# Practice Exams & Questions

Discussion in 'P1.T3. Financial Markets & Products (30%)' started by banerjeea, Oct 14, 2009.

1. ### banerjeeaNew Member

Hi David,

I was going through the practice exams and questions for the different modules. I think the questions are very good. Though some of the questions I felt are too long to be solved under two mins. A two period option pricing problem for a dividend paying stock is a stretch in the exam. I am new to this so I may be wrong here. I think the questions need to conceptual so that it shows that the candidate have understood the material rather than test whether they can do a laborious calculation. For example, Hull 13.6 is a great question (except part b).

Thanks,
Banerjar

2. ### David Harper CFA FRMDavid Harper CFA FRM (test)

Banerjar,

Thanks for liking the questions...

Re: "Though some of the questions I felt are too long to be solved under two mins" That is absolutely *true* of many of my questions
A fully fleshed two-step binomial binomial is a good example: it will not be tested wholesale.
More likely (e.g.,) would be for the exam to give you the binomial tree and ask for calcuation of a single node.

Re: "I think the questions need to conceptual so that it shows that the candidate have understood the material rather than test whether they can do a laborious calculation"

Here is what Chris Donohue (MD, GARP research) recently wrote to me, in this regard (copied with permission):
"I can say that the objective of the FRM is not to have candidates memorize complex formulas simply to demonstrate that they have a good memory – the ideal questions will test that a candidate understands the concept, its application, strengths, limitations, how a measure might change as inputs change, etc. There is always debate on where to draw the line (i.e., what is too complex) and hopefully the practice exams give you and your customers an indication of roughly where that line is. Sorry that I can’t be more specific but hopefully you understand."

So, that appears consistent with your view *except* I think it deserves a HUGE CAVEAT if you look at prior years' actual questions and current year's sample questions: most of the questions ask for a calculated (quantitative) answer.
But i think there is another, far more important, reality about FRM as a risk cirriculum: many of the conceptual questions really are statements about an underyling, quantitative model; e.g., CAPM, APT, VaR, portfolio VaR (marginal), EVT, Options, and on and on
... IMO, the candidate who merely approaches these conceptually (qualitatively) is not nearly as well-armed to field quesions as the one who has the quantitative understanding.
...I feel strongly about this due to my experience in the forums: the candidates who try to grasp, say, the Merton model through "language" etc have a much harder time than those who penetrate the formula. But grasp the formula and conceptual questions become miles easier. Because GARP can be clever about asking the unexpected, a model-based understanding is absolutely winning to handle queries from all angles.
...it's a long way of saying that most of the cirriculum finds its roots in risk models ... and then "exceptions" like governance ERM turn out to be difficult to quiz in standardized form

Finally (sorry for length), one other issue for those seeking "ideal" practice questions is that, compared to many certifications, the FRM is *currently* not very predictable in terms of what questions will be asked. This was true last year (2008; if you look at f/back left here, some were "taken by surprise") and profoundly true this year: the assigned L1+L2 is multiples of what can possibly be tested, and without clean precedents. The ideal would be to practice with questions, of course, that have a high % chance of appearing, but with different numbers; I think this is sort of impossible to achieve this year except on the basics (which is why, as a matter of strategy, I would try to be solid in the "early" Gujarati, Hull, Tuckman, Jorion set...)

Hope that helps, David

3. ### banerjeeaNew Member

Hi David,

Thanks for your detailed reply. Your perspective on the FRM exam is very valuable. I agree with your viewpoint that understnading the formulas helps in grasping the underlying concepts. I will take your advice and practice all the problems.

Thanks again !

Banerjar