FRM Part I — Exam Survival Playbook 2

Format: 100 MCQs in one session, foundations of risk management

Must-do topics

• Foundations of risk management – risk types, risk appetite, governance, Basel/regulatory ideas, lessons from past crises
• Quantitative analysis – probability, distributions, sampling, hypothesis testing, regression basics, correlation vs causation
• Financial markets & products – bonds, equities, derivatives, forwards/futures/swaps/options, basic structured products
• Valuation & risk models – VaR (variance-covariance, historical, Monte Carlo), expected shortfall, duration/convexity, stress testing, back-testing
• Basic fixed-income math – yields, term structure, credit spreads, duration/convexity interpretations
• Derivatives for hedging – delta hedging idea, simple hedge ratios, payoff logic

Top traps (avoid)

• Learning formulas without understanding model assumptions (normality, linearity, independence, etc.)
• Confusing “risk type” (market/credit/operational/liquidity) when reading scenarios
• Treating VaR as a magic number instead of a model with blind spots
• Forgetting the direction of hedges (long vs short, pay vs receive, etc.)
• Missing which parameter is being shifted in a sensitivity or stress scenario
• Spending 4–5 minutes deriving something that could be answered by rough reasoning

Time split

• 100 questions; assume ~90 seconds per question on average
• Practical pacing:
  • First 40 questions → 55–60 minutes (fast, banking marks)
  • Next 40 questions → 60–65 minutes (moderate difficulty)
  • Last 20 questions → rest of time + buffer for flagged items

Last-48h checklist

• Work through:
  • 20–30 quant questions (distributions, hypothesis testing, regression, correlation)
  • 20+ questions on VaR and risk measures (interpretation-heavy)
• Re-read:
  • Summaries of major risk events and what models failed to capture
  • Pros/cons of each VaR approach; limits of using VaR as single risk metric
• Build one “risk map” on paper: risk types × main sources × basic controls
• Do 1 mini mock of 50 questions straight to test stamina + recall

Quick facts / models

• VaR is always about: “loss level L, time horizon T, confidence level c”
• Historical vs parametric vs Monte Carlo: data-driven vs assumption-driven vs scenario-driven
• Duration is first-order (linear) price sensitivity; convexity corrects the curve
• Correlation is not causation; look for common drivers and regime changes
• Stress tests: “What happens if X goes very wrong?” not just “1σ move”

Speed tactics

• For quant questions:
  • Draw a small picture (distribution, axes, “tail area”) before touching numbers
• For product/hedge questions:
  • Decide position sign first (what risk you’re long/short), then choose the hedge direction
• For conceptual risk-governance questions:
  • Ask: “What would a boring, well-run risk committee do in real life?” — that’s usually the answer
• Use elimination: kill two obviously weak options, then focus on model assumptions to pick between the last two

Day-of mini-plan

• Warm up with 5–10 mixed questions (1 quant, 1 VaR, 1 market product, 1 governance, 1 scenario)
• In the exam, mark anything that feels heavy on algebra; don’t let it break your pace
• Hydrate, but not excessively; you don’t want unnecessary breaks
• Last 10–15 minutes:
  • Clear all blanks
  • Revisit questions where you were between two options and now have more context from the rest of the paper