8004 Exam Dumps - PRM Certification - Exam IV: Case Studies

Question # 4

John Smith wants to run for election to the Board of Directors of PRMIA. To be nominated, he needs:

The backing of three other members

To go through a screening process conducted by the Nominations Committee

The backing of 6% of local members

The backing of five other members and to be serving on at least one PRMIA Committee

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Question # 5

TMFI's internal procedures and management were

fully aware of the uninsured risks Fortress Re were taking

absolutely unaware of their uninsured liabilities

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

None of the above

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Question # 6

What is (are) the lesson(s) of the Barings' failure?

Incentive plans have risk management implications

Front and back offices need to be independent

Large profits can be an indicator of risk

All of the above

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Question # 7

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

I and II only

I, II and IV only

I, II and III only

All of these are responsibilities of Board and Audit Committees

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Question # 8

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

I and II

I, II and IV

I, II and III

I only

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Question # 9

What was the most important loss for Bankers Trust?

Money due to unfavourable market moves

Loss of its' reputation due to actions seen as detrimental to their clients

Loss of market share due to their licenses being revoked

Time spent on legal proceedings in courts

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Question # 10

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

Greater volatility than expected over the life of an option

Sudden gaps in market prices

Both A and B

Neither A nor B

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Question # 11

Which of the following is part of the Group of 30 Report's market risk and stress testing recommendations?

To be consistent with regulatory capital measures, 10-day holding periods should be standardized for VaR reporting

Historic simulations are not effective methods of stress testing

Stress tests should incorporate changes in liquidity

Market risk VaR measures should be multiplied by 3 to get to a stress test figure, as long as the VaR model has been back-tested

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Question # 12

MGRM's losses due to "stacking" started to increase when

the oil market went from contango to backwardation

the oil market went from backwardation to contango

the oil market went from weak backwardation to strong backwardation

the oil market went from strong contango to weak contango

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Question # 13

When considering the performance of Northern Rock within its peer group of banks, which of the following is not correct?

Only a few months previously it had reported record profits.

The quality of its' assets was never in question.

For many years it was regarded as a star-performer in the financial markets.

Its' loan loss record was poor by industry standards.

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Question # 14

According to the Northern Rock Case Study, what is Forced Insolvency?

The bank is insolvent in that the current value of its assets (measured at book value) is less than the value of its liabilities; thus even if the bank were to liquidate all of its assets it would not be able to repay all depositors and other creditors

The bank is legally solvent but if, because it cannot fund its operations, it is forced to liquidate assets it could do so only at less than nominal values (fire sale) and this would make it legally insolvent (value of assets falls below those of liabilities)

The bank is legally solvent but its current funding costs (which are likely to continue) exceed the average rate of return on its assets and hence it would soon become insolvent as it would be making losses and would eventually exhaust its equity capital

The bank is solvent in that the current value of its assets (measured at book value) is more than the value of its liabilities; so even if the bank were to liquidate all of its assets it would be able to repay all depositors and other creditors

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Question # 15

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

Parliamentarian

Secretary

Vice Chair

Chair only

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Question # 16

Which of the following are PRMIA Governance Principles?

I. Sufficiency of Key Resources and Process

II. State of the Art Risk Management Technology