FRM 2. How Do Firms Manage Financial Risk?: LOs

a) Compare different strategies a firm can use to manage its risk exposures and explain situations in which a firm would want to use each strategy.

b) Explain the relationship between risk appetite and a firm’s risk management decisions.

c) Evaluate some advantages and disadvantages of hedging risk exposures and explain challenges that can arise when implementing a hedging strategy.

d) Apply appropriate methods to hedge operational and financial risks, including pricing, foreign currency, and interest rate risk.

e) Assess the impact of risk management tools and instruments, including risk limits and derivatives.

FRM 3. The Governance of Risk Management: LOs

a) Explain changes in regulations and corporate risk governance that occurred as a result of the 2007-2009 financial crisis.

b) Describe best practices for the governance of a firm’s risk management processes.

c) Explain the risk management role and responsibilities of a firm’s board of directors.

d) Evaluate the relationship between a firm’s risk appetite and its business strategy, including the role of incentives.

e) Illustrate the interdependence of functional units within a firm as it relates to risk management.

f) Assess the role and responsibilities of a firm’s audit committee.

FRM 4. Credit Risk Transfer Mechanisms: LOs

a) Compare different types of credit derivatives, explain their applications, and describe their advantages.

b) Explain different traditional approaches or mechanisms that firms can use to help mitigate credit risk.

c) Evaluate the role of credit derivatives in the 2007-2009 financial crisis and explain changes in the credit derivative market that occurred as a result of the crisis.

d) Explain the process of securitization, describe a special purpose vehicle (SPV), and assess the risk of different business models that banks can use for securitized products.