Foundation of Risk Management

[Aamir Sarwar]

How come there are only a couple of instructional videos / spreed sheets in Foundation of Risk Management compared to other topics in the FRM Part 1 study planner? I only found Question Sets and Notes in the FRM study planner under the chapter heads for this topic. I mean, shouldn't there be instructional videos with each chapter???

 

[Nicole Seaman]

Hello @aamir316x2,

Please see our forum announcement HERE that explains how the study planner is updated. We continuously update our materials throughout the exam periods. I also answered your email where you asked this question

Thank you,

Nicole

 

[Aamir Sarwar]

Hello Nicole,

Thanks for your reply. Now this is a bit confusing for somebody whose new to FRM and to BT. Now that some topics are missing what should be the sequence that new students like myself should start preparing for the Nov' 15 exams. As far as I'm concerned, I first like to watch the video lecture along with the slides infront of me for note taking purposes, then skim read through the notes and then practice questions. Considering some lectures are not updated, how would BT would recommend that new students should proceed for their Nov' 15 exams.

Regards

A SARWAR

 

[Nicole Seaman]

Hello @aamir316x2

Since everyone studies differently (and learns differently), it is very difficult for us to suggest a study plan. We have created a thread HERE in the forum where others have shared their study plans and any tips/advice they have for the exams. I hope that this will help you to create your own study plan. We will be publishing new materials as soon as possible, so watch the study planner for "new" symbols!

Thank you,

Nicole

 

[esubah]

Hi Nicole,
I think A Sarwar has a very valid point. I don't see the benefit in preparing materials that are incomplete. Students, or at least for myself, tend to study in sequence and it's hard to understand how and why someone would want to read materials that are incomplete and come back later to get the remainder. Why is it so difficult to publish the complete set of materials?

 

[Nicole Seaman]

@esubah,

Without going into detail about the extreme number of hours that two of us, just David and I, work to prepare and publish materials, I will try to answer your question. We prepare our study notes and question sets first, as these take much less time to prepare and we would like for our subscribers to have materials to study from while we are preparing videos, which take a great deal of time to create, edit and publish. Although it may seem like a simple task for David and I to create a complete set of materials for over 80 readings in the curriculum, which changes every year btw, it is really just not that simple. During the past 10 years, Bionic Turtle has focused on the QUALITY of our materials and not the QUANTITY, as this is what most of our subscribers are looking for when it comes to purchasing materials to study for the FRM exam.

This explanation could also make it easier to understand. There are 82 readings in the 2015 GARP curriculum. Bionic Turtle prepares, edits and publishes 6 different types of materials:

1. Study Notes
2. Practice Questions
3. Instructional Videos
4. Spreadsheets
5. Interactive Quizzes
6. Focus Review Videos

Publishing a complete set of materials for 82 readings, means that we have to prepare, edit and publish 492 separate pieces of materials. This does not include the customer service that we provide (I answer every single email that is received), and the countless number of hours that David and I spend on the forum to make sure that each and every content question is answered so our subscribers feel 100% prepared for the FRM exam.

I hope that this explanation helps to answer your question as to why we are unable to provide a complete set of materials all at once, and that it sheds some light on how hard David and I work for ALL of our subscribers to ensure that they are prepared to pass the FRM exam. We want to see everyone succeed and we appreciate how patient all of our subscribers are while we work hard to provide you with the materials to succeed.

Thank you,

Nicole

cc: @David Harper CFA FRM CIPM

 

[brian.field]

This is a fundamental question taken from the Foundations reading (page 15 of GARP's level 1 foundations text). It is such a basic question but it bothers me that I am a bit confused by it so I must ask the question.

Under the interest rate risk paragraph, the author states, "...3-month Eurodollar instruments and 3-month treasury bills both naturally pay 3-month interest rates. However, these rates are not perfectly correlated with each other and spreads between their yields may vary over time. As a result, a 3-month treasury bill funded by 3-month Eurodollar deposits represents an imperfect offset or hedged position."

Why is this? If I am a bank in Asia and I promise to pay 5% on my 3-month dollar deposits, i.e., on 3-month Eurodollar deposits and someone deposits $1mm and then I take this $1mm and purchase $1mm in a 3-month treasury bill which pays 5% (if it paid less than 5%, then I would have to purchase a bit more), then who cares what happens to rates over the next 3 months. I am missing something basic here! We have no credit risk per se on the treasury bill, there is no risk of not being able to repay the eurodollar deposit! Why are we concerned about market risk here? Unless there is some potential need to sell the treasury bill before the 3 months and if rates spiked upwards before a sale.....but if the 3-months treasury bill is already allocated to the Eurodollar deposit, i.e., it cannot be sold, then where is the risk or exposure to rate moves?

I would appreciate an example to explain why the bank should be concerned about market risk if it is committed to allocating the cash flows from the treasury to the Eurodollar liability.

Thanks!

 

[ami44]

Hi Brian,

I think you are right in that there is no risk if you hold the two notes to the end.
As a reason to care about NPV differences in between, I can think of:
- you might be required to hold capital according to the VaR of your position and the VaR is not zero.
- you might get in trouble for liquidity reasons if your NPV drops too low (see Metallgesellschaft).
- If you are reqired to post collateral, the current NPV of your position effects you also directly, though i can't see you posting collateral for treasury bills or eurodollar notes. Futures are another case of course.
- Also your 3 month notes might be part of a rollover strategy, that is affected by the spread

Thats all I can think of right now.