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PRM Certification - Exam IV: Case Studies; Standards: Governance, Best Practices and Ethics

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Total Questions : 110

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Question # 1

According to the PwC report China Aviation Oil, in order to avoid recording and reporting losses, the company adopted which approach covering up its losses?

Options:

A.  

selling short-term options with extremely low-risk profiles to generate premiums to cover the cost of closing out loss-making option positions

B.  

selling long-term options with extremely low-risk profiles to generate premiums to cover the cost of closing out loss-making option positions

C.  

selling short-term options with extremely high-risk profiles to generate premiums to cover the cost of closing out loss-making option positions

D.  

selling long-term options with extremely high-risk profiles to generate premiums to cover the cost of closing out loss-making option positions

Discussion 0
Question # 2

National Australia Bank and Barings cases are similar in that:

Options:

A.  

Losses kept increasing while rogue trader(s) hid their positions

B.  

The back offices had inadequate procedures

C.  

Both A and B

D.  

None of the above

Discussion 0
Question # 3

The condition where futures prices of an underlying asset are lower than cash (spot) prices is known as:

Options:

A.  

Backwardation

B.  

Contango

C.  

Reverse backwardation

D.  

Conchacha

Discussion 0
Question # 4

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

Options:

A.  

Market Risk

B.  

Credit Risk

C.  

Operational and Regulatory Compliance Risk

D.  

All of the Above

Discussion 0
Question # 5

Which of the following was NOT a factor in the WorldCom collapse?

Options:

A.  

Failed corporate governance

B.  

Accounting abuses

C.  

Unfair pricing to customers

D.  

Over stating actual sales

Discussion 0
Question # 6

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

Options:

A.  

I and II only

B.  

I, II and IV only

C.  

I, II and III only

D.  

All of these are responsibilities of Board and Audit Committees

Discussion 0
Question # 7

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

Options:

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

Discussion 0
Question # 8

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

Options:

A.  

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

B.  

Historic simulations are not effective methods of stress testing

C.  

Stress tests should incorporate changes in liquidity

D.  

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

Discussion 0
Question # 9

Which of the following does NOT relate to the Orange County case?

Options:

A.  

Where there are excess rewards, there must be risks

B.  

The Know Your Customer rule

C.  

Strategies that are not possible to explain to third parties should not be employed by the risk averse

D.  

Fractured organisational structure and poor risk oversight mechanism make it easy for powerful individuals to hide risk in the gaps

Discussion 0
Question # 10

The multi-dimensional risk problem at Northern Rock did not include which one of the combinations of the following?

Options:

A.  

LPHI Risk; Business Model; Solvency vs. Liquidity: and Deposit Protection

B.  

Corporate Governance; Moral Hazard; Role of Government; and Credit Risk

C.  

Deposit Protection; Moral Hazard; Business Model; and LPHI Risk

D.  

Business Model; Corporate Governance; Moral Hazard; and Deposit Protection

Discussion 0
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