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Exam IV: Case Studies: Standards: Governance, Best Practices and Ethics - 2015 Edition Certification Sample Questions and Practice Exam
NEW QUESTION 15
The financial intermediary services provided by Fannie Mae and Freddie Mac were designed to
- A. Buy mortgage-backed loans for banks and keep them all on their books, using them as collateral for the US government to borrow
- B. Offer loans directly to the consumer
- C. Compete directly with banks in selling mortgaged to would-be home owners
- D. Repackage mortgage loans made by banks and sell them on to investors as asset backed securities
Answer: D
NEW QUESTION 16
The early 2003 trading strategy of China Aviation oil was
- A. to buy calls and sell puts
- B. to buy puts and sell calls
- C. to sell puts and buy calls
- D. to sell calls and buy puts
Answer: A
NEW QUESTION 17
Mary Jones wants the Bylaws of PRMIA to be changed so that people can't join PRMIA unless they meet a set of criteria she has devised with her colleagues. She can do this by getting which of the following approvals:
- A. The Board of Directors, but only if the Blue Ribbon Panel affirms the change
- B. 34 of all Members
- C. The Board of Directors and a majority of the Members
- D. The Board of Directors alone
Answer: C
NEW QUESTION 18
Which is NOT part of the guidance on Professional Conduct in the PRMIA Standards of Best Practice, Conduct and Ethics (Code of Conduct)?
- A. Provide advice that is clear and accurate
- B. Report to the Regulator any departures from generally accepted methodology or practices
- C. Clearly inform all affected parties of any apparent or actual conflicts of interest
- D. Know and abide by applicable rules and regulations
Answer: B
NEW QUESTION 19
According to the Group of 30 Report, important risks associated with dynamic hedging are:
- A. Both A and B
- B. Greater volatility than expected over the life of an option
- C. Sudden gaps in market prices
- D. Neither A nor B
Answer: A
NEW QUESTION 20
According to the Group of 30 Report, option contracts:
- A. Create no credit risk, since the buyer need not exercise the option
- B. Create credit risk only for the buyer (due to default by the seller) provided the premium is due, and paid, at contract initiation
- C. Always generate credit risk to both counterparties
- D. Usually create credit risk only for the seller (to default by the buyer)
Answer: B
NEW QUESTION 21
The "normal" credit loss profile of Washington Mutual was increased by which of the following?
- A. Acquisitions like Long Beach and Providian
- B. By lowering its own credit underwriting standards
- C. The general downturn in the economy of the US
- D. Catastrophic losses in its own credit card division
Answer: A
NEW QUESTION 22
Which of the following was NOT a factor in the Long Term Capital Management case?
- A. Unwinding of liquid positions at the beginning of major losses
- B. Changes/breakdowns in historical correlations
- C. Inadequate separation of front and back offices
- D. Model risk
Answer: C
NEW QUESTION 23
An Organization as a Whole must:
I. Provide an environment in which an Escalation Policy can be effective II. Commit itself to actual enforcement of corporate governance policies III. Provide ongoing education and training to all employees on the role of risk management and corporate governance in the organization IV. Publish an external auditor's opinion that the corporation is in compliance with the Board's publicly stated Standards of Corporate Governance
- A. All of these are expectations of the Organization as a Whole
- B. I, II and III only
- C. I, III and IV only
- D. I, II and IV only
Answer: A
NEW QUESTION 24
The Bankers Trust Case Study is about:
- A. failure to guard its clients' best interests
- B. reliance on thinly traded derivatives to hedge
- C. overexposure to the real estate market
- D. large losses at the proprietary trading desk
Answer: A
NEW QUESTION 25
A VaR model for managing market risk at Barings Bank in London would most likely have:
- A. Been used if senior management had ever seen it
- B. Alerted senior management to the problems before the major losses occurred
- C. Helped very little as Nick Leeson hid many trades
- D. Not correctly assessed the risk in Nick Leeson's option trades as they have non-linear price characteristics
Answer: C
NEW QUESTION 26
For the sentence
"The organization should have at its disposal employees who have adequate _________, ________ and
_______ to perform the tasks assigned to them",
Choose the correct combination of words from the following options:
- A. knowledge, skills, expertise
- B. risk appetite, knowledge, expertise
- C. track record, expertise, skills
- D. experience, skills, previous successes
Answer: A
NEW QUESTION 27
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:
- A. Escalation of the issue is against the Code of Conduct because one should respect the administrative structure of the organization
- 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. The risk manager has submitted the report to their direct supervisor and their obligation ends at this point, nothing further should be done
- D. If the risk manager deems it appropriate, he / she should send a copy of the original report to the CEO
Answer: B
NEW QUESTION 28
Which of the following regarding Orange County is FALSE?
- A. Citron's losses were eventually exposed by massive margin calls
- B. Bob Citron tried to "ride the yield curve"
- C. Bob Citron heavily leveraged his positions using repos
- D. Bob Citron engaged in risky strategies to benefit personally
Answer: D
NEW QUESTION 29
Several clients, including Procter and Gamble took legal action against Bankers Trust, claiming Bankers Trust
- A. did not honour its contractual obligations to pay
- B. sold them derivative products without properly advising them of the relevant risks
- C. hid profits
- D. was involved in accounting fraud
Answer: B
NEW QUESTION 30
Taisei Fire and Marine Insurance Co
- A. had a full understanding from other members of the pool of the pool's liabilities
- 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. relied almost entirely on Fortress Re's management team for information on the risks in its portfolio
Answer: D
NEW QUESTION 31
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