FRM Exam Preparation AIM Series 1

FRM AIM: Differentiate between an open outcry system and electronic trading
FRM AIM: Differentiate between an open outcry system and electronic trading

Properties Open Outcry System Electronic Trading
Definition Trading done through actual shouting and hand signals Trading done via computers
Physical Exchange location Yes No
Example CBOT NASDAQ

FRM AIM; Within operational risk (a)describe the potential relationships between operational, market and credit risk (b)describe model risk and its sources (c)describe people risk (d)describe legal risk and its sources
Relationship between operational, market and credit risk:

Operational risk occurs because of poor management decisions, poor management control, rogue traders, wrong model usage in analyzing risk
Because of losses arising out of operational risk credit ratings of the firm may be hit that causes credit risk
Because of the credit risk for the firm its value of the securities in the market will decrease resulting in market risk
Model Risk:

Arises because of application of wrong models in assessing risk
Ex: Prices used in assessing risk in a model may be wrong which might lead to an indication of lower risk for a particular security where the actual risk of security performance is quite low
People Risk:

Risk because of rogue traders who may have falsified reports about the financial status of the company during audit
Risk because of powerful people in the company using their position to sufficiently expose the firm by buying underperforming derivatives
Legal Risk:

Loss in value of the firm caused by fighting lawsuits, penalties/damage claims etc
Ex: Samsung payment of more than 1 billion dollar for infringing the patent held by apple
Drug companies settlement to patients because of the drug introduced by these companies causing side effects to the patients
FRM AIM: Within market risk: (a)Describe and differentiate between absolute and relative risk (b)Describe and differentiate between directional and non- directional market risk (c)Describe basis risk and its sources (d)Describe volatility risk and its sources
Absolute vs Relative Risk:

Properties Absolute Risk Relative Risk
Definition Focus on Volatility of Total Returns Focus on volatility of returns relative to portfolio or a benchmark index
Advantages Gives total losses Gives relative losses and there is risk comparison to other risk (Tracking error relative to benchmark index)
Disadvantages There is no risk comparison to other risk Tells nothing about actual risk

 

Directional vs Non Directional Risk:

Properties Directional Risk Non-Directional Risk
Definition Linear exposure to economic or financial variables Non-Linear exposures to economic or financial variables
Example Interest rates Basis Risk, Volatilities

 

Basis Risk:

  • Arises because of the imperfect correlation between the price of the hedging instrument and the assets being hedged
  • Ex: Hedging of bonds against treasury bills

Volatility Risk:

  • Risk of loss arising from actual or implied volatility of market prices
  • Ex: Political instability, investor uncertainty, interest rate changes

FRM AIM: Compare and Contrast valuation and risk management, using VAR as an example
PropertiesValuationVARPurposeDetermine current price of assetDetermine possible future distributions of assetLooks atCurrent PriceFuture PriceFocus in distributionMean of distributionTail end of distributionsWhat Type of Distribution is usedCurrentHistoricalIs the Analysis preciseYesNo (As long as the model is not biased errors tend to offset each other)

No

NoYesYesCorrelation between risk factors

No

NoNoYesQuantify Risk Factors

No

NoNoYesEase of Calculation and Explanation

Yes

YesNoNoCan it be applied across assets

Yes

NoNoYes
FRM AIM: Define Value at Risk (VAR) and how it is used in risk management
Value at Risk (VAR) is defined as:
•  Measure of loss over a defined period of time at a particular confidence level in normal market conditions
•  VAR is used in financial control, financial reporting, regulatory capital

Methods of Calculating VAR:
•  Historical Method
•  Variance-Covariance Method
•  Monte Carlo Simulation”,”FRM AIM: Define Value at Risk (VAR) and how it is used in risk management
FRM AIM: Explain how expected return and returns variance are used to describe the return distribution for a security or portfolio of securities – Part I
FRM AIM : Within operational risk (a)describe the potential relationships between operational, market and credit risk (b)describe model risk and its sources (c)describe people risk (d)describe legal risk and its sources:
Exposure vs Recovery Rate:

Properties Exposure Recovery Rate
Definition Size or value of loss that would happen when credit event occurred Recovery of partial losses through sale of assets after loss has occurred
Value This will include full value of losses Fraction of the losses

Credit Event:

  • Changes in the counterparty ability to fulfill financial obligations that was previously agreed upon
  • Credit Event can occur because of market or credit risk
  • Sovereign risk that occur because of country specific actions can lead to credit event
  • Ratings agencies like Moody’s, Standard & Poor have ratings that issues guidelines on companies performance and position to meet the financial obligations from time to time

 Settlement Risk:

  • Counterparty fails to deliver its obligation after opposite party has made the delivery as agreed upon
  • Risk of full losses because of settlement risk
  • Pre settlement risk can mitigate the effects of the settlement risk because of payment before delivery

FRM AIM: Within credit risk (a) Describe and differentiate between exposure and recovery rate (b)describe credit event and how it may relate to market risk (c)describe sovereign risk and its sources (d) describe settlement risk and its sources:
Exposure vs Recovery Rate:

Properties Exposure Recovery Rate
Definition Size or value of loss that would happen when credit event occurred Recovery of partial losses through sale of assets after loss has occurred
Value This will include full value of losses Fraction of the losses

 

Credit Event:

  • Changes in the counterparty ability to fulfill financial obligations that was previously agreed upon
  • Credit Event can occur because of market or credit risk
  • Sovereign risk that occur because of country specific actions can lead to credit event
  • Ratings agencies like Moody’s, Standard & Poor have ratings that issues guidelines on companies performance and position to meet the financial obligations from time to time

 Settlement Risk:

  • Counterparty fails to deliver its obligation after opposite party has made the delivery as agreed upon
  • Risk of full losses because of settlement risk
  • Pre settlement risk can mitigate the effects of the settlement risk because of payment before delivery

FRM AIM: Within liquidity risk, describe and differentiate between asset and funding liquidity risk:
Asset vs Funding Liquidity Risk:

Properties Asset Liquidity Risk Funding Liquidity Risk
Definition Large size of transactions influence the price of securities Firms unable to raise cash to meet its debt requirements
Other Names of this type of risk Market or trading liquidity risk Cash Flow Risk
Mitigation Efforts Limiting the size of the transactions Rules/Regulations can be put in place to have sufficient cash deposit as a guarantee to mitigate this type of risk

Oracle Database RMAN Defaults List

Oracle database RMAN (Recovery Manager) has some default settings. To get to know details of RMAN defaults, use show all command. Connect to target database and issue the command
$rman target /
RMAN> show all;
using target database control file instead of recovery catalog
RMAN configuration parameters for database with db_unique_name onlinetutelage are:
CONFIGURE RETENTION POLICY TO REDUNDANCY 1; # default
CONFIGURE BACKUP OPTIMIZATION OFF; # default
CONFIGURE DEFAULT DEVICE TYPE TO DISK; # default
CONFIGURE CONTROLFILE AUTOBACKUP OFF; # default
CONFIGURE CONTROLFILE AUTOBACKUP FORMAT FOR DEVICE TYPE DISK TO ‘%F’; # default
CONFIGURE DEVICE TYPE DISK PARALLELISM 1 BACKUP TYPE TO BACKUPSET; # default
CONFIGURE DATAFILE BACKUP COPIES FOR DEVICE TYPE DISK TO 1; # default
CONFIGURE ARCHIVELOG BACKUP COPIES FOR DEVICE TYPE DISK TO 1; # default
CONFIGURE MAXSETSIZE TO UNLIMITED; # default
CONFIGURE ENCRYPTION FOR DATABASE OFF; # default
CONFIGURE ENCRYPTION ALGORITHM ‘AES128’; # default
CONFIGURE COMPRESSION ALGORITHM ‘BASIC’ AS OF RELEASE ‘DEFAULT’ OPTIMIZE FOR LOA
D TRUE ; # default
CONFIGURE ARCHIVELOG DELETION POLICY TO NONE; # default
CONFIGURE SNAPSHOT CONTROLFILE NAME TO ‘C:APPUSERPRODUCT11.2.0DBHOM
E_3DATABASESNCFlr.ORA’; # default
RMAN>
The output shows that control file of the target database is used instead of recovery catalog.

Oracle database startup stages enterprise manager

Oracle database instance can be started in stages. This sequence can be viewed from Oracle Enterprise Manager Database Control 11g. Here are the sequence of steps and corresponding screen shots. I’ve logged into OEM as SYSMAN user with NORMAL Privilege (NORMAL in Drop-Down menu)
1) When database is in normal state
2) Shutdown the instance using SHUTDOWN IMMEDIATE command. This throws an error in OEM Database Control
3) Issue STARTUP command with NOMOUNT option. In Database Control Click OK.Instance status shows no mount
4) Mount the database by issuing ALTER DATABASE MOUNT; command. Click on refresh button at top right corner of database control and status changes to mounted
5) Open the database using ALTER DATABASE OPEN; command. This will show the status as open now

PHP to clear facebook interview

Modern startups that create their websites, create web based service heavily rely on LAMP/WAMP/XAMP stack. In any of these cases PHP developers do find prominent role and this is a profession really in demand. A professional PHP developer with 5 years experience can expect to make 120k minimum in newyork area. Its high time to learn PHP
Why is PHP so popular?
PHP is an open source scripting language that doesnt come with licensing limitation. It supports mysql the best light weight backend database. These benefits have rendered PHP the primary choice of web development
How do you start learning PHP?
I started learning PHP by installing (WAMP – Windows, Apache, Mysql, PHP) in my local windows desktop. In case of UNIX users you can mention that you started using LAMP stack of PHP
What should I expect while choosing PHP training provider?
PHP the most popular scripting language is gaining popularity in a rapid fire pace. A web developer must have good knowledge on PHP to develop enterprise class applications. Many enterprises prefer PHPas their web technology stack as it is a open source software. PHP always comes with its twin database MySQL.Using PHP and MySQL it is very easy to develop dynamic database driven websites. Some important concepts and topics discussed in PHP training are as follows
1) Introduction to PHP
2) Install and configure WAMP (or) XAMP (or) LAMP(Linux specific) – Windows/Linux, Apache the web server, MySQL,PHP/Perl/Python(scripting language) all comes as an integrated package that can be installed at the click of a mouse. It is very easy to learn PHP upon this stack installation
3) PHP variables
4) PHP Functions, arrays
5) Connecting to database using PHP functions
6) Basics of HTML,CSS – Presentation layer the front-end decoration
7) PHP Object-oriented programming
8) CakePHP – the most popular easy PHP framework. Some other interesting frameworks like PEAR,Zend,IgnitePHP are equally popular
This training syllabus depends on the training provider.
Facebook Newyork Looking For PHP/MysQL Engineers :
Is it your dream to join master giant facebook.com. Not sure of how to make that happen. Here is an easy interesting approach to crack the facebook job and have a career at facebook.com
Facebook recently launched its office at newyork on november 2011. Newyork office will have its east coast engineering group. Engineering group will comprise of many departments including tool development, web performance, data engineering departments to name a few.
facebook.com is a PHP/MySQL website and most of its tool development, engineering happens in PHP/MysQL, no sql databases including Mongodb that supports scalable large distributed environment. Hence if you are looking to start your career in this great company, follow simple steps
1) Learn PHP front end language. As most of facebook’s team is being lead by former google employees nowadays, C/C++, java, python, perl are also good options
2) HTML – the backbone blood and soul of any website is needed. Learn basics of HTML 5
3) Javascript – the browser side scripting is the much sought after client scripting code. jQuery the latest hottest javascript library is much sought after owing to its flexibility
4) CSS – the styling element that had gien elegant look and feel to facebook’s UI is a mandate. Learn basics on many different styles
5) Mysql – the backend database holds data. MongoDB is the future vision of facebook
Believe and you can achieve great