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  4. 8004 - PRM Certification - Exam IV: Case Studies; Standards: Governance, Best Practices and Ethics

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

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

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Question 1

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

Options:

A.

II, III and IV only

B.

I, II and IV only

C.

All of the above

D.

I and II only

Question 2

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

Options:

A.

All PRMIA Fellow Members

B.

The Regional Directors

C.

The Blue Ribbon Advisory Panel

D.

A two-thirds affirmative vote of all members

Question 3

When supervising others, a PRMIA member must comply with

Options:

A.

PRMIA Standards

B.

the standards of the organization where the work is being performed

C.

his / her established personal standards of work approved in previous work situations

D.

local regulatory authority standards which may be less onerous than PRMIA standards

Question 4

Which of the following is FALSE?

Options:

A.

Nick Leeson also ran the back office for his trading area

B.

Nick Leeson dealt in complex derivatives lacking transparency of pricing

C.

SIMEX made inquiries to Barings Bank about large margin calls on its positions

D.

Nick Leeson claimed to be running an arbitrage book

Question 5

According to LTCM managers:

Options:

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

Question 6

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

Options:

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

Question 7

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

Question 8

The Risk Management Infrastructure of an organization must:

I. To the extent possible, avoid silos of control and oversight

II. Have budgets set by the business unit leaders

III. Actively provide ongoing professional development for risk management staff and require them to be committed to standards of best practice, conduct and ethics in their work

IV. Provide general risk management and related corporate governance training for employees of the organization as a Whole

Options:

A.

I only

B.

I, III and IV only

C.

I and III only

D.

All of these are expected of the Risk Management Infrastructure

Question 9

As a PRMIA member, you have certain responsibilities. Among these are the requirement(s) to:

Options:

A.

Vote in Board elections

B.

Attend at least one PRMIA chapter meeting per year

C.

Adhere to the PRMIA Standards of Best Practice, Conduct and Ethics

D.

All of the above

Question 10

What was the most important loss for Bankers Trust?

Options:

A.

Money due to unfavourable market moves

B.

Loss of its' reputation due to actions seen as detrimental to their clients

C.

Loss of market share due to their licenses being revoked

D.

Time spent on legal proceedings in courts

Question 11

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

Question 12

According to PRMIA governance principles, boards and audit committees should …

Options:

A.

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

B.

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

C.

Be composed of key business unit representatives

D.

Leave shareholder accountability to senior management who decides strategic direction

Question 13

The Chair of the PRMIA Board of Directors may hold the following offices:

Options:

A.

Parliamentarian

B.

Secretary

C.

Vice Chair

D.

Chair only

Question 14

The "Renewing the Dream" program signed into law by President George W Bush in 2002 was designed to

Options:

A.

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

B.

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

C.

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

D.

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

Question 15

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:

Options:

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.

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

C.

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

D.

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

Question 16

Which of the following best characterize the problems that developed at Bankers Trust?

Options:

A.

Volume growth at the expense of margin

B.

Excessive reliance on volatile and sophisticated derivatives

C.

A failure to try to protect their clients' interests

D.

Over exposure to the property market

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