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PRMIA 8004 Exam Syllabus Topics:
| Section | Objectives |
|---|---|
| Standards & Practices | - Principles of Good Governance Principles, PRMIA - Bylaws of Professional Risk Managers' International Association, PRMIA - Group of Thirty Best Practices, Global Derivatives Study Group - Standards of Best Practice, Conduct and Ethics, PRMIA Ethics Committee |
| Case Studies | - Barings - Orange County - Long Term Capital Management (LTCM) - National Australia Bank (NAB) - FX Options - Metallgesellschaft - Northern Rock - Washington Mutual (Wamu) - Fannie Mae and Freddie Mac - Silicon Valley Bank - American Insurance Group (AIG) - Operational Resilience at TSB - Bankers Trust - Lehman Brothers - FTX - WorldCom |
PRMIA PRM Certification - Exam IV: Case Studies; Standards: Governance, Best Practices and Ethics Sample Questions:
1. Which of the following does NOT relate to the Orange County case?
A) Fractured organisational structure and poor risk oversight mechanism make it easy for powerful individuals to hide risk in the gaps
B) Strategies that are not possible to explain to third parties should not be employed by the risk averse
C) The Know Your Customer rule
D) Where there are excess rewards, there must be risks
2. According to the Northern Rock Case Study, what is Forced Insolvency?
A) The bank is insolvent in that the current value of its assets (measured at book value) is less than the value of its liabilities; thus even if the bank were to liquidate all of its assets it would not be able to repay all depositors and other creditors
B) The bank is solvent in that the current value of its assets (measured at book value) is more than the value of its liabilities; so even if the bank were to liquidate all of its assets it would be able to repay all depositors and other creditors
C) The bank is legally solvent but if, because it cannot fund its operations, it is forced to liquidate assets it could do so only at less than nominal values (fire sale) and this would make it legally insolvent (value of assets falls below those of liabilities)
D) The bank is legally solvent but its current funding costs (which are likely to continue) exceed the average rate of return on its assets and hence it would soon become insolvent as it would be making losses and would eventually exhaust its equity capital
3. The Chair of the PRMIA Board of Directors may hold the following offices:
A) Parliamentarian
B) Vice Chair
C) Secretary
D) Chair only
4. As LTCM started to have major losses, it compounded its problems by doing what?
A) Trying to borrow more money from major money centre banks
B) Issuing Subordinated Debt
C) Returning capital to the general partners before others
D) Unwinding its' more liquid trades thereby creating more liquidity risk overall
5. A VaR model for managing market risk at Barings Bank in London would most likely have:
A) Not correctly assessed the risk in Nick Leeson's option trades as they have non-linear price characteristics
B) Helped very little as Nick Leeson hid many trades
C) Been used if senior management had ever seen it
D) Alerted senior management to the problems before the major losses occurred
Solutions:
| Question # 1 Answer: C | Question # 2 Answer: C | Question # 3 Answer: D | Question # 4 Answer: D | Question # 5 Answer: B |



