PRM Certification - Exam III: Risk Management Frameworks, Operational Risk, Credit Risk, Counterparty Risk, Market Risk, ALM, FTP - 2015 Edition

Question 1

Which of the following statements are true?
I. Retail Risk Based Pricing involves using borrower specific data to arrive at both credit adjudication and pricing decisions II. An integrated 'Risk Information Management Environment' includes two elements - people and processes III. A Logical Data Model (LDM) lays down the relationships between data elements that an organization stores IV. Reference Data and Metadata refer to the same thing

A. I, II and III

B. I and III

C. II and IV

D. All of the above

Correct Answer: B

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Question 2

Which of the following is NOT true in respect of bilateral close out netting:

A. All transactions are immediately closed out upon the occurrence of a credit event for either of the counterparties

B. Transactions are separated by transaction type and immediately settled separately at each's replacement value

C. The net amount due is immediately receivable or payable

D. All transactions are netted against each other

Correct Answer: B

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Question 3

Which of the following correctly describes survivorship bias:

A. Survivorship bias is the negative skew in returns data resulting from credits that have survived despite a high probability of default

B. Survivorship bias is the positive tail risk that ensures survival over the long run

C. Survivorship bias refers to prudent and conservative risk management

D. Survivorship bias is the tendency for failed companies, markets or investments to be excluded from performance data.

Correct Answer: D

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Question 4

A bank holds a portfolio of corporate bonds. Corporate bond spreads widen, resulting in a loss of value for the portfolio. This loss arises due to:

A. Liquidity risk

B. Credit risk

C. Market risk

D. Counterparty risk

Correct Answer: C

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Question 5

Which of the following are considered properties of a 'coherent' risk measure:
I. Monotonicity
II. Homogeneity
III. Translation Invariance
IV. Sub-additivity

A. I and III

B. II and IV

C. All of the above

D. II and III

Correct Answer: B

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Question 6

Which of the following is not a parameter to be determined by the risk manager that affects the level of economic credit capital:

A. Confidence level

B. Risk horizon

C. Probability of default

D. Definition of credit losses

Correct Answer: C

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Question 7

If the 99% VaR of a portfolio is $82,000, what is the value of a single standard deviation move in the portfolio?

A. 50000

B. 82000

C. 134480

D. 35248

Correct Answer: D

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Question 8

If and are the expected rate of return and volatility of an asset whose prices are log-normally distributed, and a random drawing from a standard normal distribution, we can simulate the asset's returns using the expressions:

A. + .

B. - + .

C. / .

D. - .

Correct Answer: A

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Question 9

Under the KMV Moody's approach to calculating expecting default frequencies (EDF), firms' default on obligations is likely when:

A. asset values reach a level below total liabilities

B. asset values reach a level below short term debt

C. expected asset values one year hence are below total liabilities

D. asset values reach a level between short term debt and total liabilities

Correct Answer: D

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PRMIA PRM Certification - Exam III: Risk Management Frameworks, Operational Risk, Credit Risk, Counterparty Risk, Market Risk, ALM, FTP - 2015 Edition - 8008 Exam Practice Test

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