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Week in Financial Education (May 3, 2021)

Hello, welcome to another WIFE! Our FRM® forum was super busy last week. I wrote a long reply to the question (link below) about the interpretation of foreign exchange (FX) quotes. We have experience here. This is one of many examples of where we (members in this forum) prompted a correction to GARP®’s imprecise syntax references (in actual questions) to a “USD/EUR exchange rate”; e.g., 2016-P1-Q6. My advice is to disregard the domestic/foreign FX monikers because they are relative to each counterparty (so they don’t give you actual guidance). The proper FX quote convention syntax is base/quote, as in EURUSD (aka, EUR/USD) where the pair’s first currency is the base and the second currency is the quote (aka, price) currency. This may be initially confusing because EURUSD refers mathematically to the ratio USD/EUR, as in $X.XX US dollars per 1.00 unit of EUR. But it is ultimately convenient: given a quote of $1.21 EURUSD (i.e., EUR is the base), an increase in the quote (the number) refers to an appreciation in the base currency (it takes more dollars to purchase one Euro). The major currencies are ranked, with EUR as first, so by convention the preference is EURUSD and USDEUR is unconventional. If you really want to also use direct-versus-indirect, then know that a direct quote refers to a quote where your domestic currency is the quote (aka, price) currency, while an indirect quote refers to where your domestic currency is the base currency. Consequently, a quote of $1.21 EURUSD is direct if you are based in New York, but indirect if you are based in Paris.

New Practice Questions

Stock based prices graph

Forum News


1. IT skills after FRM

2. [T2. Regression] @Parsimony asks about GARP’s bivariate confidence interval diagrams

3. [T3. Interest rates] Implied forward rates differ only due to the cosmetics of compound frequency

4. [T3. Options] Impact of stock dividend on option price

5. [T3. Mortgage & MBS] Does negative convexity imply also negative duration?

6. [T4 CAPM] Does the Market portfolio include the riskfree asset?

7. [T4. Value at Risk, VaR] @mbbx5va2 makes a keen observation about the difference in delta-gamma VaR between a long versus short option position

8. [T4. Bond VaR] Thank you @lushukai for a great answer to analytical bond VaR using duration and convexity given yield volatility

forum response

9. [T4. Binomial OPM] Do up-/down-jump probabilities influence option price?

10. [T4. Key rates] If each of the key rates is shifted, then all rates are shifted by one basis point

11. [T4. FX] FX quote convention


1. [T5. Expected shortfall, ES] When do we slice the tail to estimate expected shortfall (ES)?

2. [T6. Credit value adjustment, CVA] CVA is an EL designed for the bilateral trade context (versus unilateral loan exposure)

forum response

3. [T6. Counterparty credit risk] (*) Exposure profile of CDS

4. [T6. Extreme value theory, EVT] EVT GEV versus POT

5. [T6. Counterparty credit] Initial margin (IM) posted unilaterally versus bilaterally

6. [T7. OpRisk] Should a risk culture be profitable?

7. [T7. Basel] What is procyclical amplification?

8. [T7. Model risk] If the confidence and horizon match, why would different people retrieve different one-day 95.0% value at risk (VaR) estimates?

forum response

9. [T8. Repos] (*) Why a repo investor will accept general collateral

10. [T9. Investment] Equalizing beta in Bodie’s T-line for Treynor measure

11. [T9. Economic capital, EC] Why is RORAC inferior to RAROC?

Curated Links (items you might like)


1. 5 Tips to Making Board Risk Reports Meaningful Tools for Decision-Making (Carol Williams)

2. Should we abandon risk assessment, risk management, and risk appetite? (Norman Marks)

3. COVID-19: Implications for business (McKinsey)

decentralized, centralized and hybrid models

4. Why Business Interruption Risk Affects Us All Dirk Wegener is president of the Federation of European Risk Management Associations (FERMA)

5. Mitigating Risk for Asset Owners — Claiming Compliance with the GIPS Standards

6. Six Strategies for Leading Through Uncertainty


1. Global Association of Risk Professionals (GARP)

risk management models

2. PRMIA Announces the Champions of the 2021 Risk Management Challenge


1. The Texas Blackout: Even Climate-Related Financial Risk is Bigger in Texas The Polar Vortex

2. How to assess the multiple interacting risks of climate change (Carbon Brief)

Interactions of drivers within and between each determinant of risk model

3. Emerging hydrogen industry can help tackle climate change. Managing complex risks is key (Allianz)


1. FireEye’s M-Trends 2021 Report

2. The strategy-analytics revolution (McKinsey)

A performance-materials company analyzed growth opportunities withing the gasket and insulation space model

3. The Future of AI Regulation: Draft Legislation from the European Commission Shows the Coming AI Legal Landscape

4. What is Schrems II and how does it affect your data protection in 2021?


1. Joachim Klement, CFA: Three Geo-Economics Trends to Watch “His latest monograph, Geo-Economics [CFA Institute], is a vastly ambitious endeavor.” He also writes a terrific substack at

2. Rewriting the Rules Interview with July Samuelson of the well-regarded Six New Rules of Business

3. Book Review: Valuation (7th Edition)

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