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

I, II, and III only

III only

I, II, and IV only

I, II, III and IV above

Had a risk management infrastructure that was credited with doing its' job well, despite the losses

Was not dealing in derivatives

Had a Board of Directors that was unaware of the true nature of trading activities

Had a separation of duties between trading and back office

Stress Testing looked at the 12 biggest deals with each of their top 20 counterparties

Stress Testing was not conducted

Stress Testing was not necessary because their trades were hedged

Stress Testing was elaborate, complex and conducted on their entire portfolio. It included the assumptions of a major breakdown in historical correlations

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

Historic simulations are not effective methods of stress testing

Stress tests should incorporate changes in liquidity

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

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

Dynamic hedging

A stacked hedge

A differential hedge

Nothing because MG Refining & Marketing did not hedge its position

I and II only

I, II and IV only

I, II and III only

All of these are responsibilities of Board and Audit Committees

Failed corporate governance

Accounting abuses

Unfair pricing to customers

Over stating actual sales

The Office of Thrift Supervision

Federal Deposit Insurance Corporation

The Federal Reserve Bank

None of the above

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

I, II and IV only

I and II only

I, III and IV only

All of these are PRMIA Governance Principles

overexposure to the real estate market

large losses at the proprietary trading desk

reliance on thinly traded derivatives to hedge

failure to guard its clients' best interests

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