Exam Feedback May 2018 Part 2 Exam Feedback

[Nicole Seaman]

We hope that everyone did well on the FRM Part 2 exam on Saturday! Now that everyone has taken the exam, we would love to hear any feedback that you have about the exam. How did it go? Did you encounter unexpected questions? Thank you in advance for any feedback you can provide!

 

[sharg]

IMO, the exam was relatively easier as compared to part 1 which I took in Nov 17. I finished the paper in 3.25 hours with only 2 questions unattempted. Whereas in Nov, I guessed around 20 questions for part 1. May be I was more prepared this time. The exam questions were a bit verbose which needed a calm mind to solve them. Anyways, for me the exam didn't live up to its expectations of being a very difficult/daunting exam. There were some repeated questions on hazard rate/ Var mapping.

 

[arnasp]

IMO, the exam was relatively easier as compared to part 1 which I took in Nov 17. I finished the paper in 3.25 hours with only 2 questions unattempted. Whereas in Nov, I guessed around 20 questions for part 1. May be I was more prepared this time. The exam questions were a bit verbose which needed a calm mind to solve them. Anyways, for me the exam didn't live up to its expectations of being a very difficult/daunting exam. There were some repeated questions on hazard rate/ Var mapping.

Personally, I found myself in a very similar situation - compared to the Nov 17 Part 1 exam I managed my time better and the exam seemed much more manageable. I expected a few more questions related to Merton model, RAROC, and Basel capital requirements. It seemed that there was quite a disproportionate number of problems related to hazard rate/credit spread relationship and VaR/LaR calculations. At the same time, as expected I guess, the exam was much more qualitative than part 1. I felt that the questions were quite tricky and were definitely checking the understanding of concepts rather than memory.

 

[David Harper CFA FRM]

Thanks for the feedback @sharg and @arnasp Can I ask you: what were the Current Issues (Topic 9) questions like? (the practice exams contained no CI questions so we don't know what to expect). Also, I'd be interested to know anything specifically about the Basel questions ... thanks again

 

[Bernardo]

I remember the following about current issues:
1- one question asking which was the correct assertion about machine Learning. I guess the right one refeered to random forests, which avoid over fitting by averaging or taking the most frequent output of multiple decision trees.
2- one question about the impact of dollar appreciation on the global trading.
3 - one question about Fintechs. One of the alternatives mentioned that Fintechs are more exposed to systemic risk than traditional banks, which I believe is false. I’d say that the right alternative stated that Fintechs facilitates access to bank services because the business model has lower costs.

 

[Scopur]

What is GARPs rules on talking about the exam? We had to sign something about not talking about receiving information about the exam before starting - and now I just realized I never signed! My proctors were very specific about what to do and they never said to sign the front of our exam. I specifically remember this because the guy beside me signed his right away and the proctor yelled at him.

I remember in part 1 we finished, sealed our exam and then signed it but this did not happen in Toronto [edit: for part II]

 

[Scopur]

I can’t remember everything in detail but the questions I spent along time on were all cross chapter answer types of questions and there was a bunch of them! For example there were 4 answers - one would be related to DVA, one would be related to RAROC, one would be related to a Basel policy and one would be related to tranching. These were exhausting.

I also want to stress that I found the only way to answer the exam on time is to read only the last sentence of the questions, then the answers, then the first part of the question. The exam was a novel and the question could have been a six word sentence for a lot of them and instead it’s a whole paragraph.

 

[jamietay]

I remember the following about current issues:
1- one question asking which was the correct assertion about machine Learning. I guess the right one refeered to random forests, which avoid over fitting by averaging or taking the most frequent output of multiple decision trees.
2- one question about the impact of dollar appreciation on the global trading.
3 - one question about Fintechs. One of the alternatives mentioned that Fintechs are more exposed to systemic risk than traditional banks, which I believe is false. I’d say that the right alternative stated that Fintechs facilitates access to bank services because the business model has lower costs.

Yea, I remember the ones you mentioned above. There's a question on IFRS9 which I thought was straightforward - the recognition of accrual interest on NPL loans and the difference in treatment between IASB and FASB. There's another tricky one from AML/ CFT. I was torn between 2 options - I think one of the option included beneficial owners.

There's a question on hurdle rate and I was beating myself about not memorising the formula. I took it for granted that the hurdle rate is the risk free rate. I managed to get an answer which is not from the formula but I added the risk free rate to it.

There were a few questions on hazard rate. I mean what was that about. And agree that a lot of the questions were on concepts interlinked between various topics.

There's one on Risk Plan - I hope I picked the right answer for that.

Also, there's a question on SMA Operational Risk. I had 2 options too but can't remember which one I chose in the end. One option was on insurance coverage where it says something like the SMA has the same drawback as the AMA.

Anyway, I'm hoping to pass this round. Crossed my fingers!

 

[jamietay]

Btw, what would be a safe range? I reckon if I get at least 55/ 80 questions I should be in the safe zone. That's about 69%.

 

[Scopur]

Yea, I remember the ones you mentioned above. There's a question on IFRS9 which I thought was straightforward - the recognition of accrual interest on NPL loans and the difference in treatment between IASB and FASB. There's another tricky one from AML/ CFT. I was torn between 2 options - I think one of the option included beneficial owners.

There's a question on hurdle rate and I was beating myself about not memorising the formula. I took it for granted that the hurdle rate is the risk free rate. I managed to get an answer which is not from the formula but I added the risk free rate to it.

There were a few questions on hazard rate. I mean what was that about. And agree that a lot of the questions were on concepts interlinked between various topics.

There's one on Risk Plan - I hope I picked the right answer for that.

Also, there's a question on SMA Operational Risk. I had 2 options too but can't remember which one I chose in the end. One option was on insurance coverage where it says something like the SMA has the same drawback as the AMA.

Anyway, I'm hoping to pass this round. Crossed my fingers!

IFRS 9- I did not know this one - if NPL for IFRS was an option that’s right - I didn’t put that though.
AML - I thought this was straight forward - nothing made sense but the beneficiary.
SMA - didn’t have a clue I put the one about the loss model.

As for the other questions
1- random forest one for sure
2- I answered this one from David’s quote about “there may be no winner from a strong dollar” - literally every answer was about the economy improving from a strong dollar except one
3- fintech - I agree

There was a question that had funding liquidity risk which I assumed was the answer and covers the central clearing topic as well.

The corporate culture one I didn’t know the answer to either- every answer seemed wrong. LTCM/SEC/Lehman brothers/AIG? Which was right?

 

[rj2890]

What was the answer for the question relating to vasiek model where mean reversion was given as 0.02 and we were asked about shape of term structure

 

[jamietay]

Does anybody know the answer for the calculation on securitization overcollsteralisation? How much to Equity Tranche and how much to the overcollateralisation? I think there’s a cap on overcollateralisation.

 

[sauravmandhotra]

Does anybody know the answer for the calculation on securitization overcollsteralisation? How much to Equity Tranche and how much to the overcollateralisation? I think there’s a cap on overcollateralisation.

250000 was the capping, so i think the answer was 250000 and 149000.

 

[hana1563]

I think humped shape.

oh was there a option of humped shape? i chose upward sloping

 

[jamietay]

I think humped shape.

You mean a volatility frown?

 

[rj2890]

You mean a volatility frown?

Volatility frown was a separate question for which there was a price jump hence it was humped shaped

 

[rj2890]

250000 was the capping, so i think the answer was 250000 and 149000.

Yup I guess I also got the same answer

 

[rj2890]

I think humped shape.

I choose flat as mean reversion rate was very small....but not sure

 

[Edelio]

oh was there a option of humped shape? i chose upward sloping

Yes, rate started at 5%, then 8%, then reverted to 2%.

 

[mssnal]

oh was there a option of humped shape? i chose upward sloping

Chose upward sloping too. Don't know for sure what is the correct answer.