How to pass FRM Part II: risk cases, readings and mocks
Prepare for Part II by explaining the risk mechanism, choosing a response and challenging the assumptions in each case. Cover all six domains, including the assigned Current Issues readings. Use the checklist below to find the gap your next practice session should repair.
| Domain | Demonstrate this skill | Mistake to catch |
|---|---|---|
| Market risk | Interpret hedge residuals, stress losses and backtest exceptions. | Assuming a good sensitivity match removes basis or nonlinear risk. |
| Credit risk | Separate default probability, exposure, recovery and dependence. | Ignoring exposure growth when the counterparty becomes weaker. |
| Operational risk and resilience | Match the control to the failure and trace recovery dependencies. | Choosing a familiar control that does not address this event. |
| Liquidity and treasury | Track cash needs, collateral haircuts and available funding. | Confusing accounting solvency with the ability to pay today. |
| Risk and investment management | Align return, benchmark and the risk denominator. | Using total volatility where active risk is required. |
| Current Issues | Explain each assigned reading’s mechanism, evidence and limitation. | Replacing the required reading with a news headline. |
- Coverage
- 6 domainsRetain mixed review alongside focused repair.
- Practice goal
- Mechanism + responseA correct answer should survive a changed scenario.
- Full rehearsals
- Diagnose each mockUse fresh questions, then investigate misses and guesses.
Answer the case in four passes
In a Part II case, several responses may sound prudent. Identify which one changes the failure mechanism described. Calculate only after establishing the exposure and the decision.
- 1
Exposure
Identify who can lose, what changes and over which horizon.
- 2
Mechanism
Trace how the initial event becomes a loss or cash need.
- 3
Response
Choose the control, hedge or funding action that changes that mechanism.
- 4
Residual risk
Identify the assumption or dependency that the response leaves behind.
Checkpoint: explain the risk after calculating
Use a short problem like this to check whether you can transfer the method. The numbers and scenario are original teaching material.
Original worked example
Collateral worth $10 million supports funding with a 10% haircut. The haircut rises to 25%, with the collateral price unchanged. What funding gap appears?
Funding falls from $9 million to $7.5 million, creating a $1.5 million gap.
The haircut change creates a funding need without any decline in the asset price. Explain where cash would come from and whether selling assets could create further stress.
Make the next mock test a repair
Rehearse 80 questions in four hours with an approved calculator, then review every miss and correct guess. Before taking another mock, change the practice task for the largest recurring cause. The table gives a diagnosis process, not a passing-score formula.
| Observed result | Investigate | Before the next mock |
|---|---|---|
| Wrong even with extra time | A missing domain concept, case mechanism or required reading. | Work a simpler case, explain it, then change the inputs. |
| Correct only after time expires | Slow setup, unnecessary recalculation or weak return decisions. | Practise shorter timed blocks and check where time goes. |
| Correct choice, weak explanation | A guess or familiarity with this exact item. | Use a fresh variation after a delay. |
| Errors concentrated at the end | Coverage, fatigue and pacing as separate possible causes. | Compare early/late timing and rehearse the whole sitting. |
Keep the required readings in the plan
Use GARP’s exam-year Current Issues list and read the assigned papers during preparation. Record the mechanism, evidence, limitation and response for each. Then mix questions about those readings with market, credit, operational, liquidity and investment risk cases.
Use a different decision task for each Part II domain
In market and credit risk, distinguish the estimate from the decision it supports. A sensitivity is different from a tail measure, and expected loss is different from a stressed counterparty exposure. Practise identifying the horizon, portfolio and assumptions before deciding whether the reported number answers the case.
In operational resilience, ask how a critical service fails and which dependencies the recovery route retains. In liquidity and treasury, trace actual cash needs through time, including collateral and funding constraints. A solvent-looking balance sheet does not by itself explain how an institution meets an immediate payment. In investment risk, keep the benchmark, return measure and risk denominator aligned.
For Current Issues, study the assigned reading rather than a headline summary. Record what the authors argue, what evidence they use and where uncertainty remains. Practise a short explanation of how the mechanism interacts with another risk domain. This is a different task from memorizing a news event or a publication date.
Learn to reject a plausible response for the right reason
A case can contain several sensible actions, but only some address the stated failure. Suppose a firm relies on one external provider for a critical process. Better model calibration may improve its analytical output without reducing the provider dependency. An answer about the model can therefore be technically sensible and still miss the operational problem.
Write one sentence for the selected response and one for the most tempting alternative. State which fact makes the alternative insufficient. If you cannot articulate that distinction, the correct choice may have been a guess. Revisit the concept with a changed case where the previously rejected action becomes appropriate.
Use mocks to test this discrimination across domains. Separate a reading gap from a prerequisite gap and from a case-reading error. A missing assigned paper needs reading work; a mistaken exposure calculation needs a method repair; answering a different question needs a more disciplined first pass. Buying more questions will not choose the repair for you.
| Observed mistake | Repair before another mock |
|---|---|
| Forgot a required paper | Read it, map its evidence and explain its mechanism. |
| Chose a control for a different risk | Identify the failure and compare the alternatives explicitly. |
| Calculated correctly but interpreted the number incorrectly | State what the measure includes and leaves out. |
Common questions
- Where should I start if I am weak in Part I foundations?
- Repair the specific prerequisite needed for the case, such as duration or expected loss, then return to the applied Part II question.
- Where is the week-by-week study schedule?
- Use the separate 90-day study plan. It contains an alternative calendar for each part and an explicit weekly time budget.
- Can a mock score guarantee I will pass?
- No. A fresh timed mock is evidence about current preparation, not a guaranteed exam outcome.
Sources and editorial notes
By MiloPrep editorial team. Source check: . Official requirements and product information can change. Examples and planning allocations are independent teaching material, not official questions or passing standards.
- GARP: program and exams ↗
Exam counts, timing, topic areas, preparation benchmark and results policy.
- GARP: study materials ↗
2026 curriculum documents, books, GARP Learning access and official practice exams.
- GARP: exam policies ↗
Identification, calculator rules, refunds, deferrals, appointment changes and certification deadlines.
- GARP: 2026 required Current Issues readings ↗
The six published Current Issues themes and eight required readings.
- GARP: 2026 Learning Objectives download ↗
2026 syllabus, approximate weights and reading-level objectives; download page reports a December 1, 2025 last update.
MiloPrep is an independent study resource and is not affiliated with or endorsed by GARP or the named providers. FRM and provider names are trademarks of their respective owners. Editorial methodology.