8009 Sample Questions Answers

No properly defined risk management policies in place and general lack of oversight by senior management

Time value was not taken into account during the contract valuation process

Loss generating positions were rolled over by selling options on larger positions to generate cash premiums' to settle existing position losses

Senior management in China were aware of the positions but did not understand the complexities of risk managing them

to buy puts and sell calls

to buy calls and sell puts

to sell puts and buy calls

to sell calls and buy puts

sold them derivative products without properly advising them of the relevant risks

did not honour its contractual obligations to pay

was involved in accounting fraud

hid profits

as being the market norm for similarly situated personnel in competitive organizations

using external references and benchmarks, and in a framework which is consistent with the type of risk-taking behavior expected of employees

using the risk reward profile for each business line in the organization

as commensurate with policies to attract and retain high income / revenue earners

Always generate credit risk to both counterparties

Create credit risk only for the buyer (due to default by the seller) provided the premium is due, and paid, at contract initiation

Create no credit risk, since the buyer need not exercise the option

Usually create credit risk only for the seller (to default by the buyer)

Vote in Board elections

Attend at least one PRMIA chapter meeting per year

Adhere to the PRMIA Standards of Best Practice, Conduct and Ethics

All of the above

I and II only

I, II and IV only

I, II and III only

All of these are responsibilities of Board and Audit Committees

Access to the Federal Reserve discount window

Removing the prohibition on the Treasury Department to buy both companies stock

Restricting the sale of new Fannie Mae and Freddie Mac securities only to US citizens

Reiterating their belief that both companies played a central role in the US housing finance system

selling short-term options with extremely low-risk profiles to generate premiums to cover the cost of closing out loss-making option positions

selling long-term options with extremely low-risk profiles to generate premiums to cover the cost of closing out loss-making option positions

selling short-term options with extremely high-risk profiles to generate premiums to cover the cost of closing out loss-making option positions

selling long-term options with extremely high-risk profiles to generate premiums to cover the cost of closing out loss-making option positions

Volume growth at the expense of margin.

Excessive reliance on volatile trading income.

Banking is a "for-profit" business, not a means of fulfilling political goals.

A company culture where profits may justify "excesses."

Rogue traders

Improper or insufficient Board-level communication regarding the importance of risk management and oversight

Inadequate back office procedures

Money laundering using foreign exchange trades for political leaders

The role of the UK government and the possible underwriting of risks by tax-payers, and the general question of Moral Hazard

The reform of the Deposit Protection Scheme because of its internal inconsistencies

It emphasised the importance of effective governance arrangements within financial firms

The original successful business model had not stress tested sufficiently for the incidence of Low Probability, High Impact incidents

Review compensation plans to ensure consistency with corporate risk appetite, competitive market conditions, and fiduciary responsibility to shareholders

Collectively assume responsibility of understanding and reporting the effectiveness of the firm risk management infrastructure

Be composed of key business unit representatives

Leave shareholder accountability to senior management who decides strategic direction