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PRM Certification - Exam III: Risk Management Frameworks, Operational Risk, Credit Risk, Counterparty Risk, Market Risk, ALM, FTP - 2015 Edition

Last Update 12 hours ago Total Questions : 362

The PRM Certification - Exam III: Risk Management Frameworks, Operational Risk, Credit Risk, Counterparty Risk, Market Risk, ALM, FTP - 2015 Edition content is now fully updated, with all current exam questions added 12 hours ago. Deciding to include 8008 practice exam questions in your study plan goes far beyond basic test preparation.

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Question # 4

Which of the following are considered asset based credit enhancements?

I. Collateral

II. Credit default swaps

III. Close out netting arrangements

IV. Cash reserves

A.

II and IV

B.

I, II and IV

C.

I and IV

D.

I and III

Question # 5

An assumption regarding the absence of ratings momentum is referred to as:

A.

Ratings stability

B.

Time invariance

C.

Markov property

D.

Herstatt risk

Question # 6

Which of the following are true:

I. Delta hedges need to be rebalanced frequently as deltas fluctuate with fluctuating prices.

II. Portfolio managers are right to focus on primary risks over secondary risks.

III. Increasing the hedge rebalance frequency reduces residual risks but increases transaction costs.

IV. Vega risk can be hedged using options.

A.

I and II

B.

II, III and IV

C.

I, II, III and IV

D.

I, II and III

Question # 7

Which of the following statements is the most appropriate description of feedback effects:

A.

The amplification of smaller initial shocks to one risk factor creating larger subsequent shocks through system-wide interactions between other risks, creating self-perpetuating downward stresses in the markets

B.

The lack of a comprehensive view of risk across credit, market and liquidity risks leading to an underestimation of correlations that tend to spike up in the event of a crisis

C.

The spread of contagion from the bankruptcy of one participant leading to a similar outcome for other market participants

D.

The revision of stress testing scenarios based upon management, business unit and regulatory feedback on the plausibility or otherwise of stress scenarios.

Question # 8

If EV be the expected value of a firm's assets in a year, and DP be the 'default point' per the KMV approach to credit risk, and σ be the standard deviation of future asset returns, then the distance-to-default is given by:

A)

B)

C)

D)

A.

Option A

B.

Option B

C.

Option C

D.

Option D

Question # 9

Which of the following formulae describes CVA (Credit Valuation Adjustment)? All acronyms have their usual meanings (LGD=Loss Given Default, ENE=Expected Negative Exposure, EE=Expected Exposure, PD=Probability of Default, EPE=Expected Positive Exposure, PFE=Potential Future Exposure)

A.

LGD * ENE * PD

B.

LGD * EPE * PD

C.

LGD * EE * PD

D.

LGD * PFE * PD

Question # 10

If the default hazard rate for a company is 10%, and the spread on its bonds over the risk free rate is 800 bps, what is the expected recovery rate?

A.

40.00%

B.

20.00%

C.

8.00%

D.

0.00%

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