FRM Exam (Financial Risk Management Certification)
FRM exam (Financial Risk Management) is a part of tests conducted by Global Association of Risk Professionals to issue a FRM certification to the person who passes the exam recognizing that the person is eligible to work in financial environment because he has a strong knowledge and sound understanding of financial risk, its analysis and its management.
This comprehensive Financial Risk Management article will give you nuts and the bolt of FRM Certification Examination, pattern, study tips, exam resources, etc.
- About FRM Program
- Why Pursue Financial Risk Management Certification?
- FRM Exam Format
- FRM Exam Weights / Breakdown
- FRM Certification Examination Fees
- FRM Results & Passing Rates
- Financial Risk Management Study Material
- Strategies: Before the FRM exam
- Strategies: During the FRM exam
- Scholarship Opportunities for FRM Certification
- Deferral policy
- Useful FRM Exam Prep Resources
Please note that, like the FRM certification exam, there are various other credentials from which you could pick, subject to the area of finance you want to specialize in. You must choose yours carefully as each one is exclusive and provides certain paybacks. If not, then it won’t count. If you are confused about which one to go for, you may look at a comparative analysis on CFA vs. FRM. To get a deeper understanding of the CFA examination, you can look at the Beginner’s Guide to CFA Examination.
What is the FRM Exam (Financial Risk Management Certification)?
The Global Association of Risk Professionals (GARP®) came up with the Financial Risk Manager (FRM®) for those interested in getting certified as someone serious about managing risks. Financial Risk Management can be a treasured certification which can help you in career enhancement, stand out and get recognized among the employers and allow you to improve your knowledge and expertise in the area of financial risk management.
- Roles: Financial Risk Consultant, Risk Management, Credit Management, Asset Liability ManagementAsset Liability ManagementAn asset/liability management is paying off liabilities from assets and cash flows of a company. Its proper implementation reduces the risk of loss for not paying the liabilities on time. Companies must ensure that assets and cash flows are available on time to avoid additional interest and penalties., Risk Appraisal, Risk Assessment. FRM may not be useful for those looking for Investment BankingInvestment BankingInvestment banking is a specialized banking stream that facilitates the business entities, government and other organizations in generating capital through debts and equity, reorganization, mergers and acquisition, etc. or Equity ResearchEquity ResearchEquity Research refers to the study of a business, i.e., analyzing a company's financials, performing Ratio Analysis, Financial forecasting in Excel (Financial Modeling), & exploring scenarios to make insightful BUY/HOLD/SELL stock investment recommendations. Moreover, the Equity Research Analysts discuss their findings & details in the Equity Research Reports. Careers
- Exam: The FRM certification program consists of FRM Exam Part I and Part II, pencil, and paper multiple choice exams.
- FRM Exam dates: Both the FRM Exam Part I and Part II are conducted twice a year in May and November (usually third Saturday). Also, both the levels can be taken on the same day at once.
- The Deal: The two-part FRM Exam tests advanced, cumulative knowledge, and the concepts tested on the FRM Exam Part I are needed for Part II. The FRM certification programs two parts concludes with a four-hour examination each. Both FRM Part I and Part II can be taken on one single day. Although if you do not exact Financial Risk Management Certification Part I and clear Part II, you will still have to appear for both the exams next time.
- Eligibility: Anyone can enroll to take the FRM exams.
FRM Certification Program completion criteria
- Pass the FRM Exam Part I and Part II within 4 years
- Candidates must take the FRM Exam Part I before taking Part II
- Demonstrate 2 years of relevant work experience. This work experience cannot be more than 10 years before having passed the FRM Exam Part II. Also, the experience earned for school will not be considered, including internships, part-time jobs, or student teaching. A candidate has 5 years to submit their work experience. After 5 years, the candidate will have to re-enroll in the FRM certification program and pay the required fees again.
- Certified FRMs are strongly encouraged to earn 40 hours of Continuing Professional Development (CPD) every two years to maintain the latest best practices in risk management.
Recommended study hours: GARP recommends that FRM candidates dedicate around 200 hours of study to prepare for each part of the FRM exams.
What do you earn? You become a certified Financial Risk Manager (FRM®)
Why Pursue the FRM Exam?
FRM certification should be chosen and pursued because it is required in the current economic and finance industry. But at the same time, you need to consider your career prospects, which could vary according to your interests and recent professional experience, if any.
- FRM Certification does not guarantee a job or a salary hike. Still, yes, it gives you an edge over your counterparts, provides a good advantage over your colleagues at your workplace.
- With this, you get an opportunity to prove your worth, which could help you with the salary hike and not just the certification.
- Moreover, the focused knowledge and skills you learn in financial risk management, the opportunity to network, and access with financial risk professionals can provide you with exposure to the industry.
- This certification will give you a chance to indicate a high-value skill set in a niche fragment of the finance domain.
Have a look at the top 10 companies and the top 10 global banks employing the most FRM’s.
|Top 10 Companies||Top 10 Global Banks|
|Bank of China||China Construction Bank|
|HSBC||Agricultural Bank of China|
|Agricultural Bank of China||Bank of China|
|Citigroup||JP Morgan Chase|
|UBS||Bank of America|
FRM Exam Format
|FRM Exam||Financial Risk Management Certification – Part I Exam||Financial Risk Management Certification – Part II Exam|
|Focus on||Essential tools and techniques used in risk management and various theories that use them.||Application of the tools and techniques learned in Part I and deeper insights into significant sub-parts of risk management.|
|Exam format||Multiple Choice Questions (MCQ)||Multiple Choice Questions (MCQ)|
|Questions||Equally-weighted 100 questions||Equally-weighted 80 questions|
|Duration||4 hours||4 hours|
Key highlights of the FRM exam format
FRM Certification Exam – Part 1
- This part of the FRM exam focuses primarily on critical tools and theories required to gauge financial risk.
- The broad area of study would include the foundation of risk management, quantitative analysis, financial marketsFinancial MarketsThe term "financial market" refers to the marketplace where activities such as the creation and trading of various financial assets such as bonds, stocks, commodities, currencies, and derivatives take place. It provides a platform for sellers and buyers to interact and trade at a price determined by market forces. and products, valuation, and risk models.
- The exam is in multiple-choice questions format, which makes it easy but taking into consideration the time aspect, the exam taker has, on average, around 2.4 minutes per question.
- Questions are aimed to relate theory to practical, real-world problems to understand risk management.
- No penalties for incorrect answers :-)
FRM Certification Exam – Part II
- This part of the FRM certification exam is a notch up then the Part I exam and focuses on market risk management, credit risk management, operational and integrated risk management, investment riskInvestment RiskInvestment risk is the probability or uncertainty of losses rather than expected profit from investment due to a fall in the fair price of securities such as bonds, stocks, real estate. In addition, each type of investment is prone to some degree of investment or default risk. management, and current issues in financial markets.
- The exam is again. Multiple choice questions format and the exam taker has an average of 3 minutes per question.
- Questions are practical, wherein the candidates are expected to behave as a risk manager and deal with risk management.
- No negative marking for incorrect answers :-)
FRM Exam Weights / Breakdown
FRM Certification Exam – Part I
- Every particular aspect of financial risk management will weigh differently in the exam (Breakup provided below). To clear the Part I exam, you are required to demonstrate extensive knowledge of all the areas laid down by the FRM curriculum.
- You need to practice well for the quantitative section, especially if you from a commerce background and have not worked on quantitative problems before.
- One great news for you. There are NO SECTIONAL CUT-OFFS! Yes, you can clear the exam even if you get the 4th quartile in one of the sections. However, it is highly advisable not to screw-up the high weight sections you see below.
FRM Certification Exam – Part II
- The FRM certification Part II exam curriculum has been divided into five main areas (outlined below with their weight)
- The maximum value and focus of the exam are for the sub-areas of risk management such as Market Risk Management, Credit Risk ManagementCredit Risk ManagementCredit Risk Management is the process of mitigating the risk associated with each security in a portfolio. There are various ways to eliminate the potential risks posed by a market. Operational & Integrated Risk Management.
- Again there are no sectional cut-offs :-)
FRM Certification Exam Fees
The following is the information for FRM Certification Part I May 2020;
You will have to pay a one-time enrollment fee of $400. Another aspect which needs to be taken into account is the time of payment. The earlier you register for the exam, the cheaper it is. For instance, the price during the third deadline will cost you US $950, whereas the first deadline will cost you US $300 less than the US $650.
The FRM certification program enrollment fees are valid for four years, which means that you need to appear for the Financial Risk Management Certification – Part I & II exam within this period.
The following is the information for Returning candidate FRM Certification Part 1 & FRM Certification Part II
source – GARP
FRM Results & Passing Rates
The FRM results are declared through an email generally six weeks after the exam is conducted. You are also provided with the quartile results, which will allow you to understand how you scored on the broad areas of the exam concerning other participants. Also, the passing score is not revealed and is determined by the FRM committee.
The passing rates fall within a range of 30-60 % for both parts of the FRM exam. Let’s look at the passing rates for each of the levels;
FRM Exam Part I Passing Rates
- For the last 5 years (2016-2020), the pass percentage for the Part I Exam varied in the range of 42% to 50%, with an average passing rate of 44%.
- The pass rate of Part I for Nov 2020 was 45%
|FRM Part 1 Exam Pass Percentage|
FRM Exam Part II Passing Rates
- For the last 5 years (2016-2020), the pass percentage for Part II Exam varied in the range of 50% to 62%, with an average passing rate of 56%.
- The pass rate of Part II for Nov 2020 was 59%.
|FRM Part 2 Exam Pass Percentage|
FRM Exam Study Material
Here is a comparison between the study material used to prepare for your FRM Certification Part I &II exams. It includes the study material available on the GARP site and Schweser.
|2021 FRM Exam Part I eBooks||As part of the registration|
|2021 FRM Exam Part I Books||$300 + shipping||$399|
|2021 FRM Exam Part II eBooks||$250 + shipping|
|2021 FRM Exam Part II Books||$300 + shipping||$399|
Also, you need to note that several packages are available with Schweser. You could choose the one with the features that suit your requirement. Although for comparison purposes, I have included the price and attributes of the Essential Self Study Package. Further to decide whether to opt for the FRM curriculum notes or the prep material will depend upon the time you will invest in the preparation of the FRM exam.
FRM Exam Strategies: before the Exam
There is no magic, no shortcuts but purely dedicated efforts that will get you through. Let’s look at a few points that you could consider including in your preparation for the FRM Part I Exam.
- Understand the curriculum- The first and the most important thing is to get the hang of the entire syllabus that you will study. Take efforts to understand it.
- Go through the GARP readings- It is essential to go through the core GARP readings at least once and also the FRM Handbook.
- Find a study partner- If you can find a study partner. Look out for someone in a similar situation as your and a schedule. You can be an excellent help to each other in case of doubts and each partner’s strength in a particular subject.
- Start early- Get this straight, these are not your college exams wherein last-minute study could get you through. To prepare well, start early and very well plan the preparation schedule, accordingly decide how much time to dedicate for each day. Especially if you are not someone from a finance and quants background, you will have to devote sufficient time to prepare.
- Stipulate your hours of study- Though the recommended hours are somewhere around 200 hours, it doesn’t imply you will clear the exam. These criteria are entirely subjective and require sincere efforts ranging between 100-500 hours.
- Prepare well for formulas and calculations- Important consideration for the exam takers is that there is a fair amount of quantitative aspect in the subject matter. The mathematical difficulty of the Exam is similar to that of a graduate-level finance courseFinance CourseInvestment Banking Certification Course, Financial Modeling Certification Course, Equity Research Certification Course, Private Equity Certification Course, Mergers & Acquisition, and so on are among the Top 10 Finance Certification Courses you can take.. Moreover, there are essential formulas and calculations which need to be known along with its correct application.
- Prepare your quick sheet- The syllabus involves many formulas (find them at the end of every chapter) and methods to various measurement types. Mind you, and formula sheets are not provided with the exam. So you need to memorize them. One way is to prepare your formula quick sheet and keep referring to it whenever you have free time during your work or traveling.
- Practice, Practice, and Practice! – Going through the notes, mugging up formulas is only a part of the preparation. The key is going to be the amount of practice you do in solving the problems. It might also happen that you practice today and might forget it after a week. So you can’t do much here but just KEEP PRACTICING! Solve as many practice exams, which would give you a hang of how the real thing would be like and make you confident in the final match.
- The course is not a novel- You should not be reading whenever you get time only for 15-20 minutes. Make a habit of studying for hours at a stretch for 2-3 hours. Learn the concepts and practice them immediately. If you do that right from day 1, you will not feel the need to, again and again, read the ideas.
- Solve sample papers by GARP- Going through the GARP core readings properly and solving their practice exam (available for free once you register for the exam) should give you a good confidence boost to clear the paper. Also, a few more practice exams Schweser is never harmful. However, do not expect the same level of questions to appear in your form. Anticipate that the GARP guys will take you for a ride. Simple- Prepare for the worst!
- Prepare every section- Do not drop a few concepts and topics, thinking that it is unimportant. Such decisions could backfire. You just cannot afford to ignore any formula from any corner of the books. STUDY EACH AND EVERYTHING.
Dedicate at least 1 week before the exam- If you are working, try and take a week off from before the exam and keep other commitments to the minimum. Use it to stuff yourself with some concepts for that extra edge. Devote this time practicing and rereading your material.
FRM Exam Strategies: During the exam
If you have prepared and done your homework well, the exam day should not be a problem. However, I have listed down a few essential suggestions that could be important.
- Keep difficult questions for the end- Many exam takers have observed that the last 10 or so questions were low-hanging fruits, which could be solved quickly. This can be unfortunate for those who, because of lack of time, cannot manage to get that far and are forced to guess the answers. So it is always better to come back to the difficult questions later on and keep answering the ones you know quickly.
- Be quick and alert- Although you might feel you have enough time for each question, keep one thing in mind; the Financial Risk Management questions are generally very tricky and challenging, so you need to be alert and save time to solve the difficult ones.
- Look for easy pickers- You will come across questions wherein you could quickly find solutions. Look out for them as you will be able to solve them correctly within no time. This will help you save time for other questions and also increase your chances of clearing the sections.
- Watch out for lengthy questions- Other types of questions that could be seen in the exam are the ones that were quite lengthy in both words and in the number of steps that were required to chalk out a solution. Plan out for them whether you want it to take it at the beginning of the end.
FRM Exam Scholarship Opportunities
- Candidates that cannot afford and self-fund the FRM exam can access the scholarship provided by GARP.
- This scholarship would cover only the Registration Fee for the FRM Exam Part I.
- Also, note that the scholarships are not available for the FRM Exam Part II.
- The decision of whether the scholarship has to be awarded to a particular candidate is at the discretion of GARP, and a candidate may be given only one scholarship with no exceptions.
Although to avail of the scholarship, the candidate will have to qualify. The following are the guideline laid down by GARP;
- The student must validate full-time enrollment in a graduate degree program at the time of the Exam. So in case, the student is currently enrolled in an undergraduate or certificate program cannot qualify for the scholarship.
- Faculty members would be eligible if they can validate full-time employment at their institution. A complete application form, which can be found on the GARP website, must be submitted along with the documents.
FRM Exam Deferral policy
There could be situations wherein you cannot take the exam you have enrolled for. In such cases, a deferral may be considered. Here you are allowed to defer the exam registration once to the next exam date. Although there are a few conditions;
- The deferral has to be submitted by the last day of registration.
- You will have to pay an administrative processing fee of USD 100.00 to defer your Exam.
- You will be automatically re-enrolled in the next Exam cycle, and in case you decide not to appear the next Exam, you will lose your Exam registration fee.
FRM certification should be chosen if you are keen on learning and pursuing a career in Financial Risk Management. Financial Risk Management also provides the opportunity to network with like-minded people and help you gain exposure in the Risk Industry. Though Financial Risk Management does not guarantee a job or a salary hike, yes, it gives you an edge over your counterparts. It provides a good advantage over your colleagues at your workplace. Choose this credential, keeping in mind the cost-benefit for yourself. It requires a fair amount of commitment, discipline, and hard work to be earned successfully. All the very best!
This has been a guide to FRM Exam. Here we discuss all Financial Risk Management Certification Exam, FRM Results, pass rates, exam strategies, deferral policy, and scholarship opportunities. You can also go through the following resources to learn more about FRM –