FRM Part II Exam Survival Guide

Window: Global | Topics: Market/Credit/Operational, Liquidity, Risk Mgmt, Investment Mgmt, Current Issues

Must-do topics

• Market risk: backtesting, stress testing, model risk, liquidity-adjusted VaR
• Credit risk: credit portfolio models, counterparty risk (CVA/DVA), securitization issues
• Operational risk: AMA/SMA concepts, KRIs, scenario analysis, cyber risk
• Liquidity risk: funding vs market liquidity, LCR/NSFR, run-risk dynamics
• Risk management & investment mgmt: risk budgeting, risk parity, active risk, factor models
• Current issues: regulatory changes, fintech/AI risk, climate risk, systemic risk linkages

Top traps (avoid)

• Treating market liquidity like funding liquidity; different drivers/measures
• Misreading backtest traffic-light results and remediation steps
• Credit: forgetting netting/collateral impacts on exposure profiles
• Securitization: mixing tranche attachment/detachment logic
• Operational: confusing frequency vs severity assumptions; scenario calibration mistakes

Time split

• ~80–100 Q / 240 min → ~2.3–3 min/Q; two-pass method
• Park long calc with a mark; return after banking quick conceptual wins

Last-48h checklist

• Liquidity metrics & regulation (LCR/NSFR); run-risk case studies
• CVA/DVA mechanics; exposure profiles (EE/PEF, EPE)
• Risk budgeting math; active risk & information ratio relationships
• Summaries of current issues (regulatory notes, climate/ESG)

Quick facts / formulas

• CVA ≈ discounted expected loss from counterparty default; depends on EAD × LGD × PD over time
• Backtesting: exceptions counted vs VaR level → green/yellow/red zones
• Risk budgeting: allocate to equal marginal contributions under constraints
• Liquidity-adjusted VaR: adds cost-of-liquidation/market impact component

Speed tactics

• Identify risk type and horizon first; then pick the matching tool
• Sanity-check signs/units; keep results within plausible bounds
• Prefer answers acknowledging model limitations and governance

Day-of mini-plan

• 8-min warm-up: 2 liquidity, 2 credit, 2 market risk Qs
• Keep moving; return to math-heavy items with fresh eyes
• Final sweep: regulation acronyms, qualitative mitigants