Blog Archive

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• OpRisk VaR L1 [practice, valuation] 11 Mar 2010

  29. Your supervisor is an expert in market and credit risk. He recruits you to manage the operational risk department. He would like to use VaR to measure the firm’s operational risk and proposes that you use the same VaR framework previously developed for market … read more

• Methodology of econometrics [quantitative] 11 Mar 2010

  AIM:  Describe the methodology of econometrics. Create a statement of theory or hypothesis Collect data: time-series, cross-sectional, or pooled (combination of time-series and cross-sectional) Specify the (pure) mathematical model: a linear function with parameters (but without an error term) Specify the statistical model: adds the random … read more

• Potential consequences of violating the GARP Code of Conduct [foundation] 11 Mar 2010

  AIM:  Describe the potential consequences of violating the GARP Code of Conduct. Violation(s) of this Code by may result in, among other things, the temporary suspension or permanent removal of the GARP Member from GARP’s Membership roles, and may also include temporarily or permanently removing from … read more

• PD implied yield [practice, credit] 10 Mar 2010

  Please note the source referenced in the sample exam is incorrect so this may not really apply to L1 FRM but rather L2 FRM - David 27. A risk analyst seeks to find out the credit-linked yield spread on a BB-rated, 2-year zero coupon bond issued … read more

• Banker’s Trust [foundation] 10 Mar 2010

  AIM: Describe the key factors that led to and the lessons learned from Banker’s Trust About To reducing their funding expenses, Proctor & Gamble (P&G) and Gibson Greetings bought complex derivative products offered by BT Due to losses (e.g., P&G lost >$100 million in 1994), customers … read more

• Responsibility of each GARP member [foundation] 10 Mar 2010

  AIM:  Describe the responsibility of each GARP member with respect to professional integrity, ethical conduct, conflicts of interest, confidentiality of information and adherence to generally accepted practices in risk management. Code of Conduct: 1. Principles 1.1 Professional Integrity and Ethical Conduct. GARP Members shall act with … read more

• Convexity L1 [practice, products] 09 Mar 2010

  26. Bonds issued by the XYZ Corp. are currently callable at par value and trade close to par. The bonds mature in 8 years and have a coupon of 8%. The yield on the XYZ bonds is 175 basis points over 8-year US Treasury securities, … read more

• Long-term capital management, LTCM [foundation] 09 Mar 2010

  AIM:  Describe the factors that led to the downfall of Long‐Term Capital Management (LTCM). About LTCM LTCM was formed in 1994 by about a dozen partners. From 1994 until early 1998, LTCM produced spectacular returns. LTCM practiced a relative value (aka, quasi-arbitrage) strategy, identifying bonds that … read more

• Financial crisis at Metallgesellschaft [foundation] 09 Mar 2010

  AIM:  Identify and discuss the factors that led to the financial crisis at Metallgesellschaft (MG) You can also find a good resource at PRMIA Web-based Study Resources: Case Studies: Metallgesellschaft (Download) MG wrote (sold) long-term forward contracts (up to 5 or 10 years) based on a … read more

• Treasury bond futures L1 [practice, products] 08 Mar 2010

  25. Nicholas is responsible for the asset and liability management of JerseyBeech Bank, a small retail bank with USD 300 million in interest-bearing assets that yield approximately 70 bp above LIBOR. The duration of the interest-bearing assets is 2.5 years. Due to the recent financial … read more

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