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  4. 8009 - Exam IV: Case Studies: Standards: Governance, Best Practices and Ethics - 2015 Edition

PRMIA 8009 Exam IV: Case Studies: Standards: Governance, Best Practices and Ethics - 2015 Edition Exam Practice Test

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Exam IV: Case Studies: Standards: Governance, Best Practices and Ethics - 2015 Edition Questions and Answers

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Question 1

The Financial Accounting and Reporting Infrastructure of any organization must:

I. Accurately represent the corporation's current and known financial condition in a timely manner

II. Only use off-balance sheet transactions which have a legitimate economic, tax, risk transfer or risk mitigating purpose

III. Provide a detailed description of the Risk Management Infrastructure in the organization's Annual Report to Shareholders

IV. Provide an auditable Annual Statement of Compliance with the Board's publicly stated Standards of Corporate Governance to the Board and Audit Committee

Options:

A.

I, II and III only

B.

I, III and IV only

C.

I and III only

D.

All of these are expected of the Financial Accounting and Reporting Infrastructure

Question 2

Which of the following are PRMIA Governance Principles?

I. Sufficiency of Key Resources and Process

II. State of the Art Risk Management Technology

III. Ongoing Education and Discernment

IV. Sufficiency of Key Competencies

Options:

A.

I, II and IV only

B.

I and II only

C.

I, III and IV only

D.

All of these are PRMIA Governance Principles

Question 3

When considering the performance of Northern Rock within its peer group of banks, which of the following is not correct?

Options:

A.

Only a few months previously it had reported record profits.

B.

The quality of its' assets was never in question.

C.

For many years it was regarded as a star-performer in the financial markets.

D.

Its' loan loss record was poor by industry standards.

Question 4

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

Options:

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

Question 5

PRMIA Governance Principles

Options:

A.

must be adhered to by all PRMIA member organizations

B.

is a set of recommendations based on research and best practice

C.

must be adhered to by all PRM charter holders

D.

must be adhered to by all financial firms that are PRMIA members

Question 6

Barings Bank and Orange County have many similarities. Which of the following is NOT a similarity?

Options:

A.

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

B.

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

C.

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

D.

Both losses were eventually exposed by massive margin calls.

Question 7

A PRMIA member is offered a highly paid work assignment on the condition that some aspects of assignment are not to be done according to PRMIA standards.

What should they do?

Options:

A.

Perform the assignment, noting in the final report the standards to which the assignment was done

B.

Accept the assignment, produce and deliver two reports according to both standards

C.

Accept the assignment, and prior to doing any work, report the conflict of interest to the organization's compliance department

D.

The PRMIA member should place the integrity of the risk management profession and users of risk management above their own personal interests, and refuse the work

Question 8

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

Question 9

When Fannie Mae and Freddie Mac were taken under US government conservatorship, which of the following was not included within their operating mandate?

Options:

A.

Fannie Mae and Freddie Mac will continue to buy home loans from banks to repackage them as mortgage-backed securities

B.

The US government will provide capital as needed in return for preferred shares in the companies

C.

The US government will buy mortgage-backed securities in the open market as needed

D.

There was a 2 year limit to the conservatorship

Question 10

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

Options:

A.

I, II, and III only

B.

III only

C.

I, II, and IV only

D.

I, II, III and IV above

Question 11

Which US regulatory authority resolved the restructuring of Washington Mutual?

Options:

A.

The Office of Thrift Supervision

B.

Federal Deposit Insurance Corporation

C.

The Federal Reserve Bank

D.

None of the above

Question 12

Which of the following are PRMIA Governance Principles?

I. Independence of Key Parties

II. Disclosure and Transparency

III. Internal Validation

IV. Solvency

Options:

A.

I and II only

B.

I, II and III only

C.

I, II and IV only

D.

All are PRMIA Governance Principles

Question 13

The problems in the Orange County case can best be characterized as failures related to:

Options:

A.

Market Risk

B.

Credit Risk

C.

Operational and Regulatory Compliance Risk

D.

All of the Above

Question 14

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

Question 15

Taisei Fire and Marine Insurance Co

Options:

A.

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

B.

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

C.

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

D.

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

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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