FRM Part II: topics, format and where to start
FRM Part II tests how you apply risk tools across institutions and portfolios. You answer 80 multiple-choice questions in four hours across six topic areas, including the current-year required readings.
Topic weights at a glance*
- Market Risk Measurement and Management20%
- Credit Risk Measurement and Management20%
- Operational Risk and Resilience20%
- Liquidity and Treasury Risk Measurement and Management15%
- Risk Management and Investment Management15%
- Current Issues in Financial Markets10%
Approximate allocations on a common 0-100% scale.
- Questions
- 80Equally weighted multiple-choice questions.
- Exam time
- 240 minOne four-hour sitting.
- Average pace
- 3 minDerived average per question, before a review reserve.
| Start here | What to understand | A useful first task |
|---|---|---|
| Market and credit risk | Portfolio losses and counterparty exposure | Distinguish a sensitivity, a tail-loss estimate and a stressed counterparty exposure. |
| Operational risk and resilience | Processes, systems, people and dependencies | Choose a control that addresses the cause and test whether the service can recover. |
| Liquidity and treasury | Funding needs and balance-sheet cash flows | Trace an outflow shock through collateral, available cash and asset-sale capacity. |
| Investment risk | Portfolio construction and risk-adjusted performance | Keep active risk, total risk and the benchmark consistent with the question. |
| Current Issues | The exam-year required reading list | Connect each reading’s mechanism to a financial-stability or risk-management decision. |
Start with the risk decision
Part II asks you to move from a number to an action. Identify the exposure, the risk mechanism, the model assumptions and the control that would actually change the outcome. A precisely calculated number can still be a poor decision input.
- 1
Identify the failure
Separate credit loss, funding stress, market movement and operational disruption.
- 2
Test the response
Ask which proposed action reduces the stated exposure rather than a different risk.
- 3
Check spillovers
A hedge may introduce basis, collateral or counterparty risk.
Worked example: expected credit loss
This original teaching example demonstrates the kind of reasoning to practise; it is not an official exam item.
Original worked example
A one-year exposure is $5 million, probability of default is 2%, and loss given default is 40%. Estimate expected loss using fixed exposure and LGD.
Expected loss = $5,000,000 × 0.02 × 0.40 = $40,000.
This is an average loss estimate under the stated assumptions. It is neither the maximum loss nor a measure of unexpected loss. Correlation and stressed exposure require additional analysis.
Evidence to collect before a full mock
Track both correct answers and explanations. A correct guess is unresolved work. Use fresh questions after a delay so the record measures recall of the method instead of familiarity with the answer.
| Check | Useful evidence | If it is missing |
|---|---|---|
| Coverage | You have attempted questions in every Part II topic. | Add an untouched topic before increasing volume in a favorite area. |
| Reasoning | You can explain the deciding assumption without the answer open. | Rebuild the method on a simpler case. |
| Timing | You can finish mixed blocks and reserve time to review. | Tag long questions and practise a second-pass strategy. |
What changes when the setting becomes an institution
Part II requires you to connect a risk measure with the setting in which it is used. A low estimated market loss does not demonstrate that an institution can meet tomorrow’s cash outflows. A credit hedge may reduce one loss exposure while creating collateral or counterparty demands. The task is to identify the mechanism in the case before deciding which measurement or response is relevant.
Imagine an institution holding a bond that falls in value while its funding providers demand more collateral. The price movement is a market-risk issue. The need to produce cash is a liquidity issue. A failed collateral-processing system introduces an operational issue. Studying those areas separately is useful, but an applied answer must explain how the channels interact.
Current Issues adds an exam-year reading requirement. It is not a general instruction to follow financial headlines. Use the assigned papers to understand a stated mechanism, the authors’ evidence and the limits of their conclusion. Then connect that understanding to the established risk domains.
What to bring forward from Part I
Carry forward the methods you need to explain a case: product cash flows, probability, valuation sensitivities and model limitations. You do not need to restart every Part I chapter before opening Part II. Instead, identify the prerequisite that prevents you from understanding a new application, repair it and return to the application.
For a market-risk case, that repair might involve the sign of a duration hedge. For a credit case, it might involve the difference between an expected loss and a tail outcome. For investment risk, it might involve keeping a benchmark and risk denominator consistent. Each repair should produce a short explanation you can use without looking at the original worked answer.
Keep a separate record of domain coverage and reading coverage. A candidate can perform well on calculations while having little evidence about operational resilience or the required papers. Use the preparation strategy for those domain-specific tasks and the calendar only after you have estimated the work remaining.
Part II: 15 topic lessons
- Market Risk Measurement and Management
- Credit Risk Measurement and Management
- Operational Risk and Resilience
- Liquidity and Treasury Risk Measurement and Management
- Risk Management and Investment Management
- Current Issues in Financial Markets
- Market Risk VaR Backtesting
- Credit Exposure and Credit VaR
- Counterparty Credit Risk and CVA Intuition
- Operational Risk Capital and Resiliency
- Liquidity Risk Metrics and Contingency Funding
- Risk Management for Investment Portfolios
- Current Issues Reading Integration
- Model Risk Governance
- Integrated Risk Case Drill
Common questions
- How many questions are on FRM Part II?
- 80 equally weighted multiple-choice questions in a four-hour computer-based sitting.
- Does passing Part II make me certified?
- No. FRM certification requires both exams and approved relevant professional experience.
- Should I allocate study time exactly by topic weight?
- Use the approximate weights as a coverage check. Your error record and starting knowledge should also determine the time you spend.
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: 2026 Learning Objectives download ↗
2026 syllabus, approximate weights and reading-level objectives; download page reports a December 1, 2025 last update.
- GARP: 2026 required Current Issues readings ↗
The six published Current Issues themes and eight required readings.
- GARP: study materials ↗
2026 curriculum documents, books, GARP Learning access and official practice exams.
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.
Notes
- * Topic weights: Weight reference reviewed 24 August 2026; confirm your exam-year document. Study time also depends on your gaps. ↩ Return to content