8004 Sample Questions Answers

Market Risk

Credit Risk

Operational Risk

Both B and C

I and II

I, II and IV

I, II and III

I only

Failed corporate governance

Accounting abuses

Unfair pricing to customers

Over stating actual sales

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

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

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

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

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

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

Ignore local rules and regulations

Respect local rules and regulations

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

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

Both A and B

Neither A nor B

Backwardation

Contango

Reverse backwardation

Conchacha

Parliamentarian

Secretary

Vice Chair

Chair only

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

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

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

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

to buy calls and sell puts

to buy puts and sell calls

to sell puts and buy calls

to sell calls and buy puts

to buy puts and sell calls

to buy calls and sell puts

to sell puts and buy calls

to sell calls and buy puts

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

Respect the client's confidentiality as that takes precedence

Report this conduct to their immediate supervisor

Report the findings immediately to authorities

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

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

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

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

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

Fortress Re and other insurers

The Fortress Re reinsurers only

The fronting insurance companies

Fortress Re and their reinsurers

I and II only

I, II and III only

I, II and IV only

All are PRMIA Governance Principles

Bob Citron engaged in risky strategies to benefit personally

Bob Citron tried to "ride the yield curve"

Bob Citron heavily leveraged his positions using repos

Citron's losses were eventually exposed by massive margin calls

I and II only

I, II and IV only

I, II and III only

All of these are responsibilities of Board and Audit Committees

Gives an accurate result in most cases

Captures portfolio effects but not tenor differences

Can easily reflect the impact of netting

Overstates exposure in most cases

Trying to borrow more money from major money centre banks

Issuing Subordinated Debt

Returning capital to the general partners before others

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

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

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

Be composed of key business unit representatives

Leave shareholder accountability to senior management who decides strategic direction

determined by business-unit leaders

determined at the Board level with inputs from business unit leaders

determined at the Board level without influence by business unit leaders

determined by the regulators

Market Risk

Credit Risk

Operational and Regulatory Compliance Risk

All of the Above

Greater volatility than expected over the life of an option

Sudden gaps in market prices

Both A and B

Neither A nor B

Eliminates risk to the greatest extent possible

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

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

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

stay silent on the basis that they have reported it

report the matter to their PRMIA chapter

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

report the matter to the organization's Compliance Dept.

A for-profit corporation

A non-profit corporation

A charitable trust

A non profit corporation with for profit subsidiaries

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

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

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

Both losses were eventually exposed by massive margin calls.

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

Some of the banks in the rescue consortium were LTCM investors

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

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

Lending to consumers and small businesses.

Deposit taking activities which generated net interest income.

The provision of fee based services to its customers.

Complex derivative trades based on volatility indices.