Nov 2013 FRM Level 1 feedback

[Maiyaa]

any feedback? questions asked..difficulty level please.

 

[WiseSnail]

Level 1, Nov. 2013. Phew! Quite an endurance test. Kudos to anyone brave enough to do part 1 and part 2 in one day. Relative to the practice exams and past exam questions previously released, it was generally very reasonable. Very hard to complete within the alloted time, however. A few questions seemed to be testing for minor esoterica, but most questions focused on the main ideas you would have expected.

 

[WiseSnail]

One other comment. Many thanks to David Harper and his excellent videos and other materials. I only wish I had discovered them sooner. . .

 

[Pflik]

i actually thought i saw some questions from the FRM practice exams... and some similar.

Now just hoping that everything went well...

 

[afterworkguinness]

Easy compared to the difficulty of the BT questions, but a challenge none the less in 4 hours.

A few questions worth noting that come to mind:

- Duration hedging using key rate durations, I didn't have time to think it through.

- Given expected future revenues, Beta, market risk premium and risk free rate find the expected value (?) of the business (this is to the best of my recollection, I'd be interested to hear how it was solved as the answer I got from CAPM was too low and all choices were higher than it)

-Graphical plot of volatility of the basis and correlation

- 3 or 4 questions on interpreting regressions. The equation that describes the regression for a couple of them didn't look familiar at all, I attribute that to exam stress and lack of time remaining

A number of the questions looked just like BT practice questions (the easier BT ones).

 

[Pflik]

- Duration hedging using key rate durations, I didn't have time to think it through.
i think that was just as explained in the samples of bt.

- Given expected future revenues, Beta, market risk premium and risk free rate find the expected value (?) of the business (this is to the best of my recollection, I'd be interested to hear how it was solved as the answer I got from CAPM was too low and all choices were higher than it)

expected revenue was just discounted back to present value if i'm not mistaken.


-Graphical plot of volatility of the basis and correlation

answer was B. Volatility of basis risk should be zero for both perfect positive as well as negative correlation (if negative, then you would just go long instead of short)

- 3 or 4 questions on interpreting regressions. The equation that describes the regression for a couple of them didn't look familiar at all, I attribute that to exam stress and lack of time remaining
couple of them where annoying. couple where straight forward (r^2 is x what is correlation, which is the sqrt of r^2)


what stressed me out the most is the fact that the proctors where walking around and even standing still at the desk and writing things down. But that might just be me being paranoid after hearing all these negative stories about the proctors (from my colleagues)

 

[Amit Patel]

Overall found it tough and challenging to complete kn 4 hours. Has anyone been able to attempt
all 100 questions (baring blind guesses in last 5 minutes)??? I had to guess quite a few in last 5 minutes.

Also any views on what could be cut off? I know 75 is highest but my gut feeling after facing exam says cut off should be near 70%. Any other views based on past experience?

 

[TyroneMDaniel]

What an exam! I felt the first 50 questions were fair in terms of difficulty... the last 50 however .

The prescribed readings for L1 were really tested on the exam.

I got to the exam room only to realise my watch battery died and there were no visible clocks at the centre.

Looking forward to January 2, 2014!

 

[Ank]

Hi,

I find exam to be in line with BT material, it’s really a pleasant surprise. Thanks to David and team . While giving BT mock exams I tried to finish exam in 45 min and full tests in 3 hours, which helped me a lot.

For Graphical plot of volatility of the basis and correlation Q - I get S.D(S-F)=2(1-rho).So when i solve for S.D(S-F) with corr -1 i get it 4 and 1 its 0 so option A. I don't if it’s a right approach. It’s really frustrating for me when I'm not able to solve Var for FI and guess 55k something, is it right. There are many theory questions i'm stuck with 2 choices . Finally exam is not that difficult and I believe Q1 cutoff will be around 75+ , hope to pass finger crossed till 2nd Jan.
Feedback is very much appreciated...........

 

[Pflik]

Overall found it tough and challenging to complete kn 4 hours. Has anyone been able to attempt
all 100 questions (baring blind guesses in last 5 minutes)??? I had to guess quite a few in last 5 minutes.

Also any views on what could be cut off? I know 75 is highest but my gut feeling after facing exam says cut off should be near 70%. Any other views based on past experience?

I didn't have that feeling. I finished my first pass in under 3 hours and I finished all questions with 30 min to spare... I then started reviewing... but only got to do 20 questions of reviewing.

However i do remember that i had the same issue when i started with the practice exams... my strategy was to skip everything i didn't know right away.... it takes some discipline though, because some questions just seem so glaringly obvious that you feel the need to stick with it to answer it... also you really need to skip the questions you know you can do but need a lot of time to calculate it. Mark it with big exclamation marks and get back to it after the first pass. Also, be very very carefull you don't fill in the answer the box of the wrong answer.

What an exam! I felt the first 50 questions were fair in terms of difficulty... the last 50 however .

The prescribed readings for L1 were really tested on the exam.

I got to the exam room only to realise my watch battery died and there were no visible clocks at the centre.


Looking forward to January 2, 2014!

yeah... had the same problem at my sight. They put a clock there that couldn't be seen due to the glare... also like i said before, it's really nerve wrecking when a proctor starts writing things near your desk.

 

[Pflik]

Hi,

I find exam to be in line with BT material, it’s really a pleasant surprise. Thanks to David and team . While giving BT mock exams it tried to finish exam in 45 min and full tests in 3 hours, which helped me a lot.

For Graphical plot of volatility of the basis and correlation Q - I get S.D(S-F)=2(1-rho).So when i solve for S.D(S-F) with corr -1 i get it 4 and 1 its 0 so option A. I don't if it’s a right approach. It’s really frustrating for me when I'm not able to solve Var for FI and guess 55k something, is it right. There are many theory questions i'm stuck with 2 choices . Finally exam is not that difficult and I believe Q1 cutoff will be around 75+ , hope to pass finger crossed till 2nd Jan.
Feedback is very much appreciated...........

hmm i don't think that is right... maybe david can answer this (as i could be wrong). But in my opinion... if you have perfect correlation, it means that the assets follow each other in perfect harmony.

The easiest example i can give is this: gold has a perfect correlation with gold (with itself). As such if you would hedge a position with gold with itself you would expect no volatility. (as seen in your answer).

However now look at a asset defined by 'a short position of gold' (i.e. perfect correlation with gold -1). To hedge in that situation, you would have to buy that asset (i.e. hedging ratio would be negative, so the position would be opposite of the first example). Now that position would also have no volatility in the basis, because relatively seen you have no position in gold)

ergo.... the highest volatility in the basis would be when you hedge with a asset that has no correlation with gold.

However it is correct though that if you don't invert the position that you would increase the volatility (double it). i.e. if you sell the second asset you would double the volatility.

But maybe my understanding is not correct, perhaps David can give us the correct answer.

 

[rohit11]

Hi,

I find exam to be in line with BT material, it’s really a pleasant surprise. Thanks to David and team . While giving BT mock exams it tried to finish exam in 45 min and full tests in 3 hours, which helped me a lot.

For Graphical plot of volatility of the basis and correlation Q - I get S.D(S-F)=2(1-rho).So when i solve for S.D(S-F) with corr -1 i get it 4 and 1 its 0 so option A. I don't if it’s a right approach. It’s really frustrating for me when I'm not able to solve Var for FI and guess 55k something, is it right. There are many theory questions i'm stuck with 2 choices . Finally exam is not that difficult and I believe Q1 cutoff will be around 75+ , hope to pass finger crossed till 2nd Jan.
Feedback is very much appreciated...........

What i got was,
variance ( basis ) = var (spot) + var( futur) - 2 p sigma(spot) * sigma (future)
= 1 + 1 - 2p * 1* 1
var ( basis) = 2 - 2p

The question was asking plot between var(basis) and correlation ( p )

this gives us a straight line was negative slope and intercept of +2.

I thiink Option C was the correct answer !

 

[Pflik]

oh great... 3 answers

 

[rohit11]

w

oh great... 3 answers

We are missing someone who got Option D as the answer !

 

[chouchouc]

Indeed, the requirements were pretty much in line with the curriculum this time. From what I remember I had doubts on:
- what about the crack spread ?
- how much was the correlation: 0.96 or -0.96 ?

 

[Pflik]

only one that made sense to me is to hedge with crude oil.

jet fuel future doesn't exist. heating oil is only a partial hedge. en the last one didnt make sense at all

 

[Ank]

Ahh actually my choice is also negative slope and its option A for me . I get Var = 2 - 2p, so when i put p = -1 var is 4 and for +1 its 0. Anybody who faced clock problem please write to GARP to make there watch polices more clear as some proctor allow watch. My friend in next room on same center are allowed to wear while i have to put it in my bag, really frustrating . I already send then an email regarding this.

Thanks

 

[Pflik]

Like i Said, couls Be entirely the right answer, but It depents on the question. If the question was for a fixed (hedge) position, then It would Be correct, however If the answer was in General for hedging then either a possitive or negative correlation of 1 Will,eliminate the variance in basis risk. But im starting To doubt My andere,because answer b was a curve rather than a pyramid, which implies something exponential, which,is,incorrect i think

 

[Ank]

On first impression, I also think its a curve which touches correlation 0 on both side. Its my second best choice btw Pflik what you mark for FX Var value of 1 day?

 

[Pflik]

Can't remember the question, what was approximately the question?