FRM Part II · FRM Exam Part II · Risk Reporting
A bank sets a key risk indicator for failed trade settlements with amber at 2.0% of trades and red at 3.0%. Over four months, 50,000 trades are processed each month, with failures of 800, 950, 1,200 and 1,650. Which statement is correct for the latest month?
The latest failure rate is 1,650 divided by 50,000, or 3.3%, which is above the 3.0% red threshold, so the indicator is red. The upward trend from 1.6% through 1.9% and 2.4% should also be reported with escalation.
- AThe rate is 2.4% and the indicator is amber
- BThe rate is 3.3% and the indicator is redCorrect
- CThe rate is 3.3% and the indicator is amber
- DThe rate is 1.65% and the indicator is green
Explanation
Latest month rate = 1,650/50,000 = 3.3%, which exceeds the 3.0% red threshold. Prior rates were 1.6%, 1.9%, 2.4%, so the trend is also worsening. The 2.4% option uses the previous month's figure; 1.65% divides incorrectly.
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