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8004 Sample Questions Answers

Questions 4

The problems at Bankgesellschaft Berlin can best be characterized as failures related to:

Options:

A.

Market Risk

B.

Credit Risk

C.

Operational Risk

D.

Both B and C

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Questions 5

A risk manager is asked to analyze the credit risk of a convertible bond. The risk manager has never analyzed convertible bonds, but does have significant expertise in credit risk. The risk manager accepts the assignment, finds a paper on the subject through the PRMIA web site and copies the method used there. The risk manager completes the assignment and delivers a report to his or her direct supervisor and the supervisor is quite pleased.

According to the PRMIA Standards of Best Practice, Conduct and Ethics (Code of Conduct), this was acceptable behavior if the following conditions were met:

I. The risk manager disclosed the lack of knowledge about convertible bonds

II. The methodology employed is disclosed and explained

III. The report was just to be used for analysis and not in practice

IV. The risk manager was sure of his/her understanding of the paper found on the web

Options:

A.

I and II

B.

I, II and IV

C.

I, II and III

D.

I only

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Questions 6

Which of the following was NOT a factor in the WorldCom collapse?

Options:

A.

Failed corporate governance

B.

Accounting abuses

C.

Unfair pricing to customers

D.

Over stating actual sales

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Questions 7

The "Renewing the Dream" program signed into law by President George W Bush in 2002 was designed to

Options:

A.

Recapitalise Fannie Mae and Freddie Mac with US$2.4 billion of additional capital to ensure they weathered the risks associated with any future downturn in the housing markets

B.

Provide grants of US$800 million to help home buyers with down-payment and closing costs

C.

Allow risky, high-cost loans to be credited towards affordable housing goals

D.

Provide tax credits of nearly US$2.4 billion over the next 5 years to investors and builders who developed affordable single-family housing in poor and distressed areas

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Questions 8

When local rules and regulations conflict with the PRMIA Standards of Best Practice, Conduct and Ethics the PRMIA member should …

Options:

A.

Seek advice from a qualified party, being mindful of legal and confidentiality requirements

B.

Modify the interpretation of local rules and regulations to meet the situation

C.

Ignore local rules and regulations

D.

Respect local rules and regulations

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Questions 9

In the case of National Australia Bank, which of the following was present?

Options:

A.

A window of time between close of day for reporting purposes and back office checking that allowed traders to hide losses using fictitious trades

B.

The Board received risk management information that was incorrect, incomplete or insufficiently detailed

C.

Both A and B

D.

Neither A nor B

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Questions 10

The condition where futures prices of an underlying asset are lower than cash (spot) prices is known as:

Options:

A.

Backwardation

B.

Contango

C.

Reverse backwardation

D.

Conchacha

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Questions 11

The Chair of the PRMIA Board of Directors may hold the following offices:

Options:

A.

Parliamentarian

B.

Secretary

C.

Vice Chair

D.

Chair only

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Questions 12

The Fortress Re accounting risk transfer procedures

Options:

A.

made it straightforward for TFMI to determine whether risk had actually been transferred and they decided not to take out more catastrophe insurance cover

B.

made it difficult for TFMI to determine whether risk had actually been transferred so they had to take out additional catastrophe insurance cover

C.

made it straightforward for TFMI to determine when the risk had been transferred and to take out additional catastrophe insurance cover

D.

made it difficult for TFMI to determine whether risk had actually been transferred and whether it had sufficient catastrophe insurance cover

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Questions 13

The early 2003 trading strategy of China Aviation oil was

Options:

A.

to buy calls and sell puts

B.

to buy puts and sell calls

C.

to sell puts and buy calls

D.

to sell calls and buy puts

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Questions 14

The Q4 2003 trading strategy of China Aviation Oil was

Options:

A.

to buy puts and sell calls

B.

to buy calls and sell puts

C.

to sell puts and buy calls

D.

to sell calls and buy puts

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Questions 15

A risk manager finds that a client is engaged in a practice that looks like money laundering.

According to the PRMIA Standards of Best Practice, Conduct and Ethics (Code of Conduct), the risk manager should:

Options:

A.

Approach the client about the concern, regardless of what their reaction might be

B.

Respect the client's confidentiality as that takes precedence

C.

Report this conduct to their immediate supervisor

D.

Report the findings immediately to authorities

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Questions 16

Taisei Fire and Marine Insurance Co

Options:

A.

relied almost entirely on Fortress Re's management team for information on the risks in its portfolio

B.

relied on the information it received from other members of the reinsurance pool to manage its risks

C.

had a full understanding from Fortress Re of the risks in the pool

D.

had a full understanding from other members of the pool of the pool's liabilities

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Questions 17

TMFI's internal procedures and management were

Options:

A.

fully aware of the uninsured risks Fortress Re were taking

B.

absolutely unaware of their uninsured liabilities

C.

aware that they had some uninsured liabilities but thought they had enough capital to withstand any uninsured losses

D.

None of the above

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Questions 18

The retrocession insurance cover was provided by

Options:

A.

Fortress Re and other insurers

B.

The Fortress Re reinsurers only

C.

The fronting insurance companies

D.

Fortress Re and their reinsurers

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Questions 19

Which of the following are PRMIA Governance Principles?

I. Independence of Key Parties

II. Disclosure and Transparency

III. Internal Validation

IV. Solvency

Options:

A.

I and II only

B.

I, II and III only

C.

I, II and IV only

D.

All are PRMIA Governance Principles

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Questions 20

Which of the following regarding Orange County is FALSE?

Options:

A.

Bob Citron engaged in risky strategies to benefit personally

B.

Bob Citron tried to "ride the yield curve"

C.

Bob Citron heavily leveraged his positions using repos

D.

Citron's losses were eventually exposed by massive margin calls

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Questions 21

Boards, including Audit and Risk Committees must:

I. Clearly articulate the corporate risk appetite to senior management

II. Thoroughly review compensation plans of potentially "highly compensated positions" for consistency with corporate risk appetite, competitive market conditions and fiduciary responsibility to shareholders

III. Have a single member formally given responsibility for understanding and reporting the effectiveness of the corporation's risk management infrastructure

IV. Be fully accountable to shareholders and work to the benefit of public good and financial stability

Options:

A.

I and II only

B.

I, II and IV only

C.

I, II and III only

D.

All of these are responsibilities of Board and Audit Committees

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Questions 22

According to the Group of 30 Report, deriving aggregate potential credit exposure for a counterparty by adding up the potential exposure of multiple transactions:

Options:

A.

Gives an accurate result in most cases

B.

Captures portfolio effects but not tenor differences

C.

Can easily reflect the impact of netting

D.

Overstates exposure in most cases

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Questions 23

As LTCM started to have major losses, it compounded its problems by doing what?

Options:

A.

Trying to borrow more money from major money centre banks

B.

Issuing Subordinated Debt

C.

Returning capital to the general partners before others

D.

Unwinding its' more liquid trades thereby creating more liquidity risk overall

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Questions 24

According to PRMIA governance principles, boards and audit committees should …

Options:

A.

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

B.

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

C.

Be composed of key business unit representatives

D.

Leave shareholder accountability to senior management who decides strategic direction

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Questions 25

According to the G-30 Study, the risk management infrastructure's funding must be

Options:

A.

determined by business-unit leaders

B.

determined at the Board level with inputs from business unit leaders

C.

determined at the Board level without influence by business unit leaders

D.

determined by the regulators

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Questions 26

The problems in the Orange County case can best be characterized as failures related to:

Options:

A.

Market Risk

B.

Credit Risk

C.

Operational and Regulatory Compliance Risk

D.

All of the Above

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Questions 27

According to the Group of 30 Report, important risks associated with dynamic hedging are:

Options:

A.

Greater volatility than expected over the life of an option

B.

Sudden gaps in market prices

C.

Both A and B

D.

Neither A nor B

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Questions 28

Corporate Governance …

Options:

A.

Eliminates risk to the greatest extent possible

B.

Is defined as the assembled knowledge and wisdom of the collective stakeholders in the organization, set to maximize shareholder value

C.

Is defined as business decision making predicated on a belief in potential rewards, balanced with the knowledge, understanding and appreciation of the risk taken to pursue those potential rewards

D.

Is defined as that which is best practiced within an enterprise risk management framework, guided by the PRMIA Standards of Best Practice, Conduct and Ethics above all else

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Questions 29

While doing a work assignment, a PRMIA member notices behaviour that is outside the ethical standards of their client organization and reports the matter to their immediate supervisor in the organization (if he or she wasn't the one engaging in such behaviour). The matter is neither progressed nor actioned.

The PRMIA member should:

Options:

A.

stay silent on the basis that they have reported it

B.

report the matter to their PRMIA chapter

C.

contact the Whistle-Blowing Hotline of the organization or, if none exits, to the PRMIA Ethics Committee for guidance and assistance

D.

report the matter to the organization's Compliance Dept.

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Questions 30

PRMIA is incorporated as:

Options:

A.

A for-profit corporation

B.

A non-profit corporation

C.

A charitable trust

D.

A non profit corporation with for profit subsidiaries

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Questions 31

Barings Bank and Orange County have many similarities. Which of the following is NOT a similarity?

Options:

A.

Both relied on a star manger, supposedly in a low risk business.

B.

Both losses grew over time, but were not discovered by management until too late.

C.

Both traded in illiquid and obscure markets that were easy to manipulate.

D.

Both losses were eventually exposed by massive margin calls.

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Questions 32

Which of the following CANNOT be counted as a reason why LTCM was given a rescue package and not left to default?

Options:

A.

Many of the banks in the rescue consortium were among LTCM's counterparties

B.

Some of the banks in the rescue consortium were LTCM investors

C.

Untimely unwinding of some LTCM positions would lead to large market fluctuations and possible turmoil

D.

The consortium wanted to keep this out of the regulators' eyes

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Questions 33

Up until 2006, which of the following was not a primary driver for Washington Mutual's earning?

Options:

A.

Lending to consumers and small businesses.

B.

Deposit taking activities which generated net interest income.

C.

The provision of fee based services to its customers.

D.

Complex derivative trades based on volatility indices.

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Exam Code: 8004
Exam Name: PRM Certification - Exam IV: Case Studies; Standards: Governance, Best Practices and Ethics
Last Update: Jul 10, 2024
Questions: 110
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