Preparing for the Financial Risk Manager (FRM) exam is a significant step towards a promising career in risk management. This globally recognized certification is highly valued in the finance industry and can open many doors for career advancement.
This FRM Part 1 Preparation Guide will walk you through everything you need to know to succeed in the FRM Part 1 exam. Let’s start-
How to Start Your FRM Part 1 Preparation?
Decide on Your Study Method
Your first decision is to choose between self-study and enrolling in a coaching program.
Self-study offers flexibility and can be more cost-effective, but it requires discipline and good time management skills. If you have a solid background in finance and statistics, you might be comfortable studying on your own using textbooks and other resources.
On the other hand, a coaching program provides a structured learning path and gives you access to experienced instructors who can clarify doubts and complex concepts. This could be beneficial if you’re new to the field or if you prefer a more guided approach to learning.
Understand the Exam Format and Syllabus
Next, familiarize yourself with the FRM Part 1 exam format and syllabus. Understanding the format will give you a sense of what to expect on the exam day, while a thorough understanding of the syllabus ensures you cover all necessary topics during your preparation. Make a list of all the topics covered in the exam and note down the areas that seem challenging. This will help you allocate your study time more effectively.
Create a Study Schedule
Once you’ve decided on your study method and understood the exam requirements, it’s time to create a study schedule. A good study schedule should be realistic, taking into consideration your other commitments, and should allocate sufficient time for each topic based on its complexity and your familiarity with it. Make sure to include regular breaks to prevent burnout and maintain productivity.
Collect Study Resources
Gather all the study materials you’ll need. This includes the official GARP books, other recommended textbooks, and any additional resources such as online courses, mock tests, and study guides. Having all your resources at hand before you begin studying helps maintain a steady flow of study without interruptions.
With your study plan and resources ready, you can now start studying. Begin with the Foundations of Risk Management to build your understanding of the basic principles, then proceed to the other topics in the recommended order of study. Remember, the aim is not just to memorise the content but to understand the concepts thoroughly so you can apply them in different scenarios.
Understanding the FRM Part 1 Exam
The FRM Part 1 exam is a challenging step towards achieving your Financial Risk Manager certification. To succeed in this exam, it’s critical to understand its format, the topics covered, and the scoring and passing criteria-
The FRM Part 1 exam follows a multiple-choice format, with 100 questions to be answered in four hours. This format tests your ability to apply risk management concepts to real-world scenarios. The questions are typically split evenly across the four main topics.
Subjects Covered & Weightage
The FRM Part 1 exam syllabus is divided into four main topics, each covering a specific area of risk management:
|Foundations of Risk Management||20%|
|Financial Markets and Products||30%|
|Valuation and Risk Models||30%|
- Foundations of Risk Management: This topic covers the basic principles of risk management, including risk governance, risk measurement, and management of various types of risk.
- Quantitative Analysis: This section deals with the quantitative methods used in risk management. It includes topics such as probability distributions, hypothesis testing, and regression analysis.
- Financial Markets and Products: This section covers various financial markets and products, including forwards, futures, options, swaps, and their applications in risk management.
- Valuation and Risk Models: This topic deals with the valuation of financial products and the use of risk models. It includes valuation and risk models for fixed income, equities, and options.
Scoring and Passing Criteria
The FRM exam follows a relative grading system. This means that your score will be compared to the scores of other candidates, and the passing score is determined based on the overall performance of all candidates.
While GARP does not disclose the exact passing score, it is generally believed that scoring in the top quartile for all sections would put you in a strong position to pass.
Remember, there is no negative marking for incorrect answers, so it’s advisable to attempt all the questions.
Sequence of Study for FRM Part 1
Preparing for a comprehensive exam like FRM Part 1 requires a well-thought-out strategy. A crucial part of this strategy involves following a logical order of study. This not only helps you understand the interrelated concepts better but also ensures you don’t miss out on any important topics.
Let’s explore the recommended order of study for the FRM Part 1 Exam-
Foundations of Risk Management
Start your preparation with this topic. It provides a broad overview of risk management principles, making it a great starting point. It lays the groundwork for understanding more complex topics later. You’ll be introduced to key risk types, risk governance, and risk measurement concepts.
After getting acquainted with the basics of risk management, it’s time to dive into the numerical aspect. Quantitative Analysis might seem challenging due to the heavy math involved, but it’s easier to tackle once you understand the basic principles of risk management. This section will cover probability distributions, hypothesis testing, regression analysis, and more. The quantitative skills acquired here will be applied in subsequent topics.
Financial Markets and Products
Armed with knowledge from the previous sections, you’ll be in a good position to tackle Financial Markets and Products. This section involves understanding the functions and operations of different financial markets and getting to know a variety of financial products and their risk profiles. The quantitative skills from the previous section will come in handy here, especially when understanding and calculating the pricing and risks of different financial products.
Valuation and Risk Models
This is the final and one of the most complex sections of FRM Part 1. By this point, you’ll have gained a thorough understanding of risk management principles and quantitative analysis techniques, and you’ll be familiar with various financial products. Now, you’ll learn how to apply these concepts to evaluate financial products and use risk models. This section includes valuation and risk models for fixed income, equities, and options.
This order of study is recommended because it follows a natural progression from basic to complex topics. The foundational knowledge acquired in the initial sections will significantly help you in understanding the intricacies of the topics that follow
Timeline for FRM Part 1 Preparation
Creating a timeline for your FRM Part 1 preparation helps you manage your study time efficiently, ensures you cover all topics thoroughly, and leaves you enough time for revision and practice. Here’s a suggested timeline:
Six Months Before the Exam
Ideally, you should begin your FRM Part 1 preparation at least six months before the exam. Start by understanding the FRM Part 1 exam format, syllabus, and the order in which you’ll study the topics. Decide whether you’ll opt for self-study or a coaching program. Gather all the study materials you need, including the GARP official books, additional textbooks, and online resources if necessary.
Five to Four Months Before the Exam
Dedicate the next two months to studying the first two topics: Foundations of Risk Management and Quantitative Analysis. These topics form the basis for the remaining topics, so ensure you understand them thoroughly. Make notes as you study and practice solving related problems.
Three to Two Months Before the Exam
In the next two months, focus on the remaining topics: Financial Markets and Products, and Valuation and Risk Models. These topics are more complex and may require more time and effort. Continue making notes and solving problems.
One Month Before the Exam
By now, you should have completed the syllabus. The final month should be dedicated to revision and practice. Review all your notes, clarify any doubts, and strengthen areas you find challenging. Attempt as many practice questions and mock tests as you can. This will help you assess your readiness for the exam and get you familiar with the exam format and time constraints.
One Week Before the Exam
In the final week, do a quick review of all topics. Don’t try to learn new concepts at this stage. Focus more on relaxing and maintaining a positive mindset. Ensure you have all the necessary documents and items for the exam day.
Detailed Study Plan for Each FRM Part 1 Topic
Foundations of Risk Management Study Plan
Week 1-2: Begin your preparation by understanding the key principles and concepts of risk management. Read and understand different types of risks – market risk, credit risk, operational risk, and liquidity risk.
Week 3: Focus on understanding risk governance, risk measurement, and risk management.
Week 4: Dedicate this week to solve practice problems and review the topic. Identify areas where you are struggling and revisit them for better understanding.
Quantitative Analysis Study Plan
Week 5-6: Start by understanding the basic statistical concepts – probability distributions, hypothesis testing, and regression analysis.
Week 7: Learn about more complex concepts such as the Monte Carlo method, volatility, correlations and copulas.
Week 8: This week should be spent on solving quantitative problems and revising the topic. As this section involves complex mathematical models, practice is the key to mastering it.
Financial Markets and Products Study Plan
Week 9-10: Begin with understanding the fundamentals of financial markets. Get acquainted with different types of financial products – forwards, futures, options, swaps, and others.
Week 11: Understand the application of these products in risk management. This includes hedging strategies and how different financial products can be used to mitigate various types of risk.
Week 12: Dedicate this week to solve practice problems and reviewing the topics covered. Try to apply the concepts learned in real-world scenarios to better understand their applications.
Valuation and Risk Models Study Plan
Week 13-14: This topic involves learning valuation and risk models for fixed income, equities, and options. Understand the basics of these models and how they are applied.
Week 15: Dive deeper into risk models, covering topics like value at risk, stress testing, and risk capital.
Week 16: Solve a variety of problems related to valuation and risk models. Ensure you understand how to apply these models in different situations.
Week 17-20: After you have covered all the topics, spend the last month revising, practicing problems, and taking mock tests. This will help you consolidate your knowledge and identify any weak areas that need further study.
Best Resources for FRM Part 1 Preparation
To ace the FRM Part 1 exam, it’s essential to have a robust collection of study resources that will help you understand the concepts deeply and practice your skills.
FRM Part 1 Books and Study Materials
- GARP Official Books: These books are authored by experienced professionals and are designed to cover all the topics in the syllabus comprehensively. They’re the most reliable resource for studying the core concepts of the FRM Part 1 exam.
- FRM Handbook by Philippe Jorion: This book is often referred to as the FRM bible. It provides an in-depth look into the various topics covered in the FRM Part 1 exam and can be an excellent resource for enhancing your understanding of complex concepts.
- SchweserNotes for FRM Part 1: Kaplan Schweser provides concise study notes that break down the complex concepts into easily digestible points. They also provide practice questions, quick-sheet (a summary of key formulas and concepts), and mock tests.
Online Platforms and Courses
- Bionic Turtle: Bionic Turtle offers an FRM Part 1 prep course, which includes instructional videos, learning spreadsheets, and a very active forum where you can discuss concepts and problems with other FRM candidates.
- Quintedge: Quintedge offers a comprehensive FRM Part 1 course, including video lessons, practice questions, and mock exams. Their resources are up-to-date and aligned with the GARP syllabus.
- Wiley’s FRM Exam Review: Wiley’s offers an online course for FRM Part 1 preparation. The course includes video lectures, practice questions, and full-length mock exams. Wiley’s resources are well-regarded for their quality and depth.
Mock Tests and Question Banks
- GARP Practice Exams: GARP provides practice exams that are a must for any FRM Part 1 candidate. These exams give you an idea of the actual exam’s structure and difficulty level.
- Kaplan Schweser’s Practice Exams: Schweser offers practice exams and a question bank that covers a wide range of FRM Part 1 topics. These can be a good resource for practice and revision.
- Bionic Turtle’s Question Bank: Bionic Turtle’s question bank is known for its challenging questions, which can be a great way to prepare for the rigors of the actual exam.
Using a combination of these resources can help ensure you have a comprehensive understanding of all the topics covered in the FRM Part 1 exam, and are well-prepared to tackle the exam questions.
Tips and Tricks for Effective FRM Part 1 Preparation
Importance of Regular Revision
The sheer volume and complexity of the FRM Part 1 syllabus make regular revision an essential part of your study plan. Here’s why:
- Consolidation of Knowledge: Regular revision helps reinforce the concepts you’ve learned and makes it easier to recall them during the exam.
- Identifying Gaps: Revision can help identify areas where your understanding is weak, allowing you to focus your further study efforts more effectively.
- Enhancing Memory: The act of revising itself helps enhance memory retention. The more you revise, the better you remember.
Tip: Develop a habit of revising the week’s study topics every weekend. Also, schedule a full revision phase once you’ve completed the syllabus.
How to Tackle Difficult Topics?
Some topics in the FRM Part 1 syllabus can be particularly challenging. Here’s how you can tackle them:
- Break It Down: Break down complex topics into smaller, manageable subtopics. Understanding these smaller parts can make the whole topic seem less overwhelming.
- Seek Help: Don’t hesitate to seek help. This could be from your peers, a mentor, online forums, or a tutor. Other people may provide different perspectives or methods to understand the topic better.
- Practice: Practice is crucial for mastering difficult topics. The more problems you solve, the more familiar you become with the topic.
Tip: Don’t rush through difficult topics. Take your time to understand them, and don’t be discouraged by initial difficulties.
Time Management Strategies for the Exam
Managing your time effectively during the exam is crucial. Here are some strategies:
- Pace Yourself: The FRM Part 1 exam has 100 multiple-choice questions to be answered in four hours. This gives you roughly 2.4 minutes per question. Practice maintaining this pace while taking mock tests.
- Answer Known Questions First: If you come across a difficult question, don’t spend too much time on it initially. Skip it and proceed to answer the questions you know. Once you’ve gone through all the questions, come back to the ones you’ve skipped.
- Avoid Last Minute Rush: Aim to complete your exam with at least 15 minutes to spare. Use this time to review your answers, especially the ones you were unsure about.
Tip: Regularly practicing full-length mock tests can help improve your speed and accuracy, as well as your time management skills.
Dealing with Exam Stress and Preparing for the Exam Day
Exam stress is a common occurrence, especially for high-stakes exams like FRM Part 1. However, there are ways to manage it effectively and keep your focus on your preparation-
Techniques for Managing Stress During Preparation
- Stay Organized: Keep your study area tidy, maintain a clear study schedule, and stay on top of your revision. Knowing that you’re in control can significantly reduce stress levels.
- Take Regular Breaks: Breaks are essential to avoid burnout. Short breaks during study sessions can help improve focus and productivity, while longer breaks (like a day off) can help rejuvenate your mind.
- Exercise and Meditate: Physical exercise is a great stress reliever, as it releases endorphins, the body’s natural mood lifters. Similarly, meditation and deep-breathing exercises can calm your mind and help maintain focus.
- Stay Positive: Maintaining a positive mindset is crucial. Remind yourself of your progress and the hard work you’ve put in, and believe in your ability to succeed.
Things to Do a Day Before the Exam
- Review, Don’t Cram: Review your notes and key concepts, but avoid learning new material or cramming. Your brain needs time to consolidate the information it has already processed.
- Pack Your Essentials: Prepare everything you’ll need for the exam day – admit card, identification, calculator (only certain types are allowed), etc.
- Relax and Sleep Early: Avoid studying late into the night. Instead, relax by reading a book, listening to music, or any activity you enjoy. Ensure you get a good night’s sleep to wake up refreshed on exam day.
On the Exam Day
- Eat a Healthy Breakfast: A nutritious breakfast can give you the energy you need to focus during the exam.
- Arrive Early: Aim to reach the exam center at least 30 minutes early. This can help avoid any last-minute rush or panic.
- Stay Calm and Confident: As you begin the exam, stay calm and confident. Remember, you’ve prepared well, and it’s now time to showcase your knowledge.
Exam stress can be challenging, but with the right stress management techniques and a well-planned approach to the exam day, you can tackle it effectively and perform your best in the FRM Part 1 exam.
Preparing for the FRM Part 1 exam is no small feat – it requires dedication, strategic planning, and consistent effort. From understanding the exam format and structure, planning your order of study and timeline, to selecting the best resources, it’s important to have a comprehensive approach.
The goal is not just to pass the exam, but to gain a deep understanding of the principles and practices of financial risk management. It’s this understanding that will help you excel in your career in the long run.
We hope this blog post has provided you with valuable insights and strategies for your FRM Part 1 preparation. Happy studying!
Frequently Asked Questions
The time required can vary based on your background and familiarity with the subjects. However, GARP recommends approximately 200-240 hours of study.