Financial Risk Manager
Is the practice of creating economic value in a firm by using financial instruments to manage exposure to risk, particularly Credit risk and market risk. Other types include Foreign exchange, Shape, Volatility, Sector, Liquidity, Inflation risks, etc. Similar to general risk management, financial risk management requires identifying its sources, measuring it, and plans to address them. As a specialization of risk management, financial risk management focuses on when and how to hedge using financial instruments to manage costly exposures to risk. In the banking sector worldwide, the Basel Accords are generally adopted by internationally active banks for tracking, reporting and exposing operational, credit and market risks.
When to use financial Risk Management:
Financial economics Finance theory prescribes that a firm should take on a project when it increases shareholder value. Finance theory also shows that firm managers cannot create value for shareholders, also called its investors, by taking on project that shareholders could do for themselves at the same cost. When applied to financial risk management, this implies that firm managers should not hedge risks that investors can hedge for themselves at the same cost. This notion is captured by the hedging irrelevance proposition: In a perfect market, the firm cannot create value by hedging a risk when the price of bearing that risk within the firm is the same as the price of bearing it outside of the firm. In practice, financial markets are not likely to be perfect markets. This suggests that firm managers likely have many opportunities to create value for shareholders using financial risk management. The trick is to determine which risks are cheaper for the firm to manage than the shareholders. A general rule of thumb, however, is that market risks that result in unique risks for the firm are the best candidates for financial risk management.
Benefits derived from preparing for the FRM Exams
Enhance your skill on globally accepted industry practices Broaden your knowledge in financial risk management. Become current with industry standards.
FRM topics
Quantitative Analysis Credit Risk Measurement and Management Market Risk Measurement and Management Operational and Integrated Risk Management, Legal and Ethics Risk Management in Investment Management.
Certificate Requirements
A passing score on the FRM Examination. Active membership in the Global Association of Risk Professionals.
A minimum of two years experience in the area of financial risk management or another related field including, but not limited to, trading, portfolio management, academic or industry research, economics, auditing, risk consulting, and/or risk technology.
FRM format
The FRM examination is a 5-hour, approximately 140 question multiple-choice examinations. The examination is split into two sections, each is 2.5 hours in length. The exam is given in booklet form.
