Professional Risk Manager (PRM) is an advanced risk management credential awarded by Professional Risk Managers International Association (PRMIA) with the intent to equip risk managers with a desirable level of risk assessment and management capabilities which find a wide range of applications in finance as well as other professional domains. This certification prepares professionals for competitive risk management roles in financial industry and is among one of the most preferred professional designations for leading industry employers globally.
To earn PRM designation, one must complete four certification exams designed for the purpose which prepares and test risk professionals for theoretical fundamentals of risk, tools, techniques and advanced applications along with professional best practices and ethics requirements. PRM Exam 1 is focused on the fundamentals of financial concepts, financial instruments, and operations of financial markets. PRM Exam 2 focuses more on the quantitative aspect of finance including mathematical foundations for the same. PRM Exam 3 specifically focuses on different risk management practices and frameworks which play a critical role in acquiring the intended skills and capabilities as a risk management professional. PRM Exam 4 tests the students for the sum total of concepts, tools, and techniques they have learned so far with the help of case studies where they get a chance to apply their acquired knowledge along with the study of ethics and governance issues.
In this article, we look at PRM Exam 1 in detail –
- About PRM Exam 1
- PRM Exam 1 Subject Weightage
- Important Things to Remember About PRM Exam 1
- PRM Exam 1 Subjects
- PRM 1 Exam Details
- PRM 1 Exam Results and Pass Rates
- Preparing for PRM 1 Exam
- PRM 1 Exam Tips
About PRM Exam 1
|Exam||PRM Exam 1|
|Fees||$1200 for 4 PRM Exam Vouchers + Digital Handbook|
|Core Areas||Finance Theory, Financial Instruments and Markets|
|PRM Exam Dates||Exams are offered at fixed intervals throughout the year. Please note that there are separate scheduling and testing windows.|
|The Deal||PRM exams are computer based multiple choice question test. PRM Exam 1 is a two hours exam with 36 questions.|
|PRM Exam Format||Multiple choice Question|
|Number of Questions||36 Questions|
|Pass Rate||59% passed PRM Exam 1 on an average|
|PRM Exam 1 Result||Usually provided within 15 business days|
|Recommended Study Hours||150-200 hours|
|What next?||Once you clear PRM Exam 1, you can sit for PRM Exam 2|
PRM Exam 1 Subject Weightage
Finance Theory, Financial Instruments, and Markets (Approx. 650 pages of reference material contained in PRM Handbook Volume I 2015 Edition: Books 1, 2 & 3)
Finance Theory 36%
- Risk and Risk Aversion
- Portfolio Mathematics
- Capital Allocation
- The Capital Asset Pricing Model (CAPM) and Multifactor Models
- Basics of Capital Structure
- The Term Structure of Interest Rates
Financial Instruments 36% (Descriptive and Pricing Knowledge)
- General Characteristics of Bonds
- The Analysis of Bonds
- Forward and Futures
- Credit Derivatives
- Caps, Floors and Swaptions
Financial Markets 28%
- Money Markets
- Bond Markets
- Foreign Exchange Markets
- Stock Markets
- Derivatives Exchanges
- The Structure of Commodities Markets
- Energy Markets
Important Things to Remember About PRM Exam 1
- It may be helpful to keep in mind that PRM exams would need to be completed within a two-year period and any exams taken more than two years ago might need to be retaken for certification to be held valid.
- The guidelines also lay down a 60-day rule which suggests that no exam be retaken within 60 days of sitting for an exam prior to that. Any students attempting to do so can be penalized including forfeiture of PRM certifications.
- Students with certain cross-over qualifications receive partial credit towards completion of PRM designation. CFA Charterholders are required to sit for Exam III and IV only whereas PRMIA Associate PRM candidates are required to appear for Exam I, II & III of PRM Designation.
- It must be kept in mind that PRMIA Standards of Best Practice, Conduct, and Ethics (Code of Conduct) form an integral part of the curriculum at every level of PRM and one of the core concepts which cut across geographical and cultural boundaries. In-depth knowledge of ethics is essential for any practicing PRM professional which is possible by focusing on this area right from Level I PRM
PRM Exam 1 Subjects
This section deals with the concepts of risk and risk aversion, portfolio mathematics, capital allocation, Capital Asset Pricing Model (CAPM), arbitrage pricing and multifactor models, basics of capital structure, valuation of forward contracts and options pricing.
This section deals with pricing knowledge of financial instruments including bonds, futures and forwards, swaps, credit derivatives, and others. Different types of bonds are explained along with a discussion of how bond prices are determined and explaining various ratios and yields associated with them. Hedging and speculation with the use of derivatives including forwards, futures and swaps is discussed along with their pricing and risk management techniques. Options pricing and a wide variety of their applications in the context of different instruments and for risk management re also discussed.
This section offers a detailed introduction to the structure and operations of various financial markets including money, forex, bond and stocks, futures, commodities, and others. An overview of all these markets and their operations help students acquire an in-depth understanding of risk in its various forms in these specialized markets.
PRM 1 Exam Details
- PRM 1 Exam is of 2-hour duration with a total of 36 questions from all three knowledge modules in multiple-choice questions (MCQ) format.
- Participants must score at least 60% to clear the exam but there is no negative marking which makes it easier to attempt questions one is not completely sure about without risking a deficit in the score.
- It is a computer-based exam which means that neither any copies of the question papers are distributed nor is it required to bring any kind of paper to the testing center. There is also a specially prepared tutorial just before the exam to help participants understand exam functionality better.
- There is just enough time to mark questions and review them quickly so it is best to utilize it judiciously.
- It is an online exam available in English language only which can be taken at any of the 5500 Pearson VUE facilities spread across 165 countries in the world.
PRM 1 Exam Results & Pass Rates
- It should be kept in mind that these exams are graded digitally and results are usually announced within 15 business days of the test date. Exam participants can access the results in Certifications Tab of their PRMIA Profile on the official PRMIA website.
- There are specific scheduling and testing windows for the exams in which exams can be scheduled and taken respectively. These scheduling and testing windows are spread across the calendar year, making it easier for students to register and sit for exams as per their convenience.
- Only 65% of students who have pursued PRM designation have been successful and pass rates for Exam I and III stands at 59% and for Exam II at 54% whereas for Exam IV it stands at 78%. Passing grades are 60% for all four levels of PRM.
Preparing for PRM 1 Exam
- It is generally recommended to devote around 150 to 200 hours of structured study to prepare for each of the PRM 1, 2 & 3 exams based on their curriculum and learning requirements in general.
- I suggest that you should spend nearly 70% of your time on reading the material provided and the rest (30%) for solving the study questions provided. However, it would be much better to take this recommended duration of the study as the minimum amount of time one would devote to preparation apart from time spent on improving on one’s areas of weakness.
- Even if you are unable to work out a detailed study plan it would be practical and highly useful to track your preparation based on the time spent on each of the knowledge areas along with study questions and sample exam questions. This way one would be able to work out if he or she is following a balanced approach or if they need to restructure their approach to the whole thing.
Reading and Preparatory Material
- The official reading material consists of PRM Handbook published by PRMIA, which also happens to be the most recommended reference material for the certification exam. There are a number of competent online training providers for PRM as well who offer complete learning support including study resources, tests and expert guidance for the purpose.
- There are a number of competent online training providers for PRM as well who offer complete learning support including study resources, tests and expert guidance for the purpose.
- Students can utilize study notes provided by quality training providers, however, it is not recommended to make use of multiple reference materials at the same time which would only add to the confusion due to their visibly different approach to the subject matter. It would be much better to utilize one set of material, preferably PRM
- It would be much better to utilize one set of material, preferably PRM Handbook as the primary preparatory material. Students need to ensure that they have attempted all of the study questions and sample exam questions during preparation which would help tackle the actual exam with the greater amount of confidence in their abilities.
- It goes without saying that the nature of preparation strategy would largely depend on individual approach and level of knowledge of a student but there are some things worth keeping in mind while deciding on the most effective approach to preparation.
- It would not be wise to go through Learning Outcome Statements (LOS) for each chapter and focus on acquiring knowledge of these key concepts only since the questions in the exam would test students for their fundamental level of understanding instead of only certain aspects of the subject matter, irrespective of their level of significance.
- The ideal way, which would sound more or less obvious, would be to go through each chapter before covering LOS for the same and then reviewing LOS material a few times again to gain a proper understanding of the subject matter.
- Next logical step would be to practice as many study questions as possible and take a few mock tests as well which would help enhance your confidence and give a practical idea of your level of preparation.
The significance of Mathematical Skills:
- One of the key aspects of PRM is its focus on quantitative risk which requires quite a bit of mathematical proficiency on part of the students. With the right kind of mathematical capabilities, clearing PRM exam 1 of this certification program would become that much easier.
- It would be useful for students to focus on improving their mathematical skills and application of primary methodologies to be able to see through the part 1 exam with relative ease.
- Those who have studied mathematics at the graduate level should have comparatively little difficulty in getting through the mathematical part and would do better to spend more time on acquiring an understanding of how financial instruments and markets work.
PRM 1 Exam Tips
- PRM Level I Exam is designed to prepare you for more advanced risk-related concepts in higher levels of this professional certification program. You are tested in the exam for their knowledge and understanding of the fundamentals of finance theory, financial instruments, and financial markets. The questions are almost evenly distributed between Finance Theory and Financial Instruments due to their equal amount of weightage but Financial Markets receive a lower weightage resulting in fewer questions in the exam. However, students need to consider it an almost even distribution of questions between the three knowledge modules which would help them focus better on attempting the entire range of questions and be able to squeeze the right responses within the required amount of time.
- Exam 1 consists of 36 questions to be attempted in 90 minutes, which leaves around 2.5 minutes per question and ideally a candidate should be able to complete the questions in less than the prescribed amount of time which would make it possible to review all of the questions before submitting the test.
- It would be vital to manage your time efficiently during the exam. No negative marking means that one needs not worry much about attempting questions they are less prepared for.
- It is also important to remember that you can only use a scientific calculator (on-line Texas Instrument TI-30XS calculator) during the exam. It would be best for you to practice with the hand-held version of this calculator while preparing for the exam to become familiar with its usage. It should be kept in mind that only such calculations would be required to solve the exam questions which can be performed with the help of this calculator.
- You should arrive early for the exam timing as late arriving candidates might be denied entry to the exam while none of the exam-related charges would be refunded.
PRM Exam 1 is the stepping stone to one of the most trusted professional risk designations in the global industry. Although PRM is often compared with FRM (Financial Risk Manager) for their similarities, however, PRM offers a wider base for risk professionals to establish themselves as experts in financial, operational and other forms of industry risk as well unlike FRM which is specifically meant for financial risk professionals. It is true that PRM Exam 1 serves as the basic level for this professional designation, preparing them to understand and quantify risk in its various forms. Still, in some of the ways, it can be termed as the single most important level for any future PRM professional because it lays down the conceptual foundation for building up an in-depth understanding of risk-related concepts. However, if you put in the right amount of effort, there is no reason why you cannot go ahead to earn the coveted PRM designation to make a mark of their own as competent risk professionals.