FRM Details- November 2016 Exam
FRM Details- November 2016 Exam:- Financial risk management is the practice of economic value in a firm by using financial instruments to manage exposure to risk, particularly credit risk and market risk.
Other types include Foreign exchange risk, Shape risk, Volatility risk, Sector risk, Liquidity risk, Inflation risk, etc. Similar to general risk management, financial risk management requires identifying its sources, measuring it, and plans to address them.
Financial risk management can be qualitative and quantitative. As a specialisation of risk management, financial risk management focuses on when and how to hedge using financial instruments to manage costly exposures to risk.
Financial risk management is a process to deal with the uncertainties resulting from financial markets. It involves assessing the financial risks facing an organisation and developing management strategies consistent with internal priorities and policies. Addressing financial risks proactively may provide an organisation with a competitive advantage.
It also ensures that management, operational staff, stakeholders, and the board of directors are in agreement on key issues of risk. Managing financial risk necessitates making organisational decisions about risks that are acceptable versus those that are not. The passive strategy of taking no action is the acceptance of all risks by default. Organisations manage financial risk using a variety of strategies and products. It is important to understand how these products and strategies work to reduce risk within the context of the organisation’s risk tolerance and objectives.
The ability to estimate the likelihood of a financial loss is highly desirable. However, standard theories of probability often fail in the analysis of financial markets. Risks usually do not exist in isolation, and the interactions of several exposures may have to be considered in developing an understanding of how financial risk arises. Sometimes, these interactions are difficult to forecast, since they ultimately depend on human behaviour.
The process of financial risk management is an ongoing one. Strategies need to be implemented and refined as the market and requirements change. Refinements may reflect changing expectations about market rates, changes to the business environment, or changing international political conditions, for example. In general, the process can be summarised as follows:
- Identify and prioritise key financial risks.
- Determine an appropriate level of risk tolerance.
- Implement risk management strategy in accordance with policy.
- Measure, report, monitor, and refine as needed.
- The FRM Exam is a pencil and paper exam.
- Multiple Choice with no negative marking.
- FRM 1 exam has 100 questions and its 4 hour long.
- FRM 2 exam has 80 question and it’s same 4 hours long.
- FRM 1 is held in morning and FRM 2 in the afternoon.
- Candidate must pass FRM 1 exam to pass in FRM 2.
- If you fail in FRM 1 then FRM 2 won’t be graded.
- GARP approved calculators are allowed
The FRM Exam Part I focuses on the tools used to assess financial risk. They include:
- Foundations of risk management concepts
- Quantitative analysis
- Financial markets and products
- Valuation and risk models
The FRM Exam Part II focuses on the application of the tools acquired in the FRM Exam Part I. They include:
- Market risk measurement and management
- Credit risk measurement and management
- Operational and integrated risk management
- Risk management and investment management
- Current issues in financial markets
Best Recommended Read:- Complete Details of FRM Syllabus and Subjects
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