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Exam Feedback January 2021 Part 2 Exam Feedback (postponed 2020 exam)

Nicole Seaman

Director of FRM Operations
Staff member
Subscriber
We hope that everyone did well on the FRM Part 2 exam on Saturday! :) We would love to hear any feedback that you have about the exam. How did it go? Did you encounter unexpected questions? How was the experience with all of the new COVID guidelines? Thank you in advance for any feedback you can provide!
 
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mattheweidinger

Active Member
Subscriber
Hi everyone,

So happy this is now behind me. The exam was VERY difficult and I thank the FRM gods (David Harper and Nicole Seaman ;)) and everyone else in the BT community for the prep materials, videos and discussions on this forum. I used Kaplan/Schweser for part 1 in 2019, but am happy to have switched to BT for part 2.

I took the exam in Montreal, Canada and here is how the logistics looked:

I counted 12-13 names on the proctors list when I signed in at the desk. 10 people (maybe 9?) showed up for part 2 in the afternoon. I think 2 people were there for the part 1 in the AM as well, since I recognized them walking out of the testing room when I arrived around 12PM. We were 3-4 meters apart in the examination room at the Double Tree Hotel on Jeanne-Mance street. The examination room was very large for the number of candidates inside and the number of desks set up. Masks on at all times except for facial verification upon entry. Uncertain of the breakdown of FRM vs ERP candidates.

In terms of the exam...as I said, I found it very tough. The first 25-30 questions were so unordinary that I swear I checked the front of my booklet to make sure they had given me the FRM part II and not ERP part II test. After the first 30 or so questions were done, the back half of the exam was much more manageable although there were some tough questions placed there too. Looking back, it would have made more sense to have done the entire test backwards from 80 to 1 instead of front cover to back cover. :p

I managed to finish all the questions and I can say there were 20-26 that I had issues with - most of which were in the heavy front loaded part of the test. Many of the the toughest questions combined information from multiple volumes of the curriculum in the question stem and then asked a question prompt like "Which one of the following is correct?". Answering correctly required knowledge from all four topics/volumes referenced in the question stem.

For instance, one question had Market risk information (Backtesting VaR), Operational Risk information (Basel capital requirements, Var & SVaR) and discussion of illiquid asset holdings in some investment fund. The question prompt here required knowledge of all three subject areas in order to either prove or disprove the answer choices listed below. Nothing like that existed on any of the GARP provided tests.

BT material was without a doubt the best prep for the part 2 test in my opinion, since most of the questions involved twisting your mind backwards, upside down and then dropping an anvil onto it. Looking back at my textbooks on Sunday, many of the questions relied on in depth knowledge coming from 1-2 sentences of the relevant section of the GARP textbooks.

I think if I pass, it will be close.

Does anyone remember the following two questions?

1. Disadvantage of Credit analysis models (KMV only uses Debt and Equity, PCA used in regression, Merton is only for publicly traded debt)
2. Contract provisions the legal department suggests for outsourcing - I was sure that two answer choices were correct here.

Thanks again to David, Nicole and co.
 

anjvns

New Member
I found the paper lengthy and difficult. Let's hope for the best. Below are the questions/concepts which i remember from exam.-
1. Asset allocation and security allocation (0.24 and 1.81)
2. Unexpected loss calculation
3. Unexpected loss contribution
4. Economic capital calculation. multiplier was 6
5. UL of portfolio
6. Incremental VaR of portfolio
7. Role and responsibility of CRO
8. MEVT- answer was standard deviation and correlation
9. Value of equity using BSM- choose ~19.XX
10. Basic internal rating model- LGD value given by regulator
11. Transaction cost and LVaR for two securities
12. TSAA and TSALG- 500 and 441 (something)
13. Anchoring bias- Mode was less than mean- Choose option which had description of one seminar/training
14. Hedge fund- Survivorship/selection and reporting bias
15. HoLee model for lowest node post 2 years- 0.2
16. Credit VaR CI-95%, PD-4%, N-60, V-105mn, LGD-100%- getting around 3XX
17. Mapping of risk factor
18. Asset liability duration matching
19. Netting and impact on the netting due to default by party not in CCP
20. PCA is used as- As an input in regression
21. CVA calculation as spread- EPE value was given, credit basis to be calculated from debt
22. Value of CVA/DVA over the year- Chosen increase in default by D
23. Foreign currency implied volatility curve under the volatile environment because of awaited government reform
24. CIP is not holding for CHF/USD due to--- Non bank lending in USD
25. Distributed Bank definition- Where all Bank, Fintech and Big Tech work in fragment
26. Implications of efficient market theory- Traders can't beat Market return
27. One question on cyber resilience- System disintegration and identify something like this
28. Type of traders value investor v/s momentary investor- -ve feedback and +feedback
29. Learning from RAC implemented in Australia- Impart/risk culture in staff something like this
30. Calculation of ARAROC and select or reject the project based on that- Selected as ARAROC> Rf
31. Altman model where all parameters coefficients and value were given- Solvent as> 2.6
32. Liquidity stress capital definition- Strategic capital can be used to meet liquidity
33. Basel 2.5 market risk capital
34. Characteristics of hedge fund which is a fraud- sighting high returns (picked wrong option for this)
35. Early warning indicator- don't remember the exact question
36- CPR calculation- 21.XX% (picked wrong answer)
37- Value of EL and Var for a portfolio having 175 values at 99%
38- Impact on NFSR due to shifting of securities from low weightage to high weightage
39- For detecting fraud which ML to use- cluster analysis
40- Difference between screening and stratification- alpha bias
41- Senior manager role in ERM- development of framework
42- Penalization due to model error
43- Equity and debt distribution - Johnson SB
44- Fintech industry size can not be determined- Due to the no regulatory reporting
45- Environment modeling is tough/not possible- Due to the heavy tailed distribution (Picked wrong option for this question)
46- Liquidity transformation
47- Actions to be taken by post cyber attack followed by drop in share value
48- Why distributed ledger is not being adopted widely- Due to high infra cost (picked wrong option)
49- Short coming of risk free rate benchmark- Deviation from unsecured and secured something like this
50- Question on the HML+SML- Not a value investor therefore lower returns
51- Company comparison with peers- VaR or deviation related option
52- LTV value decline from 80% to 40% economy is in recession
53- CIR model
54- Third party vendor risk and term to be inserted in agreement- Mutually agreeable something
55- Alpha, PC and SC based question
56- PD of company B based on the rating migration matrix
57- Changes due to FCRB- Selected same model can be used across all dept
58- one question related to CDS, correlation swap and IRS
59- Cash is dropping for a bank however retail deposit is intact. What to be considered while running the stressed test- Liquidity crunch
60- Two question asked where for two securities following details were given volatility, RAROC, Rf and correlation and a new investment of 65 mn to be invested in this portfolio- select correct option
61- if same was invested in Hedge Fund
62- Two portfolio manager one is investing in hedge fund.... what will happen if de smoothing of return was done for hedge fund- drop in alpha
63- Asset and liability had same duration what would be the correct thing to do
64- Vasicek model 1.28
These are the questions/concepts which I remember
 

mattheweidinger

Active Member
Subscriber
I found the paper lengthy and difficult. Let's hope for the best. Below are the questions/concepts which i remember from exam.-
1. Asset allocation and security allocation (0.24 and 1.81)
I got this too.
2. Unexpected loss calculation
3. Unexpected loss contribution
568K or something
4. Economic capital calculation. multiplier was 6
Was the final answer 14 or 15 million X multiplier of 6? Final answer or 80-90M?
5. UL of portfolio
6. Incremental VaR of portfolio
7. Role and responsibility of CRO
8. MEVT- answer was standard deviation and correlation
9. Value of equity using BSM- choose ~19.XX
10. Basic internal rating model- LGD value given by regulator
11. Transaction cost and LVaR for two securities
10.62 M selected over 11.X million, since it was lower
12. TSAA and TSALG- 500 and 441 (something)
I think they were both 4.41M, since the TSAA decreases when the asset comes off the balance sheet? I selected Choice A
13. Anchoring bias- Mode was less than mean- Choose option which had description of one seminar/training
Anchoring bias was described here correctly, but I selected availability bias, since it was also described correctly and based on experience of someone surveyed.
14. Hedge fund- Survivorship/selection and reporting bias
I had selection bias in the first of the two bias types given here. I think it was choice B that I picked.
15. HoLee model for lowest node post 2 years- 0.2
Got this too
16. Credit VaR CI-95%, PD-4%, N-60, V-105mn, LGD-100%- getting around 3XX
273M?
17. Mapping of risk factor
I think the question here was that mapping to single risk factors is good for VaR mapping, but not suitable for valuation
18. Asset liability duration matching
What is the leverage adjusted duration gap between assets and liabilities. I got 1.9 somehow, not sure if this was correct, since I improvised as this was one of the last questions I was able to get to and review.
19. Netting and impact on the netting due to default by party not in CCP
Was the CCP impacted by the default of a non-CCP member to a CCP member trading in an uncollateralized position with one of the CCP members.
20. PCA is used as- As an input in regression
21. CVA calculation as spread- EPE value was given, credit basis to be calculated from debt
26bps or something, Maybe 17 bps
22. Value of CVA/DVA over the year- Chosen increase in default by D
Increase in default by the second bank referenced, since their DVA had risen?
23. Foreign currency implied volatility curve under the volatile environment because of awaited government reform
Volatility smile is a frown because of the potential for either up or down moves making @TM options price high
24. CIP is not holding for CHF/USD due to--- Non bank lending in USD
25. Distributed Bank definition- Where all Bank, Fintech and Big Tech work in fragment
26. Implications of efficient market theory- Traders can't beat Market return
27. One question on cyber resilience- System disintegration and identify something like this
Was it "Segment your IT system and determine whats critical"?
28. Type of traders value investor v/s momentary investor- -ve feedback and +feedback
29. Learning from RAC implemented in Australia- Impart/risk culture in staff something like this
30. Calculation of ARAROC and select or reject the project based on that- Selected as ARAROC> Rf
31. Altman model where all parameters coefficients and value were given- Solvent as> 2.6
32. Liquidity stress capital definition- Strategic capital can be used to meet liquidity
33. Basel 2.5 market risk capital
34. Characteristics of hedge fund which is a fraud- sighting high returns (picked wrong option for this)
35. Early warning indicator- don't remember the exact question
36- CPR calculation- 21.XX% (picked wrong answer)
37- Value of EL and Var for a portfolio having 175 values at 99%
38- Impact on NFSR due to shifting of securities from low weightage to high weightage
39- For detecting fraud which ML to use- cluster analysis
40- Difference between screening and stratification- alpha bias
I think I picked one of the two stratification options as incorrect. Not sure which one.
41- Senior manager role in ERM- development of framework
42- Penalization due to model error
43- Equity and debt distribution - Johnson SB
44- Fintech industry size can not be determined- Due to the no regulatory reporting
45- Environment modeling is tough/not possible- Due to the heavy tailed distribution (Picked wrong option for this question)
46- Liquidity transformation
47- Actions to be taken by post cyber attack followed by drop in share value
48- Why distributed ledger is not being adopted widely- Due to high infra cost (picked wrong option)
49- Short coming of risk free rate benchmark- Deviation from unsecured and secured something like this
Yes, that was it.
50- Question on the HML+SML- Not a value investor therefore lower returns
51- Company comparison with peers- VaR or deviation related option
52- LTV value decline from 80% to 40% economy is in recession
53- CIR model
I think this is the one where they gave no short term rate value, but did give Volatility*SQRTr
54- Third party vendor risk and term to be inserted in agreement- Mutually agreeable something
Was it contingency plan at the third party or termination clause? Unless I am misreading something in the question, I was certain both of these choices were correct.
55- Alpha, PC and SC based question
What would lead to selling the asset. I didn't devote as much time as I should to this formula, but I think I selected that Alpha increased 4-5% or something
56- PD of company B based on the rating migration matrix
I think it was like 22.4% and choice C
57- Changes due to FCRB- Selected same model can be used across all dept
58- one question related to CDS, correlation swap and IRS
Interest rates along swap curve are at least partly correlated?
59- Cash is dropping for a bank however retail deposit is intact. What to be considered while running the stressed test- Liquidity crunch
60- Two question asked where for two securities following details were given volatility, RAROC, Rf and correlation and a new investment of 65 mn to be invested in this portfolio- select correct option
61- if same was invested in Hedge Fund
62- Two portfolio manager one is investing in hedge fund.... what will happen if de smoothing of return was done for hedge fund- drop in alpha
63- Asset and liability had same duration what would be the correct thing to do
64- Vasicek model 1.28
These are the questions/concepts which I remember


See comments above.
 
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taknev

New Member
Special Thanks to David and Nicole for the BT updated material, extremely helpful. The exam was very lengthy and difficult. I started the exam from the 80th question and worked towards the 1st question. Managed to answer only 30 questions in first 2 hours. I ran out of time and could answer only 65 questions by 3 hours and 45 minutes and forced to guess 15 questions. Made the mistake of keeping the numerical questions for the end and ran out of time. Hoping for the best.
 

anjvns

New Member
For tsaa tslg question- even I selected 441 option but post giving the exam I realized that you write off whole asset not the haircut and discounted value as post giving the collateral your asset will decline by the actual amount and same amount will be added back to tsaa at closer date.

regarding credit var- 5 defaults were given so I calculated the el and subtracted the same from 525. I didn’t calculated the pd using bionomial formula. Might be wrong. Yes got 273
 

mattheweidinger

Active Member
Subscriber
For tsaa tslg question- even I selected 441 option but post giving the exam I realized that you write off whole asset not the haircut and discounted value as post giving the collateral your asset will decline by the actual amount and same amount will be added back to tsaa at closer date.

regarding credit var- 5 defaults were given so I calculated the el and subtracted the same from 525. I didn’t calculated the pd using bionomial formula. Might be wrong. Yes got 273

You're right. I got this one wrong then.
 
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