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NEW QUESTION # 62
According to the Northern Rock Case Study, what is Forced Insolvency?
- A. 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
- B. 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)
- C. 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
- D. 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
Answer: B
NEW QUESTION # 63
PwC concluded that the accounting policy adopted by China Aviation Oil was incorrect because it
- A. only took into account the time value of the option (which includes recognizing the time left to maturity of the option, the volatility of the spot price of the underlying commodity, interest rates and other factors)
- B. only regarded the intrinsic value (i.e. the difference between the strike price and the forward price of the underlying commodity) as the fair value of its options
- C. used neither the intrinsic value nor the time value
- D. took into account both the intrinsic value and the time value
Answer: B
NEW QUESTION # 64
Which of the following should NOT be part of the Risk Management Infrastructure?
- A. Review continually the application of the Principles of Good Governance to the Risk Management Infrastructure, financial accounting and reporting infrastructure and the organization as a whole
- B. Include financial risk management, compliance and external reporting and, to the extent that resources allow, should exclude legal or accounting
- C. Be independently staffed and report to an employee who is on the Executive Committee (Operating Committee) but who is NOT a business unit leader
- D. Define the organization's definition of risk management as articulated by the Board in clear and uncertain terms
Answer: A
NEW QUESTION # 65
How much of Washington Mutual's assets were funded by customer deposits for the decade ending in 2006?
- A. 30%
- B. 60%
- C. 40%
- D. 50%
Answer: B
NEW QUESTION # 66
Every PRMIA chapter is designed to serve the local needs of members, so they often have fairly independent planning structures and ideas. According to the PRMIA Bylaws, Regional Chapters and Regional Directors:
- A. Can have their own offices, bylaws and regulations provided they do not conflict with those of PRMIA
- B. All of the above
- C. Can have meetings that only local members are allowed to attend
- D. Can sign contracts on behalf of PRMIA without prior approval from the Board of Directors
Answer: A
NEW QUESTION # 67
When describing the reasons for the collapse of China Aviation Oil, which of the following was not cited?
- A. No properly defined risk management policies in place and general lack of oversight by senior management
- B. Loss generating positions were rolled over by selling options on larger positions to generate cash premiums' to settle existing position losses
- C. Senior management in China were aware of the positions but did not understand the complexities of risk managing them
- D. Time value was not taken into account during the contract valuation process
Answer: C
NEW QUESTION # 68
Boards of Directors, including Audit and Risk Committees must review thoroughly compensation plans of potentially "highly compensated positions" for:
I.competitive market conditions
II.ensuring compliance with their corporate risk appetite and fiduciary responsibility to shareholders
III.ensuring any discretionary bonus plans are geared towards keeping high income / revenue generators
IV.reporting all such personnel to the local regulator
- A. All of the above
- B. I, II and IV only
- C. II, III and IV only
- D. I and II only
Answer: D
NEW QUESTION # 69
Which of the following CANNOT be counted as a reason why LTCM was given a rescue package and not left to default?
- A. Many of the banks in the rescue consortium were among LTCM's counterparties
- B. Untimely unwinding of some LTCM positions would lead to large market fluctuations and possible turmoil
- C. Some of the banks in the rescue consortium were LTCM investors
- D. The consortium wanted to keep this out of the regulators' eyes
Answer: D
NEW QUESTION # 70
Which of the following would have contributed to noticing and preventing Leeson's violations at Barings?
- A. Separation of front and back offices
- B. All of the above
- C. More senior level involvement at Barings regarding use of derivatives
- D. Recognition that large profits can be an indicator of higher risk
Answer: B
NEW QUESTION # 71
As a PRMIA member, you have certain responsibilities. Among these are the requirement(s) to:
- A. All of the above
- B. Vote in Board elections
- C. Attend at least one PRMIA chapter meeting per year
- D. Adhere to the PRMIA Standards of Best Practice, Conduct and Ethics
Answer: D
NEW QUESTION # 72
Washington Mutual's acquisition of Long Beach Financial changed its business model and increased its credit loss profile because
- A. Long Beach Financial had losses which it hadn't realized at the time of the takeover
- B. The resulting loss rate for Washington Mutual was more than 3 times higher than other mortgage lenders tracked by the FDIC
- C. Of a general deterioration of credit quality generally
- D. the two banks were focussed in different markets
Answer: B
NEW QUESTION # 73
What was the main type of risk that Metallgesellschaft was exposed to?
- A. Currency Settlement
- B. Basis Risk
- C. Interest Rate
- D. Inflation
Answer: B
NEW QUESTION # 74
The problems in the Orange County case can best be characterized as failures related to:
- A. Operational and Regulatory Compliance Risk
- B. Credit Risk
- C. All of the Above
- D. Market Risk
Answer: D
NEW QUESTION # 75
Unlike the case at Barings Bank, National Australia Bank:
- A. Had a Board of Directors that was unaware of the true nature of trading activities
- B. Had a risk management infrastructure that was credited with doing its' job well, despite the losses
- C. Was not dealing in derivatives
- D. Had a separation of duties between trading and back office
Answer: D
NEW QUESTION # 76
PRMIA is incorporated as:
- A. A non profit corporation with for profit subsidiaries
- B. A charitable trust
- C. A for-profit corporation
- D. A non-profit corporation
Answer: D
NEW QUESTION # 77
According to LTCM managers:
- A. Stress Testing looked at the 12 biggest deals with each of their top 20 counterparties
- B. Stress Testing was not conducted
- C. Stress Testing was not necessary because their trades were hedged
- D. Stress Testing was elaborate, complex and conducted on their entire portfolio. It included the assumptions of a major breakdown in historical correlations
Answer: A
NEW QUESTION # 78
What is (are) the lesson(s) of the Barings' failure?
- A. Large profits can be an indicator of risk
- B. Incentive plans have risk management implications
- C. All of the above
- D. Front and back offices need to be independent
Answer: C
NEW QUESTION # 79
Which of the following was NOT a factor in the Long Term Capital Management case?
- A. Inadequate separation of front and back offices
- B. Changes/breakdowns in historical correlations
- C. Model risk
- D. Unwinding of liquid positions at the beginning of major losses
Answer: A
NEW QUESTION # 80
Which of the following best characterizes the problems that developed at Bankgesellschaft Berlin?
- A. Banking is a "for-profit" business, not a means of fulfilling political goals.
- B. A company culture where profits may justify "excesses."
- C. Volume growth at the expense of margin.
- D. Excessive reliance on volatile trading income.
Answer: A
NEW QUESTION # 81
Which of the following is FALSE?
- A. Nick Leeson claimed to be running an arbitrage book
- B. SIMEX made inquiries to Barings Bank about large margin calls on its positions
- C. Nick Leeson also ran the back office for his trading area
- D. Nick Leeson dealt in complex derivatives lacking transparency of pricing
Answer: D
NEW QUESTION # 82
The Bankers Trust Case Study is about:
- A. failure to guard its clients' best interests
- B. reliance on thinly traded derivatives to hedge
- C. large losses at the proprietary trading desk
- D. overexposure to the real estate market
Answer: A
NEW QUESTION # 83
With respect to the Purpose of Professional Standards, in the event of any difference in standards between local laws/rules and those of PRMIA, members must
- A. comply with the higher standard under all circumstances
- B. refer the matter to their supervisor
- C. use their best judgment
- D. abide by the applicable laws, rules, and regulations of PRMIA and any government and/or regulatory bodies
Answer: A
NEW QUESTION # 84
Taisei Fire and Marine Insurance Co
- A. had a full understanding from other members of the pool of the pool's liabilities
- B. relied almost entirely on Fortress Re's management team for information on the risks in its portfolio
- C. relied on the information it received from other members of the reinsurance pool to manage its risks
- D. had a full understanding from Fortress Re of the risks in the pool
Answer: B
NEW QUESTION # 85
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
- A. I and II
- B. I, II and III
- C. I only
- D. I, II and IV
Answer: A
NEW QUESTION # 86
Which of the following are PRMIA Governance Principles?
I.Sufficiency of Key Resources and Process II.State of the Art Risk Management Technology III.Ongoing Education and Discernment IV.Sufficiency of Key Competencies
- A. All of these are PRMIA Governance Principles
- B. I, II and IV only
- C. I and II only
- D. I, III and IV only
Answer: D
NEW QUESTION # 87
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