Financial Risk Management Course: A Comprehensive Guide

The Financial Risk Management course that is widely known as “FRM” is globally recognized. The administrator of the FRM is the Global Association of Risk Professionals (GARP).

It is a risk management tool for the professionals seeking to gain mastery in handling risks such as credit risk, liquidity risk, and market risks. Financial-related institutions such as Investment Banks, Asset Management Firms, and Government Financial institutions look forwards to the professionals who acquire in-depth knowledge in the FRM field.

The mixed syllabus of theory and practice-oriented programs offers students a clear understanding of the career beneficiary. A qualified and highly talented risk management professional is the primary requirement of a firm. This course builds the conceptual foundation of the student that enhances their knowledge in the related area of Finance and Risk management.

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The need for a Financial Risk Management Course?

The original cost and estimated time does not meet the criteria of success for many projects and they fail to complete it due to inadequate risk quantification. Risk analysis and risk mitigation are the two factors for any successful business. FRM certified risk managers possess the knowledge, and their experience adds value to the financial decision when Financial risk management comes into the picture.

Hence, the Financial Risk Management course is a first step towards the journey of the FRM career. The course teaches the techniques and tools for the process of investment management. Tools are helpful to assess financial risks. Quantitative analysis, Financial markets, and products, Fundamental risk management concepts, Risk models are few examples of Financial risks. A professional needs to understand the concepts and approaches of risk management because they will apply their knowledge in their work daily.

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Let’s discuss the career opportunities of the Financial Risk Management Course.

Career Opportunities after Financial Risk Management Course

Risk Analyst

A business includes investments and operational costs. Calculating the approximate financial risks involved beforehand is one of the components to establishing a successful brand in the long run. Risk analysts help businesses to determine such financial risks involving investments and operational costs. Banks and investment firms hire risk analysts.

A consultant is also one of the favorite jobs amongst FRM certified professionals as they grow in their career ladder. They assess potential risk factors in the businesses and get an opportunity to work with many clients as part of their job profile. Corporate offices also hire such professionals in their accounting departments to analyze and mitigate the associated financial risk factors.

Though graduation is the minimum qualification, certified professionals are high in demand. Their in-depth knowledge, experiences, and expertise help the business to manage the financial decisions and the involved risks well in advance. A good risk analyst adds value to the growing business, and the Financial Risk Management course enhances risk analyst knowledge to fit into the position.

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Credit Risk Specialists

Loans and credits involve huge risks. What if a lender is unable to pay back the loan amount to the institution? The amount of risk involved in such scenarios needs deep analysis for any financial institution. A well-experienced credit risk specialist can forecast any financial disaster that is beneficial for the banks to take action at the right time.

The analyst prepares the report of the analysis for both parties. The client and the lender both need the benefit out of the loan, and credit risk analysis makes it efficient. A credit analyst checks the eligibility of an applicant by reviewing and assessing their transaction history. A credit analyst determines the risk involved of issuing a loan to the default.

Many factors such as income statements and balance sheet evaluation are taken into consideration that determines the level of risk. The evaluation includes calculating certain financial ratios that help the lender make comparisons. Credit risk specialists start their careers in the accounting, loan application processing, and accounts receivable and payable departments.

Market Risk Specialists

Market risk specialists perform analysis on market trends. It helps to minimize the losses in the process. They track down the portfolio of the potential companies with their profitability for the short-term and long-term perspective. Market risk specialists do research considering many factors such as company history, balance sheet, market trend, events to predict how the company will perform next.

They recommend valued growth stocks that provide fundamental values to their clients. Analysts analyse intraday, swing trading, and long-term investing stocks for the individual they wish to hold a stake in the company’s business. They research each possibility that may arise upon making each move.

Risk analysts need to possess sound knowledge of the industry in which they are conducting research that provides a comprehensive market assessment. They perform research to find out the probability of asset loss or reward from the investments in their specific industry. All possible risks need to be accounted for before making decisions in this process of market risk analysis. It brings out the opportunities for the individual and companies to proceed further with their decisions.

Market risk specialists conduct statistical analyses for finding opportunities. They develop risk management systems to manage the profitable portfolio. They also consult with securities traders who are experts in their respective areas. As final steps, they publish their research report and present their research results to their client. It gives clear visibility to the individuals or companies of the current market trend and opportunities.

Financial Risk manager

A Financial risk manager identifies threats to the assets that impact the success of an organization. They find opportunities to work in banking, financial services, loan organization, marketing, and trading firms.

They also determine risk after a thorough analysis of financial markets as well as the global environment to predict changes or trends. The risk manager develops strategies to mitigate the potential risks that can occur in the process.

Operational Risk Manager

The Operational risk managers are responsible to investigate the risk of loss that can be from any source. Financial risk management is his prime responsibility. When internal processes are not proper, the process fails and causes loss to the organization.

The operational risk manager finds ways to mitigate risk and offset financial losses. Threat assessment and Statistical modeling techniques ensure the financial controls are in place and effective. Operational risk managers work in financial sectors such as banks, insurance companies, consulting firms, asset management firms, software vendors, and the retail sector.

Chief Risk Officer

Chief executives are responsible for making strategic decisions that take the organization in a successful direction. Threats such as regulatory and technological are real threats to the company’s capital and earnings. These executives are responsible to assess and mitigate the potential risk to the company’s finance and its revenue.

Regulatory Risk Analyst

Regulations and legislation affect companies in certain sectors. Regulatory risk analysts analyze new and proposed laws that determine that can be applied to their firms. They also research the impact laws can have on their businesses in all the regions, states and countries.

They suggest various possibilities and recommend ways to ensure compliance. The finance sector hires the most regulatory risk analysts. Healthcare, utilities, oil and gas, and engineering companies also hire regulatory risk analysts.

How to pursue the FRM?

Eligibility Criteria

A graduate is eligible to write the FRM exam.

FRM Certification

The FRM certification exam is administered by GARP. The group members of the committee possess deep knowledge in their respective fields because they have expertise in their risk professions and come from diverse backgrounds.

The group includes professionals from different subject expert backgrounds that cover all the aspects of financial risk management. A regular survey is a key point to synthesize the skills and knowledge required in risk management.

FRM Certifications are divided into two parts.

FRM Part 1:

There are 100 multiple choice questions in the FRM part1 exam. Part1 is conducted to test the overall knowledge of a candidate in the subject areas of risk management, quantitative analysis, and essential risk modeling, and financial markets and products.

FRM Part 2:

FRM Part 2 contains 80 MCQ in the areas of credit risk, market risk, operational risk, and integrated risk management, and current financial market issues.

The table below gives a topic-wise weightage of the topic areas covered in the FRM exam.

FRM 1

Foundations of Risk Management (Weightage 20 %)

Foundation of Financial Risk Management is the second section in FRM Part 1 exam, and the weightage of the topic is about 20 percentage. It includes risk categories and risk terminology. A candidate gains an understanding to create value through risk management and financial disasters. The roots of these sections influence risk management principles.

Basics of finance theory understanding and gaining subject knowledge is the first step to qualify in the exam. Readings clear the doubts and give confidence to the students. Performance evaluation, analysis and evaluation of securities in a portfolio context, and arbitrage pricing theory are main topics in Foundation of Risk Management. This section contains the syllabus that focuses on how risk management functions in the broader picture rather than formulas.

Quantitative Analysis (Weightage 20 %)

Quantitative Analysis is the first section in FRM Part 1 exam, and the weightage of the topic is about 20 percentage. The subject introduces various quantitative techniques. It includes statistical inference, probability, distributions, random variables, hypothesis testing, time series analysis, econometrics, and numerical methods.

Few examples are volatility, simulation methods, and correlation. It is an important section because it strengthens the understanding of logical reasoning. It helps to prepare for other parts of the exam. One must follow the routine of reading these topics daily. The right source of information is an essential factor because data accuracy matters. The preparation strategy involves research and lots of practices.

Financial Markets and Products (Weightage 30 %)

The Financial Markets and Products is one of the biggest sections of the Part I exam. A candidate needs to spend a lot of time on the preparation of this subject. It includes around 20 readings that involve topics in the mechanics of OTC and exchange markets and introduction to various instruments. Features, payoffs, pricing are few examples of instruments.

Their applications are hedging and trading strategies. If a candidate is clear with the foundation and concepts, he/she will be able to gain the mastery to manage market risk, credit risk, model risk, and how to use them in the real life.

Valuation and Risk Models (Weightage 30 %)

Valuation and Risk Models builds on Quantitative Analysis, Foundation of Risk Management, and Financial Markets and Products. It has 16 readings and is divided into two categories.

1) Valuation
2) Risk Management.

The valuation subsection describes the valuation methods for options and fixed income securities. Binomial trees and close form models are examples of Valuation. Fixed income securities are estimating single factor and multi-factor risk sensitivities.

The Risk Management sub-section involves the reading of types of risks. Credit risk, operational risk are few important risks of risk management. This sub-section gives the candidate confidence to attempt Part II of the FRM exam. Valuation and Risk Models is a highly conceptual topic, and the weightage of the topic is about 20 percentage. A candidate needs to spend adequate time for the preparation of the particular subjects.

FRM Part II

Market Risk (Weightage 20 %)

Market Risk belongs to the FRM Part II exam. It explores the variations of computation of VaR (Value at Risk) and ES (Expected Shortfall) via non-parametric approaches and parametric approaches. It also describes VaR Mapping and Backtesting. It includes advanced risk and valuation topics like interest rate models, correlation risk, volatility smiles, and extreme value theory.

Credit Risk (Weightage 20 %)

Market Risk is challenging and related to the current market trend and associated risk to it. It has around 20 readings. These are categorized into four subparts. The first part contains the introduction to credit risk, credit risk roles, and its derivatives. Credit risk modeling is the second part of Market Risk, and it contains structural style models, factor models and, reduced-form models, scoring models.

These types of models are mostly used in retail banking. Counterparty credit risks involve collateral, netting, exposure calculations, pricing of counterparty credit risk via CVA, and wrong-way risk. Structured Finance contains product features and product designs such as Collateralized Debt Obligations, credit risk, and market mechanics.

Operational Risk and Resiliency (Weightage 20 %)

Operational risk management and operational resiliency are two important areas in current times. Operational risk management is an Operational risk framework and calculational of operational risk capital. Enterprise risk management is risk appetite frameworks, risk-adjusted return on capital, and economic capital and allocation.

Model risk, Risk culture, Operational resiliency, Operational risk management, and Enterprise risk management are key principles of Operational risk and resiliency. Basel Accords and Regulation effectively ties together the concepts from Credit risk, Market risk, and Operational risk.

Liquidity risk & Treasury risk (Weightage 15 %)

Liquidity risk and Treasury risk focus on funding liquid risk, market and transaction liquidity risk, various sources and uses of liquidity, mentoring of liquidity, reporting and contingency plans, and liquidity stress testing. Asset liability management and management of interest rate risk, and cross-currency basis, and shortage of dollar funding are also included in this subject.

Risk Management & Investment Management (Weightage 15 %)

Risk management is the major key factor of Investment management. The FRM needs to estimate portfolio risk and mitigate these risk factors across asset classes and managers, performance measurement and risk monitoring, and portfolio construction.

Exam Guidelines

To obtain FRM certification a candidate must qualify FRM Part 1 and Part 2 sequentially. One can write both the exam on the same day. Most candidates elect separate days to write the Part 1 and Part 2 exam.

Requirement of FRM Certification 

Pass the Part I FRM exam

Pass the Part II FRM exam

Submit the work experience that is two years of full-time relevant financial risk management.

Relevant financial risk management work experience?

The primary job’s responsibilities are to identify, measure, monitor, and manage the risk. GARP looks for the mentioned work experience in a candidate. The applicant can find jobs in many fields such as risk analysis, trading, model validation, portfolio management, audit, treasury and consulting are few examples. FRM covers a wide range of fundamental and critical aspects of risk, quantitative analysis, and associated finance.

Requirements for submission the work experience

A candidate gets five years in hand to submit the work experience after qualifying for the exam. Experience up to 10 years is applicable prior to qualifying for both exams. If a candidate does not complete the above-mentioned steps within the given timeframe, he/she needs to re-enroll in the program. The candidate needs to pay all applicable fees to retake the Part I and Part II FRM exam.

Exam Format

Part I exam contains 100 multiple-choice questions.

Part II exam contains 80 multiple-choice questions.

Both exams are administrated by CBT i.e, Computer-based testing.

American English is the preferred language of GARP. Hence, GARP makes sure that the questions are clear and concise to the applicant because American English is not the native language of all the candidates who appear for the exam. This avoids the use of colloquialisms or phrases that might confuse a non-native American English speaker.

Exam pattern

The mathematical difficulty level of the exam is consistent. It contains the introductory graduate and undergraduate level finance course that is taught at most universities. An advanced level of undergraduate finance course is also included in the exam.

Though the exam format is conceptual in nature, candidates still need to understand and grasp a good amount of knowledge of formulas and calculations and their usage at the right place and in the right format. Formula sheets are not part of the exam.

One needs to refer to the learning objectives for guidance on which formulas to focus on. Compute, calculate, Derive are the words to look at while searching for the formulas guidance. These words indicate an associated formula that can solve the problem and the candidate can write the answer to any given question.

Scheduling and Rescheduling the exam

Candidates need to log in to their accounts. Select the “My Programs” option and set up the exam schedule. Candidates need to have paid registration to schedule the exam.

How to defer the exam

Log into the account and select “My Programs” and set up the exam. Candidates need to have paid registration to switch the exam months. The fees are applicable to defer the exam.

To change exam site

The candidate needs to log in to the account and set up an exam. This option will navigate the user to choose their exam site.

For details refer GARP.

The exam can be postponed due to circumstantial factors such as natural disaster, evacuation, acts of military, global pandemic, political or government authority, Acts of God. However, GARP makes an announcement to notify candidates asap.

Exam results announcement

Results will be announced in the GARP portal.

After completion of the exam, candidates get a notification once their results are updated in their candidate portal.

Conclusion

Financial Risk Management course is one of the essential certificates required by professional who wants to pursue their career in financial sectors. This course provides profound knowledge and ample opportunities to pursue a career in such sectors. The benefits of the courses are endless and it adds growth to one’s career path.

Any aspirant who wants to build a career in the financial sector can opt for the course. It does not only provide theoretical knowledge; it also enhances their depth of knowledge and gives them the opportunity to get the essence of real-time experiences through practices.

The modules are well arranged. Theory and practical knowledge work better for someone’s career growth. Hence, Financial Risk Management is the recommended course for someone who wants to pursue their career in the Financial sector by profession.