FRM Part II · FRM Exam Part II · Case Study: Financial Crime and Fraud
A bank's fraud team runs a transaction-monitoring model that flags 500 alerts in a month. Investigation shows 40 are genuine frauds. The bank later learns that 60 further genuine frauds were not flagged. What is the model's recall (detection rate) for the month?
Recall is 40%. There were 100 genuine frauds in total, 40 flagged and 60 missed, so detected frauds divided by all frauds is 40/100. The 8% figure is precision, which divides by the 500 alerts instead of actual frauds.
- A40%Correct
- B8%
- C60%
- D12%
Explanation
Total genuine frauds = 40 detected + 60 missed = 100. Recall = 40/100 = 40%. The 8% figure is precision (40/500), which uses the wrong base, the number of alerts rather than the number of actual frauds.
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