Skip to content

FRM Part II · FRM Exam Part II · Early Warning Indicators

Which feature is most important for an early warning indicator framework to be effective in practice?

Effectiveness depends on predefined thresholds linked to clear escalation procedures and contingency actions, so a breach prompts a timely response. Calibration to one crisis, restricted reporting or infrequent quarterly data would make the framework narrow, poorly governed or too slow to give early warning.

  1. AIndicators calibrated to a single historical crisis so thresholds are exact
  2. BPredefined thresholds linked to clear escalation procedures and contingency actionsCorrect
  3. CReporting restricted to the treasury function to limit information leakage
  4. DReliance solely on quarterly data to ensure accuracy

Explanation

An EWI only helps if breaches trigger defined escalation and responses, tying it to the contingency funding plan. Calibrating to one crisis is too narrow, restricting reporting weakens governance, and quarterly data is too infrequent to give early warning.

Did you get it right without looking?

One question tells you little. A timed set on Early Warning Indicators shows your real accuracy, how long you take and where you lose marks.

Practise Early Warning IndicatorsFree diagnostic mock

More Early Warning Indicators questions