2022 Financial Risk Manager (FRM® ) Exam Study Guide
2022 Financial Risk Manager (FRM® ) Exam Study Guide
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Topic Outline, Readings, Test Weightings
The Study Guide sets forth primary topics and sub-topics covered in the FRM Exam Part I and Part II.
The topics were selected by the FRM Committee as essential for today’s risk managers to master.
The topics and their respective weightings are reviewed yearly to ensure the Exams are timely and relevant.
The Study Guide also contains a full listing of all the readings that are recommended as preparation for the FRM Exam
Part I and Part II.
Key concepts appear as bullet points at the beginning of each section and are intended to help candidates identify the major themes and knowledge areas associated with that section.
FRM Exam Approach
The FRM Exams are practice-oriented. The questions are derived from a combination of theory as set forth in the readings and real-world work experience. Candidates are expected to understand risk management concepts and approaches, as well as how they would apply to a risk manager’s day-to-day activities.
It is rare that a risk manager will be faced with an issue that can immediately be slotted into one category. In the real world, a risk manager must be able to identify any number of risk-related issues and deal with them effectively.
As such, the Exams are comprehensive in nature, testing a candidate on a number of risk management concepts and approaches.
Readings
Questions for the FRM Exams are related to and supported by the readings listed under each topic outline.
These readings were selected by the FRM Committee to assist candidates in their review of the subjects
covered by the Exams. It is strongly suggested that candidates review these readings in-depth prior to sitting for each Exam. All of the readings listed in the FRM Study Guide are available through GARP.
2022 Financial Risk Manager (FRM® ) Exam Study Guide
Further information can be found on the GARP website.
FRM Exam Prep Providers
Some candidates may want to review more formally the materials with FRM Exam Preparation Providers
(EPPs) list of EPPs that have registered with GARP can be found on the GARP website. GARP does not endorse any EPP but merely lists them as a service to FRM candidates.
On the following pages, an asterisk after a reading indicates
that the reading is freely available on the GARP website.
FRM Exam Part I
FOUNDATIONS OF RISK MANAGEMENT
QUANTITATIVE ANALYSIS
FINANCIAL MARKETS AND PRODUCTS
VALUATION AND RISK MODELS
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FRM Exam Part II
MARKET RISK MEASUREMENT AND MANAGEMENT
CREDIT RISK MEASUREMENT AND MANAGEMENT
OPERATIONAL RISK AND RESILIENCY
LIQUIDITY AND TREASURY RISK MEASUREMENT AND MANAGEMENT
RISK MANAGEMENT AND INVESTMENT MANAGEMENT
CURRENT ISSUES IN FINANCIAL MARKETS
2022 Financial Risk Manager (FRM® ) Exam Study Guide
Foundations of Risk Management PART I EXAM WEIGHT | 20%
Topics and Readings
This area focuses on foundational concepts of risk management and how risk management can add value
to an organization. The broad knowledge points covered in Foundations of Risk Management include the following:
• Basic risk types, measurement, and
management tools
• Creating value with risk management
• Risk governance and corporate governance
• Credit risk transfer mechanisms
• The Capital Asset Pricing Model (CAPM)
• Risk-adjusted performance measurement
• Multifactor models
• Data aggregation and risk reporting
• Financial disasters and risk management failures
• Ethics and the GARP Code of Conduct
A proprietary book for FRM candidates has been created to cover these broad knowledge points. While detailed learning objectives associated with these readings are presented in the 2022 FRM Learning.
Objectives document, a brief summary of how to relate these readings to the knowledge points follows.
Chapters 1 and 2 explore different risk types, how risks can arise in an organization, and how firms manage financial risks. Chapter 3 describes the role of corporate governance in risk management, including the role of the board of directors and other areas of an organization. The concept of risk appetite and how it is translated into a risk appetite framework and communicated throughout an organization is presented as
well in this chapter.
Chapter 4 presents an overview of credit risk transfer mechanisms, including credit derivatives and securitization, and discusses issues with the securitization of subprime mortgages.
Chapter 5 presents Modern Portfolio Theory (MPT) and the CAPM, one of the foundational developments in risk-adjusted
pricing and valuation.
This is followed by Chapter 6, which explains how the Arbitrage Pricing Theory (APT) and factor models can be used to model returns on investment assets. Data is the lifeblood of many large financial organizations, and aggregating and reporting risk data have become increasingly important.
Chapter 7 addresses this important topic. Chapter 8 introduces
enterprise risk management (ERM), a common and important method for assessing and managing risk in an organizational context, and discusses its future trends.
As it is always important to learn from historical experience, Chapter 9 describes various financial disasters from the past, and Chapter 10 focuses on the financial crisis of 2007-2009.
To help ensure ethical standards are upheld in the risk management profession, Chapter 11 contains GARP’s Code of Conduct, a code that applies to all Certified FRMs.
Readings for Foundations of Risk Management
For 2022, the entirety of the Foundations of Risk Management curated readings has been replaced with
GARP’s proprietary Foundations of Risk Management book. The contents of this book are as follows:
• Chapter 1. The Building Blocks of Risk Management
• Chapter 2. How Do Firms Manage Financial Risk?
• Chapter 3. The Governance of Risk Management
• Chapter 4. Credit Risk Transfer Mechanisms
• Chapter 5. Modern Portfolio Theory and Capital Asset Pricing Model
• Chapter 6. The Arbitrage Pricing Theory and Multifactor Models of Risk and Return
• Chapter 7. Principles for Effective Data Aggregation and Risk Reporting
• Chapter 8. Enterprise Risk Management and Future Trends
• Chapter 9. Learning from Financial Disasters
• Chapter 10. Anatomy of the Great Financial Crisis of 2007-2009
• Chapter 11. GARP Code of Conduct*
Quantitative Analysis
PART I EXAM WEIGHT | 20%
Topics and Readings
This area tests a candidate’s knowledge of basic probability and statistics, regression and time series
analysis, and various quantitative techniques useful in risk management. The broad knowledge points
covered in Quantitative Analysis include the following:
• Discrete and continuous probability distributions
• Estimating the parameters of distributions
• Population and sample statistics
• Bayesian analysis
• Statistical inference and hypothesis testing
• Measures of correlation
• Linear regression with single and multiple regressors
• Time series analysis and forecasting
• Simulation methods
A proprietary book for FRM candidates has been created to cover these broad knowledge points. While detailed learning objectives associated with these readings are presented in the 2022 FRM Learning
Objectives document, a brief summary of how to relate these readings to the knowledge points follows.
Chapters 1 through 6 introduce fundamental concepts related to probability, statistics, probability distributions, Bayesian analysis, hypothesis testing, and confidence intervals.
Regression analysis is an important statistical tool used to investigate relationships between variables.
Chapters 7 and 8 give a general introduction to single and multiple variable linear regression analysis.
Chapter 9 examines model specification and potential deficiencies in the model specification through the use
of residual diagnostics and tests of statistical hypotheses.
Time series data occur frequently in finance.
The next two chapters describe methods for analyzing time
series data in order to estimate statistics and extract other meaningful data characteristics.
Chapter 10 focuses on modelling stationary time series, while Chapter 11 takes up modelling non-stationary time series.
Dependence and variation are important subjects in risk management.
Chapter 12 introduces volatility, correlation, and returns, as well as the properties of these three measures in the context of both normally and non-normally distributed variables.
Simulation methods are used to value and analyze complex financial instruments and portfolios.
Chapter 13 introduces simulation methods, including Monte Carlo simulation, and the use of bootstrapping. It also explains the advantages and disadvantages of using simulations and the techniques to reduce Monte Carlo sampling error.
FRM Study Guide 2022: Exam Part I garp.org/frm | 5
Readings for Quantitative Analysis
The entirety of the Quantitative Analysis curated readings are contained in GARP’s proprietary Quantitative
Analysis book. The contents of this book are as follows:
• Chapter 1. Fundamentals of Probability
• Chapter 2. Random Variables
• Chapter 3. Common Univariate Random Variables
• Chapter 4. Multivariate Random Variables
• Chapter 5. Sample Moments
• Chapter 6. Hypothesis Testing
• Chapter 7. Linear Regression
• Chapter 8. Regression with Multiple Explanatory Variables
• Chapter 9. Regression Diagnostics
• Chapter 10. Stationary Time Series
• Chapter 11. Non-stationary Time Series
• Chapter 12. Measuring Returns, Volatility, and Correlation
• Chapter 13. Simulation and Bootstrapping
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