Skip to content

FRM Part II · FRM Exam Part II · Risk, Regulation and Organizational Structure

A regulator designs post-crisis reporting rules for large private funds to monitor systemic risk. Which information would be most useful for assessing the fund's potential to contribute to systemic stress?

The most useful data are leverage, counterparty exposures, asset liquidity relative to redemption terms, and position concentration. These show how a fund's distress could force asset sales and transmit losses to lenders and markets, unlike returns, Sharpe ratios, investor identities or compensation.

  1. ALeverage, counterparty exposures, liquidity of assets versus redemption terms, and concentration of positionsCorrect
  2. BOnly the fund's historical annual returns and Sharpe ratio
  3. CThe names of the fund's individual investors and their personal tax status
  4. DThe fund manager's compensation structure alone

Explanation

Systemic assessment requires data on leverage, funding and counterparty links, asset liquidity versus investor redemption terms, and crowded or concentrated positions. Return statistics, investor identities, and pay alone do not reveal how distress could propagate.

Did you get it right without looking?

One question tells you little. A timed set on Risk, Regulation and Organizational Structure shows your real accuracy, how long you take and where you lose marks.

Practise Risk, Regulation and Organizational StructureFree diagnostic mock

More Risk, Regulation and Organizational Structure questions