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PRMIA PRM Certification - Exam III: Risk Management Frameworks, Operational Risk, Credit Risk, Counterparty Risk, Market Risk, ALM, FTP - 2015 Edition Sample Questions:
1. Which of the following statements is true:
I. Confidence levels for economic capital calculations are driven by desired credit ratings II. Loss distributions for operational risk are affected more by the severity distribution than the frequency distribution III. The Advanced Measurement Approach (AMA) referred to in the Basel II standard is a type of a Loss Distribution Approach (LDA) IV. The loss distribution for operational risk under the LDA (Loss Distribution Approach) is estimated by separately estimating the frequency and severity distributions.
A) III and IV
B) I, II and IV
C) I, III and IV
D) I and II
2. Under the actuarial (or CreditRisk+) based modeling of defaults, what is the probability of 4 defaults in a retail portfolio where the number of expected defaults is 2?
A) 18%
B) 2%
C) 9%
D) 4%
3. Which of the following statements are true in relation to the current state of the financial network?
I. Interconnectivity between countries has reduced while that between institutions in the same country has increased significantly II. The degrees of separation between institutions has gone up III. The average path length connecting any two given institutions has shrunk IV. Knife-edge dynamics imply that systemic risk arises from the financial system flipping from risk sharing to risk spreading
A) III and IV
B) II and III
C) I and II
D) I and IV
4. For a loan portfolio, unexpected losses are charged against:
A) Credit reserves
B) Economic capital
C) Economic credit capital
D) Regulatory capital
5. Which of the following is not a limitation of the univariate Gaussian model to capture the codependence structure between risk factros used for VaR calculations?
A) The univariate Gaussian model fails to fit to the empirical distributions of risk factors, notably their fat tails and skewness.
B) It cannot capture linear relationships between risk factors.
C) A single covariance matrix is insufficient to describe the fine codependence structure among risk factors as non-linear dependencies or tail correlations are not captured.
D) Determining the covariance matrix becomes an extremely difficult task as the number of risk factors increases.
Solutions:
| Question # 1 Answer: B | Question # 2 Answer: C | Question # 3 Answer: A | Question # 4 Answer: C | Question # 5 Answer: B |
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