What's new

FRM Level 1 Nov 2012 Feedback


Not sure if we're allowed to discuss the paper yet, but might as well get the thread started for when we do. Feel free to delete my comments if I shouldn't talk about it yet.

How did everyone find it? Questions were definitely not as hard as the questions on BT (most were a notch easier, if not two) so long as you knew what you were doing!

Exam wasn't bad, had a good mix of questions and topics, however it had too many questions involving trading strategies (straddle/butterfly/bull spread etc) for my liking. Hardly any duration/convexity questions.

Standard credit transition matrix, question was in regards to a 2 year default.
Expected loss and Unexpected loss were requried to be calculated
There was one poisson and binomial probability question, no exponential distribution.
A few questions regarding you to understand the basic layout of a futures exchange and how it is processed
One/two questions on limit orders (stop loss, market order, limit order etc)
Relationship between futures and spot price relationship (graph question)
2 binomial questions
Interest rate currency swaps
put call parity as always
BSM model, given N(d1) and N(d2). There was a change to these figures as dividends were paid out. Or something, I can't remember this question too well (was abit thrown off here).
Estimating future volatility using EWMA (the ones where you are given lamda and volatility, plus todays and yesterdays price in order to calculate the asset return)
VAR as usual
Duration hedge (I think!)
Cheapest to deliver
finding the intermediaries return in a swap rate (i.e. the banks basis point gain)
Minimum variance hedge ratio
CAPM wasn't really tested, just one theoretical question. And one instance in which the Sharpe ratio was tested in a qualitative sense
Role of a corporate trustee in corporate bonds
Day count conventions mixed in with a fixed/libor swap
Calculating TSS through R^2 and ESS (indirectly)
2 case study questions, one about metagesellchaft (I can't spell this lol) and one asking for a comparitive lesson learnt from Barings and Kibber Peabody.
Defining basis risk and credit default

There were obviously more, but this is what I can remember right now off the top of my head. All in all, there wasn't anything that threw me off (maybe a few, but a minority) and was all pretty standard as long as you had covered all the topics. I probably knew about 50% of the paper, 25% I got down between two choices and the other 25% I had to guess as I didn't have time to cover all the topics (such as strips/straddles/butterfly spreads etc). Not great stats but I'm just glad it's all over, for now!

Until Jan 2013! ;)


New Member

The question paper started with instruction that assume all rates are continuous if not stated in the question

Also had a z table in the paper

In addition to what mani had mentioned
1. Calculate correl coeff given yester days covariance and lagged return for both assets..
Also todays vol for both assets given
2.cal Culate capital for loan loss reserve given o/s,ugd, pd, lgd, lgd var
3.den 3 ques from binomial pricing
4.4 ques related to var and application of variance formula-one was sitter. Convert 95% 1 day var to 99 % 1 day var
5 duration hedging. 2 ques on hedge ratio /min var hedge ratio
6.not much of bonds this time
7.one easy garp code of conduct
8. Two ques from stultz risk management
9.calendar spread.straddle.
10.question on sovereign risk Stress test
Will post more


New Member
Well, no surprise the BT questions were an excellent preparation,1 or 2 notches above, for the actual exam. The only issue for me was the time constraint maybe it's would be a good idea for future candidate to practice a full mock exam (100 questions). Otherwise, i think that i would be a good idea to purchase some books on VAR and RM, before you kick off your study with the BT notes; there are excellent to pass the exam but even I could answer 90% of the questions on the exam day I fell like I know nothing about Risk management...only to plug numbers into formulas and remember lists of facts... Last thought, FRM 1 is at least 3 time easier than CFA level 1...


Active Member
My memory is quickly fading, so let me few more things before I forget:
  • I found early questions were quite difficult compare to the later ones, so I initially skipped those questions. for example
- the first question was tricky - risk measure that cannot be controlled by risk manager (this is not clear, so someone could fill this one)
- pricing bond (so that no arbitrage opportunity exists by REPLICATING portfolio)

  • Also there were few graph questions such as
- given spot curve, what would corresponding forward curve look like?
- pick the scatterplot (of asset returns vs. market returns), I think we need to pick beta close to 1
- shape of the (efficient) portfolio possibilities curve (concave)

  • There were few more qualitative questions for portfolio possibility curves, which was unexpected from my opinion, for example,
- assume no short selling allowed, which of the followings are true (of two asset-portfolio)? - if the correlation is -1, then it is possible to set up the portfolio with zero-volatility (see figure 3-5 in Chapter 5, Elton & Gruber)

  • There are many questions (several minor topics) which could be answered if candidates solved BT's Practice Questions(Thanks a bunch to David :)), for example
- puttable bond gives an advantage to the holders, so it would give lower yield
- Monte-Carlo acceleration methods - answer was antithetic (change of signs)
- Comparative advantage - what is FI's profit given table (to derive spread differential) as well as each party's profit by doing swap transaction using Comp. advantage
- EWMA - computing correlation (as stated above)
  • There were some lame questions
- given yield in annual, semi, quarterly and monthly compounding frequency, which one is the highest? - I just converted all of them into continuous compounding - 3 decimal was not enough so I had to switch 4 decimals
- last question supposed to be straight forward but somehow I messed up (calculated standard deviation (of normal dist'n with mean of zero) given 5-day data then find the probability when it exceeds a certain value)
  • Etc questions
- Calculate conditional probability - one effective way is to apply Bayes' theorem
- find the 'two'-tailed p-value given t-statistic( given sample size, act sample mean, and standard dev, hyp. mean, yes we do need to calculate standard error from given inputs)
- find effective duration of PLAIN bond given price and yield table of CALLABLE bonds and call options
- find (effective) convexity of Callable bond (above)
- BSM assumption (I think the answer is security is perfectly divisible)
- One GARP code of conduct question (regarding violation) from the 2012 practice exam (shown above)
- How to measure operation risk when there is not much internal data? - I am not sure about this, I picked merge the internal data with the revelant external data
- One question about net FX exposure (on-balance & off-balance sheet)
- Given swap confirmation table, find the total # of transaction (i think payment frequency was 3month, so total was 10)
- Few binomial-tree questions, all of them were 1-step
- Questions can be easily answered by put-call parity
- I think questions for option strategy was not tricky - e.g. define the right component for Calender spread
- APT - given sensitivity(b1, b2 and b3) of 3 sectors and expected returns (x1, x2, x3) which sector would produce the highest?
- When slope of delta (Gamma) is the same for put and call? when they are ATM
- Margin question - the amount of money can be taken out after 2-day settlement
- Risk typology - settlement risk is credit risk
- intention to deliver - I think last notice day comes after last trading day (there was a nice diagram from David... where was it?)
- converting VaR - with different time horizon as well as different confidence level
- find 99% Expected shortfall from 1000 day record (worst 20 is given, but the right answer was obtained by avg the worst 9 instead of 10)

These lists are not complete (especially the market product and VaR) so hopefully I can add more...



They seemed to like no short selling restriction and binomial trees alot. Any guesses what the MPS might be


New Member
caramel What is MPS..btw.
RiskNoob regarding margin ques i think zero was the answer..or i got it wrong?
Antithetic was right

Apt Ques 2nd sector had the highest return
One ques on bsm was lenghty. .had to calculate strike price with one set of data
And den the price of call after dividend. ..d1 d2 was again provided after dividend

Was not able to get the answer of one of binomial options pricing. .where stock coul move by 10 up and down both ways also risk neutral prob of 58% was given was the ans a)8

TM answer was d)

Risk management failures. .which are not ...anser was failure to eliminate credit losses

Thts for now



at LEO 4 MPS minimum passing score.

Some questions I remember , Exposure to FX , Qualitative questions - Duties of Trustees, LIBOR, Basel stress testing - guess it was something about fostering debate about prior assumptions , read it in the working paper. also there was some stuff on sovreign credit ratings- guess the answer was not much prior data available

Thanks to alexsanders tips-- I did flip the booklet in the second hour and completed the low hanging fruit , ending doing questions questions 80 to 100 pyschologically that eases some of the mental pressure


New Member
Well, guys and gals, here is my experience from Dubai, Middle east..
The Exam site was all good but the supervisors had no clue of the GARP policies and even an exam supervision process sadly.
baring that: The exam looked tough for some people in the room. some left though after 2 hours.. not sure whether they ticked all D choice answers.. probability of d in frm is hifger.. :) just a wild gues..

Exam looked decent for me as i used BT notes and videos very well. Knew most of it. left some calcs ones for late anwsers so could not get time in the end.

theory was about 40% i say..

Graphs were given.. and were interesting yet challenging.

lets see what result comes now...


New Member
Another post on the answers to a few questions?

Any body remembers the Probability answers and C- default probability answers?

I guess the default probabbility of C- bond was 17% in frist year, plus the 75% x 17% next year... tatal some 32 %...


New Member
adnan In addition to that you also have to take into account those higher graded bonds than C that defaulted in the next yr i guess the answer was d around 37- 38 %


Yeah I'm 99% sure it was around 30 something percent (there was only one option containing this value anyway as the rest were below 30%). Very similar to David's practice questions.


New Member
I based on my experience can say.. in any competeitive exams if you score around 60- 65 % you are through..considering tht exam difficulty level was moderate..65 would be a safe score provided you have not fared badly in any one of the sections..

Hey Guys,

I gave my exam in Mumbai.Here's my exam experience:-
The exam was a moderate difficulty exam,with a mixure of easy ,moderate and difficult level questions spread out.
Time was sufficient for the exam,But was finding some difficulty in marking some close options.
Well,I am new to Bionic turtle..i used kaplan notes for my preparation,along with garp practice exams.
Keeping my fingures crossed for Jan 2.
Any speculations about the probable cut-off?

One doubt : As per information FRM doesnt has sectional cutoffs then why in some of the threads there is a mention of doing good in all sections.?



New Member
HI Ajay, Mani. Yes the result was some 32 %.. Should be true choice.. so we are all on the same page.. : )

Hi Sanjay. Glad to hear about ur exam in Mumbai.

There are no cut offs in FRM.. but u shd pass at least taking a grade 2 in 3 sections..out of 4. Its a mix a match actually.. i knew a guy who had 1 grade 1, 2 grade 2, and one grade 3 and still passed the exam


Active Member

Regarding the margin question, the trader was in short position and had a margin call after the big price increase in the first day (so that the balance is equal to initial margin again).

However there were bigger price drop on 2nd day so his position exceeded the initial margin, and this difference is the amount of money that could be withdrawn..



New Member
agree forget the numerical answer but it was equal to the gain on his second day...tricky bc it was short. glad we came to the same answer!


New Member
There was one currency exposure question- probably 1st or second question where they have given assets in foreign currency( CAD) and then liability and also he bought long on some position as well short.. what was the answer to that q.. was it 2.5.. i couldn't match any answer with my calc.

also another q where it has 100 USD long with volatility as 8% and 100USD short with 6% volatility and q was asking for var ? i thought ans for this was 0 but i believe i was wrong


New Member
The sharp ratio question threw me off. Could not figure that out under exam pressure. Also the bayes theory question (lie detector question). I wasted too much time on it.


New Member
I left the bayes one to Guess... :)

On the Margin question.. yes it was the gain of 75000 and the trader was short, this was his profit in margin account. he can withdraw it.. Cool.

@ delta123:
The CAD Question: Yes the net exposure was 2.5 or soem thing.. the deal was that He was More short than Long. If you had his traded CADs as well, he was net Short if i remember correctly. Te naswer was like 2.5..