus content can be found within GARP’s official study materials and learning objectives. The study guides outline extensive knowledge and concepts that the candidate needs to gather from the topics.

The study guides refer candidates to the specific sections in the Financial Risk Manager textbooks that will help them accomplish the necessary learning objectives.

These guides and learning objectives are freely available on GARP’s website.

GARP has books that fully cover the learning objectives and knowledge tested in both parts of the course. In addition, you can get the books in PDF format online or print format at a fee.

And don’t forget, candidates can also get further reading materials and assistance from third party prep providers, such as our website.

 

Candidate Guide

After registering, there is no classroom training to ready you for the exams. What GARP has instead are study materials and candidate guides to assist you in understanding the concepts and prepare for the exams.

These guides can be incredibly helpful when it comes to staying organized in your studies.

The study guides are updated each year and gives you an overview of the program. The candidate guide from GARP outlines the format of the syllabus, the exam content and tips for successful preparation.

From this guide, you will also get information about exam registration deadlines, deferrals, fees and scholarships that are on offer. The GARP candidate guide also touches on exam dates, what to expect, and what to bring.

From this guide, you will also get to learn the ways in which the certification will help your career.

 

Program Manual

The Program Manual gives candidates a detailed overview of the course. You can get this manual from the GARP website after registration.

This manual will introduce you to the program and the exam requirements. The program manual also includes all learning objectives for topics to help you manage and track your study plan.

It is important to note that GARP often structures both examinations around the learning objectives.

In the program manual, you will also find recommended study plans, available services, exam day requirements and information on how to use the accreditation after attaining it.

 

In Closing

The FRM syllabus has an extensive reach, as a result, we highly encourage the use of practice tests before taking the exam. 

The Financial Risk Manager syllabus will apprise the knowledge of everyone, including those with no background in finance. It will then dive in further to explore complex risk concepts, risk measurement methodologies and risk mitigation strategies.

As always, please browse to our shop page in order to download all our free content. No account sign-ups necessary! And don’t forget to read our other articles that will help you in your journey to receive the FRM certification.

 

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