The questions on the FRM exam are fairly application-based, which means that a thorough understanding of the concepts is quite essential. Ultimately, the quality of preparation would be determined by the number of hours spent, more so on the focus given on practice questions.
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In order to pass the FRM exam with surety, you need to have a clear preparation strategy tailored specifically for you. The following points should help you formulate yours:
Knowing your personal short-term goals
Typically, it is believed that the FRM exam requires more than 300 hours of preparation. But this number would vary person-to-person depending on the familiarity one has with the topics covered and their grasping speed. There are about 60 readings in the FRM Part 1 and 101 in the FRM Part 2 exam.
Naturally, some readings would require more time than others. For both the exams, you would want to leave the last 20 days of your preparation for revision (since the FRM syllabus is fairly vast, there is a lot of information that you must be thorough with on the day of your exam).
You can divide the total number of readings by the number of days you have left after deducting the 20 days for revision. This would give you the number of chapters that you need to do per day.
For most people, it is not possible to study 7 days a week. This is more common for those who’re writing the exam alongside their routine job. They can make a fair estimate of the number of readings they need to do per day based on the ‘true’ number of days that they can devote to studying per week.
Choice of study material
Once you have the ‘number’ of topics that you need to complete on a per-day or a per-week basis, you need to decide on the study resources that you plan on using. There are numerous resources available on the internet – but studying from too many sources would only confuse you more. The most famous preparation providers for the FRM exam include:
- GARP Readings – GARP readings are obviously are the most thorough resource for studying for the exam. However, because of its extensive nature and complex language used, the institute material is not preferred by most – owing to the constraints on the time available for preparation.
- Bionic Turtle – This is a favorite resource for many and one of the most famous preparation providers for the exam. It is believed to have the biggest question bank. The level of questions in the Bionic Turtle is a tad bit above the level of questions asked in the exam. Therefore, a complete practice of these questions would help you easily answer most questions that you would encounter in the exam.
- Kaplan Schweser – One of the most famous FRM preparation providers, Kaplan is widely known for the simplicity with which all the concepts are being explained in the notes. Studying from the Schweser notes would be much easier than most other sources. However, the level of questions you would come across in their question banks may not be sufficient to clear the exam with surety. The questions in the actual exams are a bit tougher.
My Take – Study the concepts from the notes given by Schweser so as to have a good grasp of the concepts. However, to increase the chances of clearing the exam, it is highly advisable to practice the questions from the question banks provided by Bionic Turtle.
Video Classes and Lectures
Depending on your personal preference, some of you may feel more comfortable to have a classroom experience when studying for the exam. There are numerous preparation providers for the FRM. You can find out the trainer that suits you the best. Some of the most popular FRM preparation providers include:
- The WallStreet School – The Wallstreet School is an approved Prep Provider of GARP. The course covers HD Videos, Summarized notes, question banks and Mock tests. Their uniqueness lies in the fact that they also inculcate practical knowledge in the course since the trainers themselves are Risk Managers in renowned companies such as HSBC and Blackrock.
- Kaplan – Kaplan is another approved Prep provider of GARP. It delivers the course in both Recorded and Instructor Led Live format. Their Prep course also include Multiple quizzes and tests. You can retain the access to their material if you fail in the FRM exam, till the time you clear it.
- Wiley – Wiley gives the access to the study material till the time you clear the exam, even if it’s a repeat attempt. Apart from videos and notes, the course comes with an adaptive test planner which will help you make a blueprint of your preparation strategy. Their concepts are covered using bit sized videos which makes them easy to grasp.
How to study?
It is very important to have a comprehensive understanding of most, if not all of the readings in order to pass the exam.
A common problem while preparing is that there are a lot of topics that are interrelated. This could be a problem for those uninitiated. The key here is to not bother too much if there is a term that you come across in one of the chapters that you do not completely understand.
It is quite likely that it would be covered extensively in the subsequent chapters. You uncheck all your doubts while you’re revising, as, at that point, you will not have a problem in understanding certain portions of some chapters that are somewhat interrelated.
Another habit that will go a long way while preparing, specifically towards the time when you’re nearing the date of the exam is making your own summarized notes after you are done studying a chapter. This is essentially important as you will not find time to study each and everything again in the last 20 days that you have earmarked for revision.
Therefore, it shall help if you have kept out a few sheets that contain all the formulas and a few important concepts in your own handwriting and symbolisms (a mind map, if you will) that helps you recall that topic in the shortest span of time possible.
How to practice?
A common mistake that candidates make is leaving practice for later. The level of questions to be practiced is fairly complex and they also supplement your overall understanding of the chapter. This is because the questions are often in the form of situations wherein you may apply something that you have studied.
It is therefore recommended that the practice for one chapter is done right after studying it. In the event that the time is available, one should also try to solve the questions more than once.
GARP also releases a sample paper approximately a month before the exam. Solving this paper should give you a fair idea about the overall level of paper and the type of questions being asked in the exam.
Since the curriculum keeps experiencing changes year after year, it is possible that many questions in the past year question papers do not fall within the ambit of the syllabus relevant for you. This would be more for older years’ papers.
With a majority of FRM candidates being working professionals, it becomes difficult to stick to a study-routine every day. It is however important to accomplish your short-term goals at least on a weekly basis. There can be numerous permutations as to which days of the week you could to spend in watching videos, and on which days you can study from the book and solve questions.
But the ultimate key to clear the exam lies in being consistent in reaching your short-term goals and making your own notes (in any from) so that they help you recall the chapters quickly during the last days of revision.
Last week I wrote FRM Level 1 : Know thy Enemy! where I told you about the basics of FRM. If you are reading this blog for the first time, I highly recommend going through my earlier blog as well as the GARP website here.
Okay! Enough of introductions. Let’s get to the grind. So what is special about today’s blog?
We have been slogging for 2 days and here we present to you our first product. We have completely analyzed the FRM suggested readings and AIM statements for the year 2014 and compared it with 2013. We have some NEWS for you!
Before I begin, let me give you a few definitions for information purposes;
AIM(Applied Instructional Material) Statement: A specific objective statement prescribed by GARP to the candidates. You, exam taker, are expected to study topics which fall under the purview of AIM statement.
A little confusing? Don’t worry I will highlight an example for you.
AIM 1.1 Define risk, identify classification of risks, an explain the role played by risk in value creation
Topics covered : Risk upsides and downsides, Market risk, Liquidity risk, Credit risk, Operational risk, Risk classification based on Basel II and CAS frameworks, Value creation(good risk, bad risk)
From Candidate’s perspective: Understand definitions of various risk, learn to categorize risk based on situation, learn basic points on Basel II/CAS and appreciate how value can be created through risk management and under what situations can risk management not creat value
Question type:Which of the following is an example of Liquidity risk?
a) Credit spreads widen following recent bankruptcies
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b) Bid-ask spread of an asset widens
Of course, correct answer is b only (We will discuss this later). Ok I think now you are beginning to get hang of AIM statements. Let’s discuss “Readings”
Readings: These are specific books chosen by GARP team which will expound on the AIM statements through theory and examples that will help you solve questions(like above).
Now, coming back to our analysis results, I have crunched out the following set of information;
Total AIM statements: 456(approx)
Total newly added/highly modified AIM : 54
Section in which biggest change is observed : Foundations of Risk Management
Section in which least change is observed: Valuation and Risk Models
Now the best part is, I have compiled all the readings along with changes, addition of new statements/deletion of old statements in an Excel file especially for my readers! Yes, you. Please download it from here!!!!!!
Let’s analyze the changes in the Readings and based on this enormous data which we have simplified for you we will proceed to build our strategies.
Foundations of Risk Management : 20%
My observation: Big Big Changes. In fact, I will actually ask you to not skip some of the deleted readings since they are of utmost importance and I cannot fathom their deletion from the AIM. I will present my analysis in the same format as I have done in the excel file:- New Objective, Slight Modification, Deletion
New Objectives: Addition of more case studies to the Risk management failures. Understanding and Communicating Risk Appetite based on COSO framework by Dr. Larry Rittenberg and Frank Martens.Inclusion of Arbitrage Pricing Theory and Multifactor Models of Risk and Return which was not used in 2013.
Note: APT and Risk appetite are quite extensive changes and although the underlying theme was always there in 2013 too but now you have to learn specific objectives about these topics. Needless to say, THEY ARE GOING TO BE TESTED on the exam. Bet!
Deletion: Okay, a SHOCKER! New AIM statements have deleted Efficient frontier and Non-standard CAPM forms. Now, Efficient frontier was tested earlier and it is a very important topic. I will motivate you to read this with all seriousness as it lays the foundation for CML(Capital market line) and SML(Security market line) which will be tested in CAPM. Also, Efficient frontier will be tested in Valuation and risk models section under “Measures of Financial risk”. Don’t leave this! As for Non-standard CAPM forms, check for the latest Scheweser book; if they are covering it, well and good, else you can afford to leave it. I have not come across questions from Non-Standard CAPM in any of the practice test.
Quantitative analysis: 20%
My Observations:Pretty much the same as last year. The only major change is the use of “Simulation and Optimization in Finance” by Dessislava Pachamanova and Frank Fabozzi for Monte-Carlo simulation techniques. Earlier Philipe Jorion was being used to explain this concept. Monte carlo methods is an important section and expect 2-3 questions from this topic as more AIM statements have been added under this topic. Rest of the changes are mostly cosmetic and if you re not getting a new set of books, it is okay!
Financial Markets and Products: 30%
Frm Level 1 Study Guide
My observations: Futures, Forwards, Options, Swaps and You are done with this section. GARP has added a new reading “The Institute for Financial Markets, Futures and Options (Washington, DC: The Institute for Financial Markets, 2011)” that will throw you a bunch of more definitions and processes about the nitty-gritty details about future contracts, exchange rules, clearinghouse etc. You will be asked very specific process related question which you cannot answer if you haven’t read the thing. No high fundas, just cramming up the idiosyncrasies of rules and regulations. Expect at least 1 question like the one below(FRM Nov’ 2013)
What will not be written on the futures contract?
Who to deliver, when to deliver, where to deliver, what quality to deliver
The answer is “Who to deliver” since the opposite party can close positions before delivery and so impossible to write this on the contract in advance. If you have not read it, all options will look correct and with close to 40% of the paper being theoretical, you stan to lose a lot if you overlook such specifies.
Valuation and Risk models: 30%
My observation: Almost identical to 2013 curriculum with the only change being the book on “Country risk models”.Again since a change of book and inclusion of topics is there, you can expect 1 question on this in the actual exam
Okay, so I have briefed on you the changes in syllabus for this year and for the major part you should not wait for content to get updated by course providers to begin your preparations. >95% of the course is pretty much similar and the only major change is inclusion of Arbitrage pricing theory and Future markets introduction.
Free Frm Study Material
In case you missed, download the AIMS analysis here to delve further into topics.
In my next blog, I will presenting my research on the best material (online and hardbound) that you must have in your preparations so watch out for more. Good material makes all the difference between understanding and cramming and GARP will not test you on your cramming abilities(except for a few process based questions)
Knowledge is power.To get knowledge we need information. Information is what we will provide here.
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Frm Level 1 2020