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FRM Part II · FRM Exam Part II · Global Financial Stability Report, April 2025, Chapter 2 (Geopolitical Risk)

A risk manager is deciding how to use the GPR index to monitor exposure. Which statement correctly reflects a limitation of a news-based index like the GPR for this purpose?

A news-based index reflects the volume of media coverage of geopolitical events, so it may capture attention rather than the true economic or financial impact. This means readings can overstate or understate the effect on asset prices and should be complemented with other measures in risk monitoring.

  1. ABecause it is based on media coverage, it can reflect heightened attention to events and may not fully capture their underlying economic or financial impactCorrect
  2. BBecause it is based on market prices, it cannot be computed for periods before the introduction of derivatives
  3. CBecause it uses only central bank statements, it is available only for advanced economies
  4. DBecause it is updated annually, it cannot be used to detect short-lived spikes

Explanation

A text-based measure captures how much news attention geopolitical events receive, so it can diverge from actual economic impact. The index is not price-based, central-bank-based, or annual; it is monthly and extends back historically.

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