PRM Certification - Exam IV: Case Studies; Standards: Governance, Best Practices and Ethics v6.0 (8004)

Page:    1 / 8   
Total 110 questions

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

  • A. the oil market went from contango to backwardation
  • B. the oil market went from backwardation to contango
  • C. the oil market went from weak backwardation to strong backwardation
  • D. the oil market went from strong contango to weak contango


Answer : B

Metallgesellschaft's retail contracts were

  • A. unhedged
  • B. hedged using exchange-traded futures with longer maturities than the retail contracts
  • C. hedged using exchange-traded futures with shorter maturities than the retail contracts
  • D. fully hedged using exchange-traded futures of the same maturities as the retail contracts


Answer : C

Which of the following regarding Orange County is FALSE?

  • A. Bob Citron engaged in risky strategies to benefit personally
  • B. Bob Citron tried to "ride the yield curve"
  • C. Bob Citron heavily leveraged his positions using repos
  • D. Citron's losses were eventually exposed by massive margin calls


Answer : A

Employees shall be remunerated adequately for the roles that they perform, where
'adequately' is defined

  • A. as being the market norm for similarly situated personnel in competitive organizations
  • B. using external references and benchmarks, and in a framework which is consistent with the type of risk-taking behavior expected of employees
  • C. using the risk reward profile for each business line in the organization
  • D. as commensurate with policies to attract and retain high income / revenue earners


Answer : B

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

  • A. Greater volatility than expected over the life of an option
  • B. Sudden gaps in market prices
  • C. Both A and B
  • D. Neither A nor B


Answer : C

Washington Mutual's acquisition of Long Beach Financial changed its business model and increased its credit loss profile because

  • A. The resulting loss rate for Washington Mutual was more than 3 times higher than other mortgage lenders tracked by the FDIC
  • B. the two banks were focussed in different markets
  • C. Long Beach Financial had losses which it hadn't realized at the time of the takeover
  • D. Of a general deterioration of credit quality generally


Answer : A

Which of the following was NOT a factor in the Long Term Capital Management case?

  • A. Inadequate separation of front and back offices
  • B. Model risk
  • C. Changes/breakdowns in historical correlations
  • D. Unwinding of liquid positions at the beginning of major losses


Answer : A

The steps which the US Treasury Department and the Federal Reserve took in July 2008 to boost confidence in both Fannie Mae and Freddie Mac did not include which one of the following:

  • A. Access to the Federal Reserve discount window
  • B. Removing the prohibition on the Treasury Department to buy both companies stock
  • C. Restricting the sale of new Fannie Mae and Freddie Mac securities only to US citizens
  • D. Reiterating their belief that both companies played a central role in the US housing finance system


Answer : D

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

  • A. A window of time between close of day for reporting purposes and back office checking that allowed traders to hide losses using fictitious trades
  • B. The Board received risk management information that was incorrect, incomplete or insufficiently detailed
  • C. Both A and B
  • D. Neither A nor B


Answer : C

The "normal" credit loss profile of Washington Mutual was increased by which of the following?

  • A. The general downturn in the economy of the US
  • B. By lowering its own credit underwriting standards
  • C. Acquisitions like Long Beach and Providian
  • D. Catastrophic losses in its own credit card division


Answer : C

As a result of the US government's intervention, which of the following is true?

  • A. The cost of borrowing for Fannie Mae and Freddie Mac should decline because the government will be standing behind their debts and the buying and selling of mortgage debt will continue
  • B. The cost of borrowing for house buyers will rise because of the risk premium now built into the cost of such a government guarantee
  • C. The systemic risks still remain in the housing market because it increases the US government's debt
  • D. Foreign Central Banks will continue to sell their holdings of Fannie Mae and Freddie Mac securities


Answer : A

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

  • A. The role of the UK government and the possible underwriting of risks by tax-payers, and the general question of Moral Hazard
  • 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 original successful business model had not stress tested sufficiently for the incidence of Low Probability, High Impact incidents


Answer : D

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.


Answer : D

The sensitivity analysis required under IFRS would have done what for China Aviation Oil?

  • A. Provided investors and analysts with insight into the dynamics of value changes, and the sensitivity of fair value to the underlying drivers of interest rates, exchange rates, and commodity prices
  • B. Only provided the intrinsic value of its outstanding option positions
  • C. Only provided the time value of its outstanding option position
  • D. None of the above


Answer : A

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 III only
  • B. III only
  • C. I, II, and IV only
  • D. I, II, III and IV above


Answer : C

Page:    1 / 8   
Total 110 questions