Skip to content

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

A risk officer notes that the chapter distinguishes between the level of geopolitical risk and surprises in it. For measuring the asset price impact of a sudden event, why is a change or surprise in the geopolitical risk index generally more informative than its level?

Surprises or changes are more informative because markets have already priced much of the persistent level of geopolitical risk. Unexpected increases force repricing of equities and spreads, which is why event-style shocks, not the baseline level, explain sudden asset price moves.

  1. AMarkets already price much of the persistent level, so unexpected increases are what move pricesCorrect
  2. BLevels of the index are always zero in normal times
  3. CSurprises only affect bond markets, not equities
  4. DChanges are unaffected by news flow

Explanation

Asset prices reflect expected conditions, so the persistent level is largely priced in, and unanticipated increases generate repricing. The other statements are false or unsupported.

Did you get it right without looking?

One question tells you little. A timed set on Global Financial Stability Report, April 2025, Chapter 2 (Geopolitical Risk) shows your real accuracy, how long you take and where you lose marks.

Practise Global Financial Stability Report, April 2025, Chapter 2 (Geopolitical Risk)Free diagnostic mock

More Global Financial Stability Report, April 2025, Chapter 2 (Geopolitical Risk) questions