Exam Feedback November 2021 Part 2 Exam Feedback

[MRC2020]

Hey all! I hope this helps.

No.	Topic	Qualitative = Q / Quantitative = C (calculate)	Note
1​	LogVar	C	Yearly volatility and mean given; Calculate the daily LogVar
2​	Regression hedging	C	DV01, DV01 and beta given (among other information in a table)
3​	Hedge funds & investment styles	Q	(cannot rember)
4​	Incremental Var	Q	Question on VaR terminology (in my oppinion right answer was "incremental VaR")
5​	Bank customer scemes	Q	Two scemes given; question on what scemes they are
6​	Green Swan	Q	Question on difference to black swan
7​	FX Swaps(?)	C	(cannot rember)
8​	Unexpected loss	C	Calculate UL; LR, LR volatility and PD given
9​	FRTB	Q	Question on what is new compared to BASEL II
10​	Interest rate trees	C	A interest rate tree was given (returns and risk-neutral probs.); question on the interest rate structure of the tree
11​	Interest rate trees	Q	Continuous interest reate tree (cannot rember)
12​	Credit portfolio	Q	Pick the right answer among others; statement: "UL↓ if n↑ ceteris paribus")
13​	Business resiliency	Q	What is the aim of BRM (in my oppinion right answer was "keep critical business processes running")
14​	Risk culture	Q	(cannot rember)
15​	Covid and retail banking	Q	What trends could be observed in the past?
16​	Covid effects on banking system	Q	(cannot rember)
17​	Effects of cyber attacks on banking system	Q	In comparison to other events
18​	Employee misconduct	Q	(cannot rember)
19​	Indications of money laundering	Q	(cannot rember)
20​	Volatility mean reversion	C	Mean reversion coefficient of 0.8, mean was given; what is the volatility in the next period?
21​	Advantages of Monte-Carlo-Simulations	Q	In comparison to parametric approaches
22​	GEV / block maxima	Q	Linking Frechet to heavy tails (other wrong answers on Gumbel, Weibull)
23​	Hedge funds empirics	Q	(cannot rember)
24​	Investor performance	Q	Quadratic regression with estimates for two investors was given; question on who has good skill / market timing
25​	Calculating default probabilities	C	Calculate the unconditional DP
26​	Backtesting	Q	Question on increasing / decreasing type1 / type 2 error
27​	Expected loss	C	Calculate EL (inputs given)
28​	Calculate dept	C	Merton model
29​	RAROC	C	RAROC given; other information give; question on hurdle rate (invest vs. not invest)
30​	Portfolio unexpected loss	C	UL1, UL2 and correlation given
31​	Liquiditiy	C	Calculate which position of assets (among 4) can be sold the fastest in the market
32​	Warning indicators of liquidity decline	Q	(cannot rember)
33​	Outcourcing / service agrements	Q	What to consider when outsourcing
34​	CAPM	Q	Question on what the parameters are (alpha as skill)
35​	Derivatives	Q	What happens to derivatives (3 derivatives given) when interest rate increases?
36​	Black holes effect	Q	What is it?
37​	Repos	C	Repo agreement is given; calculate which party has a benefit when interest rate changes
38​	Margins	Q	What reduces CP risk? Increasing/decreasing thresholds, increasing/decreasing minimum margin amount, other answer possibilities (…)
39​	Spread	C	Calculate spread; information on a bond is goven
40​	Altman Z	?	(cannot rember)
41​	Netting	Q	Question of benefits of netting
42​	Model validation	Q	(cannot rember)
43​	Backtesting	Q	Regulation (?)
44​	Role of the CRO	Q	What is the role of the CRO? Wrong answers in 1./3. line of defense.
45​	Calculate survival probability	C	Hazard rate given
46​	Illiquid assets	Q	(cannot rember)
47​	Dept	Q	How does subordinat dept in a firm under distress compare (like equity, like dept), etc.?

 

[dtammerz]

One other question that bugged me was a UL calculation question where the EAD, PD, LGD, Volatility of LGD inputs were given. The Volatility of the PD was not given but they expected you to calculate the UL. Anyone know what other ways the volatility of the PD can be derived?

Hey bro,
You need to derive the variance with the given PD, remember it’s a Bernoulli random variable so it was sqrt(p(1-p) for the volatility.

Wow - amazed you recalled that bit. I don't think I would have pulled that out of my Part I memory bank even if I tried. Yes, the question mentioned that the PD was Bernoulli.

 

[kawal_frm]

Wow - amazed you recalled that bit. I don't think I would have pulled that out of my Part I memory bank even if I tried. Yes, the question mentioned that the PD was Bernoulli.

this concept isn't just part 1...it is there twice in part 2 credit risk book as well.

in capital structure in banks chapter and spread risk hazard rate chapter

 

[dtammerz]

this concept isn't just part 1...it is there twice in part 2 credit risk book as well.

in capital structure in banks chapter and spread risk hazard rate chapter

Ack you are right. I just found it in my notes in [CR-3]

 

[Venkat k]

One other question that bugged me was a UL calculation question where the EAD, PD, LGD, Volatility of LGD inputs were given. The Volatility of the PD was not given but they expected you to calculate the UL. Anyone know what other ways the volatility of the PD can be derived?

Hey bro,
You need to derive the variance with the given PD, remember it’s a Bernoulli random variable so it was sqrt(p(1-p) for the volatility.

Yes sqrt pd( 1-pd) for volatility of PD.

 

[ambrosianas]

for this question I rescaled the mean by 252, and the volatility by SQRT(252), and the answer was $1,330,xxx (I think it might have been "C")

I think GARP gave this question on different exams but switched the order of the answers... I remember the only answer below 1mm was option A but it sounds like some papers put it as option B.

 

[kevalamin01]

I have just done my part 2 exam. One personal recommendation to David and the team would be to make it clear in the notes and videos that the exam will be 70%ish qualitative in both parts. I was also surprised by the qualitative nature of part 1, which requires a slightly different learning method IMO.

 

[danghara]

In my opinion exam was relevant to curriculum and evaluate knowledge of candidates very well.

 

[Abhinav yadav]

Does anyone remember what's the answer for 1. black swan vs green swan 2. Extreme value theory question

 

[Abhinav yadav]

The questions were short and crisp..around 20 numericals and the level of questions were easy to moderate..numericals were from duration gap analysis, Unexpected loss, Var, lognormal Var, questions from interest rate tree, Z spread, cumulative probability, Raroc, Jensen's formulae, dollar weighted value and time weighted value etc...theoretical questions like- impact on subordinated debt, equity, senior debt..Extreme value theory assumption, vasicek model volatility concept, Libor and soft, green swan and black swan, 2 questions from cyber risk, etc..I don't remember much as I gave the exam on 6th December...anyone with good preparation and revision would be at advantage

In my opinion the exam was at par with FRM level 1 exam just the syllabus is more for frm.2. Remembering formulaes is the key

 

[Nicole Seaman]

I have just done my part 2 exam. One personal recommendation to David and the team would be to make it clear in the notes and videos that the exam will be 70%ish qualitative in both parts. I was also surprised by the qualitative nature of part 1, which requires a slightly different learning method IMO.

Hello @kevalamin01 We do not ever see the actual GARP exams, so we can only go by the learning objectives that GARP provides when we are preparing materials. We have no way of knowing if the exams are going to be more qualitative or quantitative from year to year, as we do not have inside information from GARP. We go into each year with the same information that the candidates have, which includes the learning objectives and the study guide. We use candidate feedback, however, that doesn't mean that the exams will be the same each year.

 

[Hamam]

Hello @kevalamin01 We do not ever see the actual GARP exams, so we can only go by the learning objectives that GARP provides when we are preparing materials. We have no way of knowing if the exams are going to be more qualitative or quantitative from year to year, as we do not have inside information from GARP. We go into each year with the same information that the candidates have, which includes the learning objectives and the study guide. We use candidate feedback, however, that doesn't mean that the exams will be the same each year.

Just to add to Nicole’s reply, it wouldn’t help to know that the exam is more qualitative or quantitative because you actually never know what GARP can do. The fact that bionic turtle drills the concepts quantitatively is extremely impressive and that’s what makes them superior than other prep providers in my opinion. When you learn concepts quantitatively they help you answer qualitative question easier and help drill the concept better because sometimes in the exam they’ll ask you qualitative questions that are actually based on numerical formulas. Also to further add the conceptual questions on the exam need both qualitative and quantitative thinking in order to answer correctly.
All in out in my opinion bionic turtle does an amazing job. I really applaud them (BT)for their efforts. Also the forum I feel is gold because going through it helps drill complex quantitative or qualitative ideas.

 

[Bluefox21]

I think what is unfair about the qualitative questions is that they are not necessarily tests of your understanding of a learning objective. If it was this means X because of Y I think the BT materials cannot be beaten. To be fair, I think BT materials are far and away the best regardless.

The frustrating piece is from GARP itself where the qualitative questions are more focused on obscure and vague definitions where at least in practice at least two of the answers could be applied (I've worked in Market Risk for over ten years). This makes it more a memory test of the GARP materials which is unfair given the sheer volume of readings.

I was able to narrow down most of these types of questions to two answers but had to take a fair few educated guesses and so would be nervous if a few of those go the wrong way. I'm also a native English speaker and would sympathise with candidates who are not as the language can be vague.

I'm also convinced the Equity, Mezz, Senior cashflow question was wrong which was frustrating

 

[kawal_frm]

this is full list of questions I could recall and my answers.

	Question	Answer
1​	97.5% ES with 1000 sampling	average of 1000 ES - 44m
2​	Daily lognormal var with annual mean and SD given	option B
3​	6 M call option price with bond PV 987.5 and strike price 987	0.65
4​	Calculation on cox ingersoll	55bp I think
5​	The effective rate for Y1 2 and 3 with Y1 19% given	Option B
6​	FRTB question qualitative question	option C
7​	Extreme value qualitative question
8​	Correlation swap buyer long on the correlation was correct out of 4 statements given
9​	Mean reversion eqn given with .81 mean rev	auto corr = .19
10​	95% CVAR,120 loans of 2mn CNY and 7 defaults @95% given
11​	Distance to default	comparing X Y Z
12​	Debt value	B+ P-….answered 71.5
13​	price of equity nd1 and Nd2 given	~43m
14​	3 year survival probability with hazard rate 8%	~78%
15​	2 year bond spread with Rf = .35%	1.69%
16​	collateraler quant question	0 as collateral required less than minimum transfer amount
17​	who has counterparty risk…related to CLN insvestor	CLN investor
18​	LDA quant	2.66
19​	with Netting and without netting calculation	was straightforward calculation
20​	UL with UL1 Ul2 and corr .25 given	was straightforward calculation
21​	2m loan loss qualitative question	option D
22​	Stressed EL with Stressed PD given	was straightforward calculation
23​	hurdle rate calculation	6.50%
24​	ARaroc questio	reject as ARAROC<Rf
25​	Stressed Market risk with 3.5 multiplier given	27.3Mn
26​	BHC qualitative question
27​	Risk culture qualitative question
28​	OTC regulation after G30 in 2009
29​	Outsourcing risk qualitative
30​	operational resiliency qualitative question
31​	backtesting qualitative question
32​	model validation qualitative question
33​	employee misconduct qualitative question
34​	Cyber risk question qualitative question
35​	Small cap HML and SMB indicator	both should be +ve
36​	IR calculation
37​	security selection vs asset allocation qualitative question
38​	when is portfolio var minimum	when all marginal vars equal
39​	Risk budgeting qualitative question
40​	Liquidity black hole qualitative question	option with short call and put option
41​	Contingent liquidity with 15m line..8m used..75% ead	~13K answer
42​	122 daysRepo txn bw hedge fund and mutual fund	option B
43​	which option means dealer bank position worseing	options like spread,haircut,novation
44​	question on barbell,carry tax swap	tax swap

 

[dtammerz]

I think what is unfair about the qualitative questions is that they are not necessarily tests of your understanding of a learning objective. If it was this means X because of Y I think the BT materials cannot be beaten. To be fair, I think BT materials are far and away the best regardless.

The frustrating piece is from GARP itself where the qualitative questions are more focused on obscure and vague definitions where at least in practice at least two of the answers could be applied (I've worked in Market Risk for over ten years). This makes it more a memory test of the GARP materials which is unfair given the sheer volume of readings.

I was able to narrow down most of these types of questions to two answers but had to take a fair few educated guesses and so would be nervous if a few of those go the wrong way. I'm also a native English speaker and would sympathise with candidates who are not as the language can be vague.

I'm also convinced the Equity, Mezz, Senior cashflow question was wrong which was frustrating

Not sure if we had a similar question but I was unable to arrive at a number that was presented in the answer choices for the Equity/Mezz/senior cash flow question.

 

[Bluefox21]

Not sure if we had a similar question but I was unable to arrive at a number that was presented in the answer choices for the Equity/Mezz/senior cash flow question.

Yeah - the correct answer was zero but was not given as an option. See below for anybody curious enough to check I may well be mistaken but I don't think so....

CLO: 30 Loans 1mm each pay SOFR + 120bps

SOFR flat at 2%

Senior: 22.5mm SOFR + 40bps
Mezz: 6.0mm SOFR + 250 BPS
Equity: 1.5mm

$0 overcollateralisation at start of year. Overcollaterallisation is capped at 150k

How much interest is paid to Equity tranche at end of year 1?

Answer in my opinion should be zero (as over collateralisation gets topped up first) but this was not an option.

 

[dtammerz]

Yeah - the correct answer was zero but was not given as an option. See below for anybody curious enough to check I may well be mistaken but I don't think so....

CLO: 30 Loans 1mm each pay SOFR + 120bps

SOFR flat at 2%

Senior: 22.5mm SOFR + 40bps
Mezz: 6.0mm SOFR + 250 BPS
Equity: 1.5mm

$0 overcollateralisation at start of year. Overcollaterallisation is capped at 150k

How much interest is paid to Equity tranche at end of year 1?

Answer in my opinion should be zero (as over collateralisation gets topped up first) but this was not an option.

The question I got was slightly different to yours. It had different amounts, where there was no OC, and they mentioned that some of the loans had defaulted before interest was due. There were also two SOFR rates given, where I suppose one of them were there to confuse.

Given the information your logic seems to be ok...

 

[Hamam]

Just a general question for all:
1) How many questions did you get stuck on?
2) How many questions did you think there were two answers that could be right?

 

[Frodo81]

Just a general question for all:
1) How many questions did you get stuck on?
2) How many questions did you think there were two answers that could be right?

I remember that I flagged 15 questions... Most of them I could narrow down to 2 options, a few left me clueless. So I hope to have chosen at least 5 of them correctly... However, what concerns me more is that I don't know how many of the questions I did not flag were actually wrong.

 

[Hamam]

I remember that I flagged 15 questions... Most of them I could narrow down to 2 options, a few left me clueless. So I hope to have chosen at least 5 of them correctly... However, what concerns me more is that I don't know how many of the questions I did not flag were actually wrong.

Don’t panic brother, I did really well on the first exam and found this one difficult too, that flagging option was useful but at the same time made you second guess a lot lol