Financial Risk Manager (FRM Exam)

Author:

Moneyzine Editor

2 mins

September 26th, 2023

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Definition

The term Financial Risk Manager refers to a certification program that serves as an indication of expertise in analyzing, controlling and assessing risk. The Financial Risk Manager Exam, or FRM Exam, is developed and administered by Global Association of Risk Professionals (GARP). The purpose of the certification is to ensure individuals possess the skills needed to understand and assess credit, market, and liquidity risk.

Explanation

The Financial Risk Manager Examination, or FRM Exam, refers to a two part test candidates must pass to obtain their FRM certification. In addition to passing this two part examination, candidates are also required to have two years of full-time experience in risk-related positions such as portfolio management, and risk consulting.

The FRM Exam is based on a body of knowledge as defined by members of GARP's board. The test is administered twice each year in the months of May and November. The examination is a paper and pencil, multiple choice test administered over the course of one day at nearly 100 sites across the United States.

The examination is divided into two sections and examinees are given four hours to complete each section; details of these exams appear below:

FRM Exam Part I: consists of 100 multiple choice questions, testing the candidate's knowledge of the tools used to assess financial risk. The approximate weights for each subject includes valuation and risk models (30%), financial markets and products (30%), foundations of risk management (20%), and quantitative analysis (20%).
FRM Exam Part II: consists of 80 multiple choice questions, testing the candidate's knowledge of topics such as market risk (25%), credit risk (25%), operational risk (25%), risk and investment management (15%), and current issues in financial markets (10%).

Candidates must pass Part I of the examination or Part II will not be graded. Test results are mailed to candidates approximately six weeks following the examination. Historical pass rates for Part I average near 50%, while those passing Part II is closer to 60%. Candidates that fail either part of the exam must register to retake the examination in a four year window or need to re-register as a new candidate. FRM certification holders are required to enroll in a continuing professional education program and complete 40 credit hours of continuing education every 24 months.

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