Exam Feedback FRM Part 2 (May 2015) Exam Feedback

[Ryan S]

Agreed, highly qualitative. Feel like I went overboard on my prep with the quant, but I had to. It paid off for those questions. As someone has pointed out, the first few questions were quite intimidating, but I was more prepared for that mentally (I recall the same thing from part 1) and kept on chugging, and it got better. Will have to see for results, but felt more prepared coming in this time with BT, and Schweser as a compliment. Once again, if I could go back and do it again, I would spend more time drilling on practice questions and less on reading and "passive studying". Hopefully, I wont have to!

 

[Ryan S]

The first question was copied from GARP 2013 about QQ plot

I chose heavy tails too and if I remember the shape correctly and seeing the practice exam now, it was wrong. ami44 is correct.

It was very similar, but the line was off center and shifted to the left of the "zero,zero" axis, which to me meant a negative mean. I very well may be wrong.

 

[FRMP2]

A few questions I am still not sure about.
- What did you guys have for the cds/correlation graph.
- And what about the long position on the correlation (call options?).
- There was a question about the 95% VaR of the CDO
- There was a question of BIA vs st. approach.

My answers:
-As the correlation increases the CD spread should fall, ultimately to Zero when correlation is one, as you would not buy protection from a seller who would default when you need it.
-Chose the 2nd option on the Puts as it should be reverse of the call case- not sure about this though
-can't remember
-BIA was giving a higher capital requirement as the denominator was reduced to two, can't remember the exact number

 

[mkelly9]

Extremely qualitatively

 

[hamu4ok]

A few questions I am still not sure about.
- What did you guys have for the cds/correlation graph.
- And what about the long position on the correlation (call options?).
- There was a question about the 95% VaR of the CDO
- There was a question of BIA vs st. approach.

CVar = 5000; 5 defaults * 1000 and exp df = 0,02 *100*1000. However, not sure about 5 defaults as ratings with cum PD were given accompanied with number of defaults.
Long position on correlation = I chose correlation swap

 

[ami44]

- What did you guys have for the cds/correlation graph.

The higher the correlation the more useless the cda. There were two graphs that showed decreasing value of cds with correlation. I choose the one that eventually ended at zero, since the cds is worth nothing, if the correlation is one. At least thats true if the recovery rate is zero. I can't remember, i hope there was no recovery rate mentioned.

 

[hamu4ok]

Another graph was volatility smirk with the comparision of longnormal. I chose with a fatter tail on the left.

 

[robin3301]

The higher the correlation the more useless the cda. There were two graphs that showed decreasing value of cds with correlation. I choose the one that eventually ended at zero, since the cds is worth nothing, if the correlation is one. At least thats true if the recovery rate is zero. I can't remember, i hope there was no recovery rate mentioned.

but the question is about the CDS spread not CDS value.
I choose the one that increase with correlation

 

[hamu4ok]

but the question is about the CDS spread not CDS value.
I choose the one that increase with correlation

And there was the assumption of no wrong way risk

 

[hamu4ok]

The question with shifting from STA to BI approach with two business line was confusing as one business line had only one year of positive net income over 3 years, but I couldn't find the right answer, so I chose increase from STA to BIA logically but may be wrong ragarding the right amount.

 

[hamu4ok]

Also there was the qestion regarding CVA and credit exposure

 

[robin3301]

The question with shifting from STA to BI approach with two business line was confusing as one business line had only one year of positive net income over 3 years, but I couldn't find the right answer, so I chose increase from STA to BIA logically but may be wrong ragarding the right amount.

I choose 24 more

 

[hamu4ok]

I choose 24 more

Did you come to this answer with the right calculation or just guessed?

 

[hamu4ok]

Another basel related issue was with the amount requied fundin in the denominator and wether the ratio is met. I chose 55.4 and the ratio was greater that 100%

 

[robin3301]

Did you come to this answer with the right calculation or just guessed?

just guess haha

 

[robin3301]

Another basel related issue was with the amount requied fundin in the denominator and wether the ratio is met. I chose 55.4 and the ratio was greater that 100%

me too

 

[hamu4ok]

a question with expected loss calculation for three companies X,Y,Z and the ranking from highest to lowest. I chose AA,BB-, BBB

 

[robin3301]

which are the most challenging for bank to model interest rate risk and funding liquidity risk?
MBS, covered bond, commercial check acc, retail deposit

 

[ami44]

but the question is about the CDS spread not CDS value.
I choose the one that increase with correlation

But isnt it the same for the spread? I would pay nothing for a cds that has no value for me?

 

[vamsib555]

which are the most challenging for bank to model interest rate risk and funding liquidity risk?
MBS, covered bond, commercial check acc, retail deposit

I marked the answers as MBS and checking deposits