FRM Part 1 : Exam Done in Dubai 2011

[LankyLint]

Since I have some free time, I'll tell you some of the questions I remember:

1) There was a graph about the tracking error vs correlation. At first, I chose the 1st graph (tracking error was a straight line decreasing as correlation increased). But then, I calculated the tracking error using the variance formula and it matched the 3rd graph which was like a curve which went from 26% to 3%.

2) Calculate the exposure of the bank. Assets were 135 mil. Liabilities were 100 mil. Had to multiply A - L by the exchange rate.

3) What is the forward exchange rate? (same question as above) The order of interest rates in the question was inverted for the calculation.

4) One about duration: Our portfolio was delta hedged and changes in ST rates or LT rates were provided. I was about to mark that it won't affect out portfolio because it is hedged. But then, taking into account that duration only works for parallel shifts, I marked ST rates are higher (don't remember exactly) than LT rates. i

5) The risk free rate and the forward rates derived from it were given in a graph. Seeing the word derived, I marked that it wouldn't matter how invested, the rates would nullify (the borrowing and the lending)

6) Long term capital management: I picked 1. The statement I marked wrong was that LTCM principals had no money vested in the fund and that is why there was no incentive. It is clear that they invested billions of their own money

7) Calculate the value of the bond (100 face value) from the other two bonds. One had a 4% coupon the other had a 9% coupon. The yield was 3.77%. A linear interpolation (0.6 * yield of 4% bond + 0.4 * yield of 9% bond would give 3.77% exactly.

8) Economic capital is used to cover unexpected losses only (as discussed earlier)

9) Minimum capital requirements. 15% of the last 3 years gross income

10) Amount of dividends using put call parity and equal costs. The equation became callPrice + Strike(discounted back) = Stock + putPrice
The callPrice and putPrice canceled out because they were equal. After applying the risk-free rate to the strike, the difference was approximately $4.19

That is all I remember for now. I'll update this as I remember more. Correct me if my answer choices are wrong.

 

[Addy]

Dear hend..... U seem to be very details oriented..very particular..... very detailed....

Well, relax and watch some good movies... Now. It done and dusted.. and u will either scream or eat ice cream on JAN 4...

I am keen to know ur result btw.... when it comes..

 

[Hend Abuenein]

Thank you Addy, as a matter of fact I'm gonna start preparing for L2, aside from having a bit of fun until Jan4th

 

[bmozin]

Does anybody have the Part I pass list?
I remember that GARP published pdf file, but now it is removed.

 

[LeeBrittain]

I took Part 1 in Chicago and thought that overall the questions were easier than I studied with on the BT practice sets and the Schwesser practice exams. Like others I was surprised about the lack of black scholes questions. On previous practice exams where I felt terrible about how I did, I would end up scoring somewhere in the high 60's which I think is usually a passing rate. Felt good about the test afterwards so hopefully that's indicative that my odds of passing are pretty high. Had about 10 questions where I had it narrowed down to 2 answers and had to make my best guess. Finished all questions with about 5 minutes left, no time to go back and change answers but I usually stick with my first guess so no issues there. Hopefully i'll be taking Part 2 in May!

 

[wrongsaidfred]

I think that most of the major topics were covered well on BT. The only things I felt were a little beyond my grasp were some of the theoretical questions.

There was one about which type of top down model covers a lawsuit the best that did not seem to make a heck of a lot of sense to me.

There was another question about what type of scenario would not be covered under a certain view. Cant remember thwe details but I do not remember reading anything about it. Anywhere. Not just on here but even in the source readings.

There were quite a few problems with misinformation orWAY too much information that I think I got but could also have missed something. There were also a couple of questions that just seemed like a lot of work that were not terribly interesting or difficult.

For me the most frustrating problem was the one about the swap. I knew that I wanted to max out the difference of the differences, but had a tough time keeping straight where we needed to have the the advantages.

I agree with one of the earlier posts about going back and forth between really simple problems and really difficult ones. Part of the test is just to see if we can recognize the 30 second way to do a problem but it really does mess with your head when you spend 2 minutes trying to figure out exactly what is being asked and then the calculation takes 10 seconds. And then the next one just wants you to apply the cost of carry model with only an interest rate.

Long story short is that I think the test was tough because of some of the exact details we had to remember but most of the actual calculations were on the basic side once you knew what to do. Then again, only time will tell if thought they were easier than they actually were.

Best of luck to everyone as we wait for thr results.

Mike

 

[Hend Abuenein]

Hi Mike,
I was wondering where you'd been.
Wishing you best of luck

 

[Hend Abuenein]

There was one particular question I stopped at:
Bankers Trust was sued by Proctor & Gamble and -----Greetings, among the allegations against it:
I- The payoffs of the options it contracted for its clients were not clear to them
II- BT employees bragged about fooling clients.
Correct me if I'm wrong, but II was how I was proved true in court, not an allegation made against BT. So only I is correct. Right?

No one has answered me this question yet.
What do you think guys?

 

[LankyLint]

Hend,
.
I think either you misread the question or I did.

As far as I remember, the first option was, "Falsely misstated the value of the investments." Which is not true. At least that was not the allegation. The investments were correctly valued, only that their risk was understated. Or at least they were not communicated clearly.

I marked only II as correct. Why? Because keeping aside absolute context in terms of the law. That was the primary reason Proctor and Gamble lost. This is directly related to the argument that P&G fooled Gibson greetings and the other firm which was the primary reason.

I am definitely sure II is correct. I am not sure about point I.

 

[Hend Abuenein]

I have to disagree Lanky,
True that now I became not so sure about the wording of I, although I'm almost sure it meant that bankers trust made value of contract ambiguous to it's clients and that WAS AN ALLEGATION AGAINST IT,
I'm pretty sure about II being incorrect, because the 2 clients didn't know about the bragging employees until the recordings were submitted in court by BT themselves as proof of clients' agreement to wordings of contract. The recordings being the defendant's evidence means that plaintiffs didn't know about it in the first place, so how could it be their allegation against their opponent?

 

[LankyLint]

I understand your point. You are focusing on the word allegations. However, depending on the wording of the question, I think point I may or may not be correct.

I think point II more directly correlates with the allegation of false information that was provided.

 

[LankyLint]

Okay. My mistake.

Point I is definitely correct.

"Bankers Trust employees were found to have repeatedly provided customers with incorrect valuations of their derivative exposures" - wikipedia

 

[wrongsaidfred]

In the learning outcomes, I remember reading something about I could have been an issue because the products were so illiquid that they could basically make up their own market for it but I am not sure if it was part of the actual lawsuit. The wording was not terribly clear (at least as far as I am concerned) but I put that both were true. I think that II was def true, and I know that I was possible but depending on what they were looking for it was either both or just II. Who knows...?

 

[Hend Abuenein]

Thanks

I think swindling words so a simple idea looks hard to grasp is one of GARP's handiest tricks.
You'd think it's irrelevant to risk management skills, but then again, the Bankers Trust case is one that proves how important it is to have that kind of skill, grasping swindled words

 

[LankyLint]

That is a total of 3 confirmed mistakes for me. Anyone else keeping count? xD

 

[wrongsaidfred]

I have tried but it just makes me depressed. Just trying to think about some of the ones I got right and keeping hope alive.

 

[Hend Abuenein]

I don't want to know
The other day when Lanky argued about the variance question, I was hanging my head down all day.

Let's have hope

 

[LankyLint]

I know the feeling. However, I still feel confident about the remaining 97 (unless someone starts another debate).

I feel I deserve to pass. I'm sure you guys do as well. Let us wait and see.

 

[trabala38]

Hello everyone !

I also took Part 1 this Saturday : It is quite funny to see that other people faced exactly the same problems... Makes me feel a bit more confident !

Well, regarding my feedback:

- I think BT/David prepares extremely well for all questions with computations
- I got the impression that some qualitative questions were overly picky (I think this will be where I will be losing most of my points !)
- I had the impression of being tested several times on the same thing: cost of carry, standard deviation computations (with correlation etc...).

Overall, I would say that the whole exam really test your "logical skills", your abilities apply concepts, your understanding of the theory. Great job for that GARP. However, sometimes, I think the questions were too sneaky/picky in order to raise artificially the level of difficulty. Also, as pointed by Mike, some questions required lot of calculus time, when the underlying concept is super simple (i.e the swap where you just need to max the difference of the difference => I think that kind of questions could have been asked qualitatively instead of quantitatively).

Some questions had quite confusing answers :

- the question where you hedge a plain vanilla bond with a callable bond (or the reverse, I don't remember exactly) => I had the feeling that answers were "overlapping" which makes the final choice quite difficult (because you need the read and read again the answers to be sure you did not miss something !)
- question with Asset Liability table with 3 different maturities and interest rate change and the impact on the asset/liability ratio. This question was very frustrating to me...

As explained by Mike, I think people who masters FRM are the ones who are capable of identifying the problem within 30 seconds and then find the solution straight. There is very little room for falling on its feet when something went wrong (i.e. you had wrongly interpreted the question, or got confused by the answers)...

We'll see the result in January...

trabala38

I think that most of the major topics were covered well on BT. The only things I felt were a little beyond my grasp were some of the theoretical questions.

There was one about which type of top down model covers a lawsuit the best that did not seem to make a heck of a lot of sense to me.

There was another question about what type of scenario would not be covered under a certain view. Cant remember thwe details but I do not remember reading anything about it. Anywhere. Not just on here but even in the source readings.

There were quite a few problems with misinformation orWAY too much information that I think I got but could also have missed something. There were also a couple of questions that just seemed like a lot of work that were not terribly interesting or difficult.

For me the most frustrating problem was the one about the swap. I knew that I wanted to max out the difference of the differences, but had a tough time keeping straight where we needed to have the the advantages.

I agree with one of the earlier posts about going back and forth between really simple problems and really difficult ones. Part of the test is just to see if we can recognize the 30 second way to do a problem but it really does mess with your head when you spend 2 minutes trying to figure out exactly what is being asked and then the calculation takes 10 seconds. And then the next one just wants you to apply the cost of carry model with only an interest rate.

Long story short is that I think the test was tough because of some of the exact details we had to remember but most of the actual calculations were on the basic side once you knew what to do. Then again, only time will tell if thought they were easier than they actually were.

Best of luck to everyone as we wait for thr results.

Mike

 

[kwadwo69]

Accra Ghana had its first exam as a new centre. Quite a healthy number to start with. About 80% of the candidates were ERP candidates (and each of them wished they had had Bionic Turtle to study with), though, and the rest, FRM I. Quite a good exam; we await Jan 4, 2012.