FRM Part II · FRM Exam Part II · Case Study: Financial Crime and Fraud
A bank's fraud analytics team tests a transaction-monitoring rule on 10,000 alerts over a quarter. Of these, 400 are confirmed fraud. The rule missed 100 further fraud cases that were found by other means. What is the rule's detection rate (share of all fraud cases it identified)?
The detection rate is 80%. The rule found 400 of the 500 total fraud cases (400 caught plus 100 missed). The 4% figure measures alert precision against total alerts, and 20% is the miss rate, so neither measures detection.
- A80%Correct
- B96%
- C4%
- D20%
Explanation
Total fraud cases are 400 detected plus 100 missed, which is 500. Detection rate is 400/500 = 80%. The 4% figure is 400/10,000, which is alert precision, not detection. The 20% figure is the miss rate, 100/500.
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