FRM Level 2 , Nov 2012 : Post what you remember here

[HopeToPassLvl2]

@shady

For the BSM, i just remembered one of the requirements of BSM is the constant variance. I might be wrong tho. But yeah, these are one of the trickier questions.

If you saw it in the readings, performance based pay the answer. I just remembered answering something in qbank about gov't policy as the answer. Maybe that's what stuck in my mind.

 

[HopeToPassLvl2]

Exam was not easy but it was also not difficult. It felt like you could pass the exam, but still had a small hunch that you might fail. But generally it felt okay. I finished 1h before the time ended.

It came as more quantitative than expected. Therefore, as long as you remember the formula or equation and apply it correctly, you're through at least 40% of the exam.

The other 40% was mostly memory work - regulation, standards and some definition/comparison questions. Then the remaining 20%, random stuff.

I hope im part of the ~61% who will pass. I failed my exam last nov 2011. I did not study well last time, and i crammed a lot.

 

[BioNerd]

In Q no.29, dont you think that the bank with the most collateral by percentage would have the max expsosure. I chose B.

why percentage? I thought it asks who has the biggest liquidity risk in a time of panic, so i chose the one with most absolute collateral, which is D (275, and B is 250.)

 

[BioNerd]

Hi everyone,

I also thought the exam was very tricky. It was not a very difficult exam, but the wording of the questions made it appear very tricky. I wrote some practice exams that appeared to be more difficult and challenging, but the questions were not as ambiguous as some of the questions on yesterday's exam. I thought the questions were rather short to read, but you really had to think on what they were asking for at least 10-20 questions, which could mean a pass or a fail on the exam. I did narrow quite a few of the answers to one or two choices, but then it was a matter of making the right choice. I know for a fact that I went back and changed two right answers to incorrect answers because I was doubting the nature of the question..tg, I changed only two questions...I know that I should have stuck to my initial intuition, and I hope that those two questions do not prevent me from passing since there really is not too much error room with only 80 questions. In any case, I hope that everyone does well.

One other question that I remember,

1. asked to create a synthetic bond..ans. I think i chose b)..treasure bond plus short cds...similar to a synthetic cdo structure.

i chose the same: long treasury with short cds, but i thought it's C. A was like buy CDS, and B sell CDS, D is long treasury and long cds.

 

[almsthere]

I could be wrong with the lettering that I chose, but I definitely chose the one with the long treasury and short cds.
As far as the percentage of collateral. I too thought that the percentage of collateral had a say in the choice. If bank A is exposed of $400 risk, and counterparty B only posts $100 collateral, whereas counterparty B posts $200 collateral. .there should be less risk with counterparty B, including liquidity risk if the collateral is of high quality of course. The question did not indicate the quality of the collateral and so I assumed they all were of the same high quality...

 

[BioNerd]

28: Mortage pool is structured into two tranches A and B. Coupon payments for mortgage pool and tranch A were given in a table. And Coupon payment for Tranch B was asked. Simple Math.
Ans: LIBOR + 88bp

Does anyone has an answer LIBOR +99bp..

 

[BioNerd]

9. Total Market charge was asked given 60 day avg VAR and Stressed VAR and previous VAR and SVAR. Ans: 256 M
Does anyone has 285: as 35*3+60*3?
10: one question of Convertible arbitrage strategy. Two options are very close
I think it's neither the one choice that when volatility is extremely high that convertible bond price could exceed it's conversion value; Or the other choice it's always profitable, excluding/deducting transaction costs, whether equity price goes up or down.

20. Which of the following amounts to collateralization. I chose the answer "originators set aside cash for losses". I know it is CCA. but all other options are definitely false
There are two choices I juggled: one CCA, the other excess spread(incoming coupons are higher than outgoing coupons+fee). I chose the excess spread one eventually. Any thought on this, anyone?

 

[Quant_Noob]

Did everyone take full 4 hours for the L2 exam? Although I found some of the questions difficult/confusing in both levels, I needed all 4 hours to finish Level 1 exam (with 5 changes- anyone knows why GARP wants to see the 1st anwer as well?), but not so for Level 2. Good luck to everyone for the results.

 

[nageshtheone]

why percentage? I thought it asks who has the biggest liquidity risk in a time of panic, so i chose the one with most absolute collateral, which is D (275, and B is 250.)

The reason I went for percentage instead of absolute was that, the total assets were given. Other wise, how can one compare large and small banks.
Hence, I believe percentage would have made a more appropriate choice. I would've chosen absolute , if the total assets would not have been specified.
I chose B. It had about 41%. the others had pledged in the range of 32-36 %.

 

[catch2002]

I agree...in L2, there were questions that came down to two answers...and I went with my gut and did not take the time to go back and second guess myself

I still used most of the time however used to double check some of the math (bond option)

That BSM bond options...I think the pull to par answer (a) was right. I think they had somethng about the stochastic nature of the interest rate ...as some mention they also possibly had something about constant vol. Which is confusing because the pull to par and constant vol are related....as David's own notes have.

There were a lot of annoying questions like that where two answers were clearly false but the remaining two were debatable (I agree on the O/C issue two answers seemed valid unless I read them wrong!)

 

[catch2002]

Good point about percentages. I put absolute as well but agree now it's wrong...imagine the numbers were ridiculous like

$1, 1M, 5M, 10M but bank A had $1 of total assets (e.g. all their assets pledged as collateral) but the other banks had 1B of assets

just because the fourth one has 10M floating out as collateral doesn't make them most vulnerable...the bank with the biggest piece of their assets floating out there is worse off.

grrr...I hate getting "easy" ones like that wrong

 

[shady007]

BioNerd

9. I dont remember the number exactly. Its two hundred sth. But I too summed the ones which got multiplied by 3. So we are correct. It is 285 then.

20. Even I was dilly-dallying between CCA and excess spread. But I read somewhere that excess spread will eventually accumulate to CCA account. So I choose CCA.

28. I am sure about this. Its LIBOR + 88bps.

 

[nageshtheone]

Good point about percentages. I put absolute as well but agree now it's wrong...imagine the numbers were ridiculous like

$1, 1M, 5M, 10M but bank A had $1 of total assets (e.g. all their assets pledged as collateral) but the other banks had 1B of assets

just because the fourth one has 10M floating out as collateral doesn't make them most vulnerable...the bank with the biggest piece of their assets floating out there is worse off.

grrr...I hate getting "easy" ones like that wrong

It's Ok man. It is because of the exam pressure that we find even easy ones tough. The pressure makes it hard to think clearly. For example, I chose spectral measures instead of ES for the "easy to understand" and "coherent" risk measure. It was only after the exam that I realized that ES is also a special case of spectral risk measure.

 

[nageshtheone]

I got 285M, as we had to take the max of ( previous day's VAR, 3 * avg 60 day VAR) ( and then sum them for VaR and SVaR). The good thing though was that it was given in terms of 10 day 99% directly, no extrapolation needed. The tough part was staying alert enough to realize that it was given

 

[nageshtheone]

I got 285M, as we had to take the max of ( previous day's VAR, 3 * avg 60 day VAR) ( and then sum them for VaR and SVaR). The good thing though was that it was given in terms of 10 day 99% directly, no extrapolation needed. The tough part was staying alert enough to realize that it was given ​

 

[shady007]

The reason I went for percentage instead of absolute was that, the total assets were given. Other wise, how can one compare large and small banks.
Hence, I believe percentage would have made a more appropriate choice. I would've chosen absolute , if the total assets would not have been specified.
I chose B. It had about 41%. the others had pledged in the range of 32-36 %.

I think I am missing sth here...the collateral are meant to be used as liquidity reserves. And the question asked which firm has the biggest liquidity crisis? So we have to choose the option which has least % of collateral posted, dont we? So the first choice I eliminated was B. I choose C I guess. Correct me If I am wrong.

 

[nageshtheone]

I think I am missing sth here...the collateral are meant to be used as liquidity reserves. And the question asked which firm has the biggest liquidity crisis? So we have to choose the option which has least % of collateral posted, dont we? So the first choice I eliminated was B. I choose C I guess. Correct me If I am wrong.

You are thinking of the Credit Risk section. Try to recall the shadow banking research paper (Slapped in the face by the invisible hand). It was given that a company pledges its shares as collateral, and faces a liquidity crisis if it is unable to renew its repos.

In our question, if the central banks and repo markets become curious about liquidity issues , then they would raise haircuts( in simple terms, the banks wont be able to get short term funding at the same rates and will face a crunch). The ones facing the most difficulties would be the one that uses more of the repo markets for financing.

That was the logic behind my answer.

 

[catch2002]

I agree it was an awkwardly phrase question but I think the fact that they mentioned repos and bank runs made me think "toxic collateral...junk collateral that fund repos that goes in the gutter" so pick the one with the most collateral (%). I Could def be wrong

I feel like I either passed or failed by 5 questions heh. I didn't bomb and I didn't get say 70/80.

 

[catch2002]

oh I just recalled another one....Asian Option delta...answer is 0 because the option is almost at maturity

 

[nageshtheone]

BioNerd

9. I dont remember the number exactly. Its two hundred sth. But I too summed the ones which got multiplied by 3. So we are correct. It is 285 then.

20. Even I was dilly-dallying between CCA and excess spread. But I read somewhere that excess spread will eventually accumulate to CCA account. So I choose CCA.

28. I am sure about this. Its LIBOR + 88bps.

For 20, I chose Overcollateralization. Any thoughts on that