Updated Free PRMIA 8010 Test Engine Questions with 242 Q&As [Q84-Q106]

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Updated Free PRMIA 8010 Test Engine Questions with 242 Q&As

The Best PRM Certification 8010 Professional Exam Questions

Q84. Which of the following is not an approach proposed by the Basel II framework to compute operational riskcapital?

Basic indicator approach

Factor based approach

Standardized approach

Advanced measurement approach

Q85. Which of the following distributions is generally not used for frequency modeling for operational risk

Binomial

Poisson

Gamma

Negative binomial

Q86. Which of the following carry greater counterparty risk: a forward contract on a 10 year note, or a commercial paper carrying a AA credit rating with identicalmaturity and notional?

The forward contract has greater credit risk as its future gains are unknown

Credit risk can not be compared in these terms

They both carry the same credit risk

The commercial paper has greater credit risk as the entire notional is outstanding

Q87. Which of the following is not a measure of risk sensitivity of some kind?

PL01

Convexity

CR01

Delta

Q88. Which of the following is the most accurate description of EPE (Expected Positive Exposure):

The maximum average credit exposure over a period of time

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date

Weighted average of thefuture positive expected exposure across a time horizon.

The average of the distribution of positive exposures at a specified future date

Q89. For a FX forward contract, what would be the worst time for a counterparty to default (in terms of the maximum likely credit exposure)

At maturity

Roughlythree-quarters of the way towards maturity

Indeterminate from the given information

Right after inception

Q90. Which of the following cannot be used as an internal credit rating model to assess an individual borrower:

Distance to default model

Probit model

Logit model

Altman’s Z-score

Q91. Which of the following data sources are expected to influence operational risk capital under the AMA:
I. Internal Loss Data (ILD)
II. External Loss Data (ELD)
III. Scenario Data (SD)
IV. Business Environment and Internal Control Factors (BEICF)

I and II

I, II and III only

III only

All of the above

Q92. Which of the following situations are not suitable for applying parametric VaR:
I. Where the portfolio’s valuation is linearlydependent upon risk factors II. Where the portfolio consists of non-linear products such as options and large moves are involved III. Where the returns of risk factors are known to be not normally distributed

I and II

II and III

I and III

All of the above

Q93. Which of the following contributed to the systemic failure during the credit crisis that began in 2007?

Stress tests that did not stress enough

Moral hazard from the strategy of ‘originate and distribute’

Inadequate attentionpaid to liquidity risk

All of the above

Q94. For a bank using the advanced measurement approach to measuring operational risk, which of the following brings the greatest ‘model risk’ to its estimates:

Choice of an incorrect distribution for loss event frequencies

Insufficient number of simulations when building the loss distribution

Choice of incorrect parameters for loss severity distributions

Aggregation risk, from selecting an incorrect value of estimated correlations between different operational risk estimates

Q95. A bank extends a loan of $1m to a home buyer to buy a house currently worth $1.5m, with the house serving as the collateral. The volatility of returns (assumed normally distributed) on house prices in that neighborhood is assessed at 10% annually. The expected probability of default of the home buyer is 5%.
What is the probability that the bank will recover less than the principal advanced on this loan; assuming the probability of the home buyer’s default is independent of the value of the house?

More than 1%

Less than 1%

More than 5%

Q96. Once the frequency and severity distributions for loss events have been determined, which of the following is an accurate description of the process to determine a full loss distribution for operational risk?

A firm wide operational risk distribution is generated by adding together the frequency and severity distributions

A firm wide operational risk distribution is generated using Monte Carlo simulations

A firm wide operational risk distribution is set to be equal to the product of the frequency and severity distributions

The frequency distribution alone forms the basis for the loss distribution for operational risk

Q97. What would be the correct order of steps to addressing data quality problems in an organization?

Assess the current state, design the future state, determine gaps and the actions required to be implemented to eliminate the gaps

Articulate goals, do a ‘strategy-fit’ analysis and plan for action

Design the future state, perform a gap analysis, analyze the current state and implement the future state

Call in external consultants

Q98. The CDS quote for the bonds of Bank X is 200 bps. Assuming a recovery rate of 40%, calculate the default hazard rate priced in the CDS quote.

0.80%

5.00%

3.33%

2.00%

Q99. The standalone economic capital estimates for the three uncorrelated business units of a bank are $100, $200 and $150 respectively. Whatis the combined economic capital for the bank?

269

72500

450

Q100. Which of the following are a CRO’s responsibilities:
I. Statutory financial reporting
II. Reporting to the audit committee
III. Compliance with risk regulatory standards
IV. Operational risk

I and II

II and IV

III and IV

All of the above

Q101. Which of the following statements is NOT true in relation to the recent financial crisis of 2007-08?

An intention to diversify from their core activities led all market participants to the same activities, which though appearing diversified at the bank’s level, created a concentration risk at the systemic level

The existence of central counterparties could have limited the damage caused by the financial crisis

Central banks had data on the interconnections between institutions, but poor understanding and analysis meant this data was never analyzed

Counterparty risk was difficult togauge as it was impossible to know who the counterparty’s counterparties were

Q102. Which loss event type is the loss of personally identifiableclient information classified as under the Basel II framework?

Technology risk

Clients, products and business practices

Information security

External fraud

Q103. If two bonds with identical credit ratings, coupon and maturity but from different issuers trade at different spreads to treasury rates, which of the following is a possible explanation:
I. The bonds differ in liquidity
II. Events have happened that have changed investor perceptions but these are not yet reflected in the ratings III. The bonds carry different market risk IV. The bonds differ in their convexity

I, II and IV

II and IV

I and II

III and IV

Q104. Which of the following is not a credit event under ISDA definitions?

Restructuring

Obligation accelerations

Rating downgrade

Failure to pay

Q105. Which of the following is true for the actuarial approach to credit risk modeling (CreditRisk+):

Default correlations between obligors are accounted for using a multivariate normal model

The number ofdefaults is modeled using a binomial distribution where the number of defaults are considered discrete events

The approach considers only default risk, and ignores the risk to portfolio value from credit downgrades

The approach is based upon historical rating transition matrices

Q106. When fitting a distribution in excess of a threshold as part of the body-tail distribution method described by the equation below, how is the parameter ‘p’ calculated.

Here, F(x) is the severity distribution. F(Tail) and F(Body) are the parametric distributions selected for the tail and the body, and T is the threshold in excess of which the tail is considered to begin.