PRM Certification - Exam IV: Case Studies; Standards: Governance, Best Practices and Ethics (8004) Free Practice Test

Question 1

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

A. Neither A nor B

B. Both A and B

C. Sudden gaps in market prices

D. Greater volatility than expected over the life of an option

Correct Answer: B

Question 2

Which of the following was not considered to be a positive outcome of the Northern Rock Case Study?

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

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

C. It emphasised the importance of effective governance arrangements within financial firms

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

Correct Answer: A

Question 3

The problems at WorldCom can best be characterized as related to:

A. Operational and Regulatory Compliance Risk

B. All of the Above

C. Market Risk

D. Credit Risk

Correct Answer: A

Question 4

The problems which initiated the crisis at Northern Rock during the summer of 2007 were:

A. Doubts arising about the viability of the business model which necessitated Bank of England intervention

B. A depositor run on the bank, following doubts about the viability of the Northern Rock business model

C. Large customer withdrawals despite the UK regulator and the UK Treasury giving assurances that the bank was solvent

D. A general lack of confidence in mortgage backed securities associated in large part with developments in the US sub-prime mortgage market, and doubts emerging about the viability of the Northern Rock business model

Correct Answer: D

Question 5

The Chair, Vice Chair, Secretary and Treasurer of the PRMIA Board of Directors are elected by:

A. A two-thirds affirmative vote of all members

B. The Blue Ribbon Advisory Panel

C. The Regional Directors

D. All PRMIA Fellow Members

Correct Answer: C

Question 6

A risk manager has just completed a risk assessment project. The report has been given to the risk manager's direct supervisor, who refuses to escalate the material issues raised in the report. Further, the direct supervisor edits the report to remove the section describing the material risk, who then submits it to the firm's Executive Committee.
According to the PRMIA Standards of Best Practice, Conduct and Ethics (Code of Conduct), which of the following actions is most appropriate:

A. The risk manager has submitted the report to their direct supervisor and their obligation ends at this point, nothing further should be done

B. Escalation of the issue is against the Code of Conduct because one should respect the administrative structure of the organization

C. If the risk manager deems it appropriate, he / she should send a copy of the original report to the CEO

D. The risk manager should attempt to resolve the conflict with the direct supervisor, but if that does not work, they should contact the Whistle-Blowing Hotline of the organization. If no such hot-line is in place, they should contact the PRMIA Ethics Committee

Correct Answer: D

Question 7

The key people involved in the application of good governance and risk management must:
I be trustworthy
II be honest
III be approved by the local regulator
IV treat others fairly at all times

A. I, II, and IV only

B. III only

C. I, II, III and IV above

D. I, II, and III only

Correct Answer: A

Question 8

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. abide by the applicable laws, rules, and regulations of PRMIA and any government and/or regulatory bodies

D. use their best judgment

Correct Answer: A

Question 9

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

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.

Correct Answer: D

Question 10

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

A. Neither A nor B

B. Both A and B

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

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

Correct Answer: B

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PRMIA PRM Certification - Exam IV: Case Studies; Standards: Governance, Best Practices and Ethics (8004) Free Practice Test