Banking is a risky business. It always has been. Those who endured the recession of 2008 understand the risks most in our current economy.
So, when a major bank wants to know how risky an investment is, what does it do?
It relies on one person: a financial risk manager. A professional financial risk manager does just what his title says: he or she manages risk.
To become an FRM, you must take the FRM exam, which tests your knowledge and certifies you to manage risk for a profession.
What is an FRM?
In 2010, the Obama administration instituted the Dodd-Frank Wall Street Reform and Consumer Protection Act. The act consisted of 2,300 pages of regulations banks needed to implement over the following years.
A financial risk manager helps banks, insurance companies, accounting firms, regulatory agencies, and asset management firms manage their risk. FRM has specialized knowledge. Their training and experience help them know how to help institutions make wise financial decisions.
Why Take the FRM Exam?
The FRM exam takes time and effort. But it is worth the time and effort.
When you pass the FRM exam, you distinguish yourself from other risk managers. You have an edge on colleagues.
You also appeal to more clients because the FRM exam verifies your knowledge. It proves that you fully understand the risk management industry.
You will study extensively for the FRM exam. As a result, you will learn more about the risk management field. You will then have the value of both experience and education under your belt.
As a result, you will see your career accelerate. You will have new opportunities available to you because of your certification.
Having proper certification will allow you to network more easily. You can connect with other certified FRMs. It will also advance your career and open new job opportunities for you.
FRM certification allows you to work in risk management, trading, structuring, and modeling, along with several other areas. You can have titles like Chief Risk Officer or Investment Risk Manager.
Regardless of where you worked before, you will have a larger range of job opportunities because of your certification. Yes, you can continue to work for a bank or investment bank. You can also work for asset management firms or corporations, including non-financial corporations.
This means you can work for companies not focused just on making money. You can help people.
You can also work for hedge funds, credit agencies, government or regulatory agencies, and risk and technology vendors.
How Do You Get FRM Certification?
The Global Association of Risk Professionals writes and administers the FRM exam. It verifies that a risk manager knows his business.
The exam has no requirements. You need no specific level of education. You just need to study.
Once you pass the exam, though, you must work a minimum of two years in the risk-related field. You must have held a full-time professional position in portfolio management, risk consulting, and other fields.
The exam focuses on the practice of risk management. Participants answer real-world questions about risk management.
Part One of the FRM Exam
Part one focuses on theories and concepts. Students taking the exam will answer questions about theories that apply to a risk manager’s daily work.
The test taker must asses financial risk. It has 100 multiple choice questions students must answer within the four-hour time limit.
Before you become an FRM, you must pass this first hurdle. You must pass the exam to call yourself a certified FRM.
The exam consists of the following topics:
- 20 percent is quantitative analysis.
- 20 percent is the foundation of risk management.
- 30 percent is the valuation and risk management.
- 30 percent is financial markets and products.
Part Two of the FRM Exam
Part two of the FRM exam has 80 multiple-choice questions. Students must answer those questions within the four-hour time limit for the exam.
The second part of the exam consists of the following topics:
- 25 percent is market risk measurement and management
- 25 percent is credit risk measurement and management
- 25 percent is operational and integrated risk management
- 15 percent is risk management in investment management
- 10 percent is in current issues in financial markets
Both the first and second parts of the exam are available from May until November each year.
When you know the content and quantity of the elements in the test, you can study more efficiently.
Visit an FRM question bank to learn more about what is on the exam and how to best prepare for it.
Remember Your Test-Taking Basics
If you have not taken an exam for some time, you should review basic test-taking skills.
1. Process of Elimination
Use the process of elimination when you do not know the answer off the bat. What answers do you know, for certain, are not correct? Cross those out, and choose wisely.
2. Use the Same Letter
If you do not know the answer, always answer with the same letter. In other words, when in doubt, choose C. This way you know you have a higher chance of getting at least one of those unknowns correct.
3. Pace Yourself
Look at your time limit. You have four hours for each part of the exam. So you should be halfway through the exam at the two-hour mark.
If you can be more than halfway done, even better.
4. Take a Breath
Yes, this test matters. However, this is not a life or death test. Keep its value in perspective, and you can then go in relaxed and ready to kill it.
Prove Your Value
Take the FRM exam to create more job opportunities and prove you know your stuff in the world of risk management.
Then the company that hires you will not be taking a risk. For more interesting articles, continue to visit our blog.
