PRM Exam 1
Professional Risk Manager (PRM) is an advanced risk management credential awarded by the Professional Risk Managers’ International Association (PRMIA) with the intent to equip risk managers with a desirable level of risk assessment and management capabilities that find a wide range of applications in finance as well as other professional domains. This certification prepares professionals for competitive risk management roles in the financial industry and is among the most preferred professional designations for leading industry employers globally.
To earn a PRM designation, one must complete four certification exams designed to prepare and test risk professionals on theoretical fundamentals of risk, tools, techniques, and advanced applications, along with professional best practices and ethics requirements. PRM exam I is focused on the fundamentals of financial concepts, financial instruments, and operations of financial markets. PRM exam II focuses more on the quantitative aspect of finance, including mathematical foundations. PRM Exam III focuses on different risk management practices and frameworks that play a critical role in acquiring the intended skills and capabilities as a risk management professional. Finally, PRM Exam IV tests the students for the 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 and the study of ethics and governance issues.
In this article, we look at PRM Exam 1 in detail –
Table of contents
- PRM Exam 1
- 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 & Pass Rates
- Preparing for PRM 1 Exam
- PRM 1 Exam Tips
About PRM Exam 1
PRM Exam 1 Subject Weightage
Finance Theory, Financial InstrumentsFinancial InstrumentsFinancial instruments are certain contracts or documents that act as financial assets such as debentures and bonds, receivables, cash deposits, bank balances, swaps, cap, futures, shares, bills of exchange, forwards, FRA or forward rate agreement, etc. to one organization and as a liability to another organization and are solely taken into use for trading purposes., 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 RatesThe Term Structure Of Interest RatesThe term structure is the graphical representation that depicts the relationship between interest rates and various maturities. The graph itself is called a “yield curve.” The term structure of interest rates plays an essential part in any economy by predicting the future trajectory of rates.
Financial Instruments 36% (Descriptive and Pricing Knowledge)
- General Characteristics of Bonds
- The Analysis of Bonds
- Forward and Futures
- SwapsSwapsSwaps in finance involve a contract between two or more parties that involves exchanging cash flows based on a predetermined notional principal amount, including interest rate swaps, the exchange of floating rate interest with a fixed rate of interest.
- Credit DerivativesCredit DerivativesCredit derivatives (CDs) are derivative contracts that enable a lender to transfer a debt instrument’s credit risk to a third party in exchange for a payment.
- Caps, Floors, and Swaptions
Financial Markets 28%
- Money Markets
- Bond Markets
- Foreign Exchange Markets
- Stock Markets
- Derivatives Exchanges
- The Structure of Commodities MarketsCommodities MarketsThe commodity market is a place where people buy and sell positions in commodities such as oil, gold, copper, silver, barley, wheat, and so on. Started with agricultural commodities, there are now fifty main commodity markets throughout the world, dealing with over a hundred commodities.
- 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 two years, and any exam 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. Any student 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 charter holders can sit for Exam III and IV only, whereas PRMIA associate candidates must 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 (CAPMCAPMThe Capital Asset Pricing Model (CAPM) defines the expected return from a portfolio of various securities with varying degrees of risk. It also considers the volatility of a particular security in relation to the market.), arbitrage pricing and multifactor modelsMultifactor ModelsFactor Models are financial models that incorporate factors (macroeconomic, fundamental, and statistical) to determine the market equilibrium and calculate the required rate of return. They associate the return of a security to single or multiple risk factors in a linear model., basics of capital structure, valuation of forwarding 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 various ratios and yields associated with them are explained. Next, HedgingHedgingHedging is a type of investment that works like insurance and protects you from any financial losses. Hedging is achieved by taking the opposing position in the market. and speculation using derivatives, including forwards, futures, and swaps, are discussed along with pricing and risk management techniques. Finally, options pricing and a wide variety of their applications in the context of different instruments and risk management are 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 these markets and their operations help students understand risk in various forms in these specialized markets.
PRM 1 Exam Details
- PRM 1 Exam is two hours with 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, making it easier to attempt questions.
- 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 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 your time judiciously.
- It is an online exam available in the English language only, which can be taken at any of the 5500 Pearson VUE facilities spread across 165 countries worldwide.
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 the ‘Certifications Tab’ of their PRMIA profile on the official PRMIA website.
- There are specific scheduling and testing windows for the exams. These scheduling and testing windows are spread across the calendar year, making it easier for students to register and sit for exams at their convenience.
- Only 65% of students who have pursued PRM designation have been successful. The pass rates for Exam I and III stand 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 exams based on their curriculum and learning requirements in general.
- I suggest you spend nearly 70% of your time reading the material provided and the rest (30%) solving the study questions. 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 one’s areas of weakness.
- Even if you cannot 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, you would be able to work out a balanced approach or restructure your approach to the whole thing.
- ed approach or if they need to restructure their approach to the whole thing.
Reading and Preparatory Material
- The official reading material consists of the PRM handbook published by PRMIA, the most recommended reference material for the certification exam. There are several competent online training providers for PRM who offer complete learning support, including study resources, tests, and expert guidance for the purpose.
- There are several competent online training providers for PRM 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 use multiple reference materials simultaneously, which would only add to the confusion due to their visibly different approaches to the subject matter.
- It would be much better to utilize one set of materials, preferably the 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 greater confidence in their abilities.
- The nature of the preparation strategy would largely depend on an individual’s approach and level of knowledge. Still, 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 these key concepts. This is because 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 review the LOS material a few times again for better understanding.
- The next logical step would be to practice as many study questions as possible and take a few mock tests, 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. Clearing PRM exam 1 of this certification program would become much easier with mathematical capabilities.
- It would be useful for students to improve their mathematical skills and apply primary methodologies to see through the part 1 exam with relative ease.
- Those who have studied mathematics at the graduate level should have comparatively little difficulty getting through the mathematical part and would do better to spend more time 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 your 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 weightage. Still, financial markets receive a lower weightage resulting in fewer questions in the exam. However, students need to consider an almost even distribution of questions between the three knowledge modules, which would help them focus better on attempting the entire range of questions 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. 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 needn’t worry much about attempting questions they are less prepared for.
- It is also important to remember that you can only use a scientific calculator (online 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.
- It would be best if you arrive early for the exam as late-arriving candidates might be denied entry to the exam, and 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, PRM offers a wider base for risk professionals to establish themselves as experts in financial, operational, and other forms of industry risk. Unlike FRM, which is specifically meant for financial riskFinancial RiskFinancial risk refers to the risk of losing funds and assets with the possibility of not being able to pay off the debt taken from creditors, banks and financial institutions. A firm may face this due to incompetent business decisions and practices, eventually leading to bankruptcy. professionals. PRM Exam 1 indeed serves as the basic level for this professional designation, preparing them to understand and quantify risks in various forms. In some 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 your own as a competent risk professional.
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