Exam Feedback November 2016 Part 2 Exam Feedback

[Eternity]

I dont think pure guessing will net 25% of overall results, maybe the person just pick only B for all the questions but that will surely make him failed the test, I think someone with 45% correct in this exam clearly shows a masters of knowledge, especially those questions which require lots of thinking in 2 minutes!

Haha true,

When I was doing the mock exam, I can eliminate 2-3 answers for each question but in the exam day, I can only eliminate 1-2 answers for each question

 

[frmpart2dan]

could somebody confirm if operating loss is counted in operational risk? The qns says specifically that is loss on normal operation revenue and not expected so this should be counted? Insurance I think definitely is not counted as no options have that amount counted

 

[adambschrier]

What about the credit spread question where it gave a face of 100 million, risk free of 2%, put value of 2 million?

Also regarding opportunity cost and insurance - in reading basel material online it seems NOT to include insurance (or recoveries) in gross loss but it seems rather ambiguous with respect to opportunity cost - figures right?!

 

[frmpart2dan]

What about the credit spread question where it gave a face of 100 million, risk free of 2%, put value of 2 million?

Also regarding opportunity cost and insurance - in reading basel material online it seems NOT to include insurance (or recoveries) in gross loss but it seems rather ambiguous with respect to opportunity cost - figures right?!

I found online that operating cost if can reasonably measured should be included but if it is expected cost then it is grey area. Again it is vague question!

 

[Moey]

Also regarding opportunity cost and insurance - in reading basel material online it seems NOT to include insurance (or recoveries) in gross loss but it seems rather ambiguous with respect to opportunity cost - figures right?!

Seems unlikely that basel would want opportunity cost to be taken into account, especially when insurance is not. Opportunity cost is highly subjective and easily manipulated.

 

[frmpart2dan]

Seems unlikely that basel would want opportunity cost to be taken into account, especially when insurance is not. Opportunity cost is highly subjective and easily manipulated.

actually it is not really opportunity cost! The qns says the bank branch is disrupted and the cost of disruption of service is 10m. Opportunity cost is more like the bank has 2 choices and chose one then lose the other. Here there is no choice.

 

[hkgthebest]

actually it is not really opportunity cost! The qns says the bank branch is disrupted and the cost of disruption of service is 10m. Opportunity cost is more like the bank has 2 choices and chose one then lose the other. Here there is no choice.

Yeah...I think it should be included.
Let's consider another case, which is the service down due to the power cut.
Obviously, there is no physical damage cost in such case.
However, the expected loss due to the disruption of the service should be included and reported.
If not included, the loss is $0 which is unrealistic.

 

[Moey]

actually it is not really opportunity cost! The qns says the bank branch is disrupted and the cost of disruption of service is 10m. Opportunity cost is more like the bank has 2 choices and chose one then lose the other. Here there is no choice.

I forget the details re opportunity cost but one thing is certain - these questions were hellish because even after reflection we're having a tough time answering them.

 

[frmpart2dan]

I forget the details re opportunity cost but one thing is certain - these questions were hellish because even after reflection we're having a tough time answering them.

Can't agree more, actually on Analyst Forum, people are saying the same thing! For this kind of exam, the level of difficulty in the Practice Tests and the actual exam is really far apart and the amount of material covered is so much that it becomes pointless no matter how many hours you put in. I spent around 250 hours for this but I think even if I spend another 100 hours, it would not be different. I am just worried I have to repeat this hell exam again as it is like going to a lottery everytime we take the exam. One thing for sure is the level of difficulty of the FRM exam has gone up a lot! Years ago there is only 1 level and it is so straight forward that my friends who took it at that time thinking they only need about 100 hours to practice for the combined exam. Now, each level become much harder and every year people are saying that the difficulty level just increase!

 

[emilioalzamora1]

well but I appreciate that the level of difficulty is that high, otherwise everyone would take it and the FRM credentials will very soon lose its shine. It should remain an elite certificate for only those who are willing to dig deep. In short, there is nothing wrong increasing the bar from year to year.

 

[Eternity]

Anyone rmb on one question regarding the development of risk manage tool after 2007-2009 financial crisis?
options include:
1. shift to short time horizon to forecast any disaster or crisis
2. credit rating appears to be superior to transitional credit due diligence
3. morn concerns are given to those aspects that cannot be quantified

and one question regarding Risk Mapping?
options include:
1. if the yield curve is flat, wut mapping and wut mapping is same
2. Principle mapping understates the true risk
....

 

[Eternity]

Can't agree more, actually on Analyst Forum, people are saying the same thing! For this kind of exam, the level of difficulty in the Practice Tests and the actual exam is really far apart and the amount of material covered is so much that it becomes pointless no matter how many hours you put in. I spent around 250 hours for this but I think even if I spend another 100 hours, it would not be different. I am just worried I have to repeat this hell exam again as it is like going to a lottery everytime we take the exam. One thing for sure is the level of difficulty of the FRM exam has gone up a lot! Years ago there is only 1 level and it is so straight forward that my friends who took it at that time thinking they only need about 100 hours to practice for the combined exam. Now, each level become much harder and every year people are saying that the difficulty level just increase!

Wow you spent so many hours. I just hope the passing score won't be that high.

 

[Taunk]

i am afraid that even i have to sit for May'17 exam, i don't know how to prepare for it. It was that tough for me.

 

[frmfrm]

1. backtest VaR model


I chose reject because test statistic was above critical value 1.65(95%)


2. PSA, SMM ?

a : 0.5% SMM
b: 0.9% SMM ??
c: 115% PSA ??
d: ~% PSA

3. Anyone rmb on one question regarding RAROC?


RAROC

a : 8%
b : 8.2%
c : 8.6%
d : 10%

4. Anyone rmb on one question regarding Worst case scenario PD 8% ?

i chose "B" 4 XXX

5. Anyone rmb on item set questions regarding TIER1 ?

question 75

a : ?
b : ?
c : ?
d : 40% ...

question 76

a : no, ~ tier 1 9.2%
b : no, ~ tier 1 9.6%
c : yes, ~ tier 1 10.2%
d : yes, ~ tier 1 10.5%

6. Anyone rmb on one question regarding ....

a : ?
b : ?
c : Equity cash ~
d : cross-currency swaps... daily margin call

7. Anyone rmb on item set questions regarding CCP?

d. CCP thereshold is 140 ??..etc

8. Anyone rmb on item set questions ...

a : ?
b : Stress Var ?
c : MRC
d : CRW

 

[Eternity]

1. backtest VaR model


I chose reject because test statistic was above critical value 1.65(95%) Same as your answer


2. PSA, SMM this one I chose 0.9%SMM, my options are 0.5%smm, 0.9%SMM, 50%PSA, 90%PSA

a : 50% SMM
b: 90% SMM
c: 115% PSA
d: ~% PSA

maybe B is correct


2. Anyone rmb on one question regarding RAROC? I chose 8% (my options are 8%, 8.5%, 9%, 10%)


RAROC

a : 8%
b : 8.2%
c : 8.6%
d : 10%


3. Anyone rmb on one question regarding Worst case scenario PD 8% ?


i chose "B" 4 XXX


4. Anyone rmb on item set questions regarding TIER1 ? I chose the retained earning should be retained 40%


question 75

a : ?
b : ?
c : ?
d : 40% ...


question 76( my options are no, no, yes , yes 11%, I chose last one)

a : no, ~ tier 1 9.2%
b : no, ~ tier 1 9.6%
c : yes, ~ tier 1 10.2%
d : yes, ~ tier 1 10.5%



5. Anyone rmb on one question regarding ....


a : ?
b : ?
c : Equity cash ~
d : cross-currency swaps... daily margin call


6. Anyone rmb on item set questions regarding CCP?


d. CCP thereshold is 140 ??..etc



7. Anyone rmb on item set questions ...


a : ?
b : Stress Var ?
c : MRC
d : CRW

 

[JVE]

No, the bank will receive not pay, but amount is less than 0.4 million
Amount receive = (rho realized - rho fixed)* notional of contract
I remember that rho realized is ~ 41%
Fixed 40%
Amt 300

It's my answer, hope I did not get mistake

I am not sure, but I think what you are quoting there is the (net) valuation of the swap. The question asked for the cashflow to the firm (receive/pay more/less than 0.4m) and for (most) swaps, cashflows are exchanged.

Also, my realised rho based on the correlation matrix = 40%. This is logical since at inception the net swap pay-off = 0. The question then asked what would happen if those correlation pairs turned out to be understated, and thus realised rho would be higher.

 

[S666]

I believe the test statstic for the VaR backtest was 1.96 as it is a 95% two tailed test.

 

[raya]

I believe the test statstic for the VaR backtest was 1.96 as it is a 95% two tailed test.

Are u sure it was a 2 tails test? VaR is always a one tail test... Well the exact same exercise was on bt video on Youtube. We had to calculate the z value. Mean=5%*252 trading days. Vol =sqrt(nqp)=sqrt(5%*95%*252) and zvalue=(20-mean)/vol which was above critical t value

 

[intrepid86]

There was this question on improving ES metric (something of that sort) I marked the option by increasing sample size and there was this other question for which I marked that increasing sample size would reduce probability of Type II error. Hopefully I got them right.

 

[Eternity]

Are u sure it was a 2 tails test? VaR is always a one tail test... Well the exact same exercise was on bt video on Youtube. We had to calculate the z value. Mean=5%*252 trading days. Vol =sqrt(nqp)=sqrt(5%*95%*252) and zvalue=(20-mean)/vol which was above critical t value

ya, even the critical value is 2.13 > 1.96> 1.65