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

An analyst notes that the GPR index is normalized so that its 2000-2009 average equals 100. The index reads 250 in a month of heightened conflict. Which interpretation is most appropriate?

A reading of 250 against a base of 100 means news-based geopolitical risk coverage is 2.5 times its 2000-2009 average. That is a 150% increase, not 250%. The index measures coverage intensity, not event probability or market volatility.

  1. AGeopolitical-risk news coverage that month was 2.5 times the 2000-2009 average levelCorrect
  2. BGeopolitical-risk news coverage that month was 250% higher than the 2000-2009 average
  3. CThe probability of a geopolitical event that month was 250 basis points
  4. DGlobal equity volatility rose by 250% relative to 2000-2009

Explanation

With the base period average set to 100, a reading of 250 means the coverage share is 250/100 = 2.5 times the base average. That is 150% higher, not 250% higher, so the second option misreads the base. The index is a news measure, not a probability or a volatility gauge.

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