PRMIA 8004 PRM Certification - Exam IV: Case Studies; Standards: Governance, Best Practices and Ethics Exam Practice Test

Vote in Board elections

Attend at least one PRMIA chapter meeting per year

Adhere to the PRMIA Standards of Best Practice, Conduct and Ethics

All of the above

Approach the client about the concern, regardless of what their reaction might be

Respect the client's confidentiality as that takes precedence

Report this conduct to their immediate supervisor

Report the findings immediately to authorities

only regarded the intrinsic value (i.e. the difference between the strike price and the forward price of the underlying commodity) as the fair value of its options

took into account both the intrinsic value and the time value

only took into account the time value of the option (which includes recognizing the time left to maturity of the option, the volatility of the spot price of the underlying commodity, interest rates and other factors)

used neither the intrinsic value nor the time value

Where there are excess rewards, there must be risks

The Know Your Customer rule

Strategies that are not possible to explain to third parties should not be employed by the risk averse

Fractured organisational structure and poor risk oversight mechanism make it easy for powerful individuals to hide risk in the gaps

Basis Risk

Currency Settlement

Interest Rate

Inflation

Only a few months previously it had reported record profits.

The quality of its' assets was never in question.

For many years it was regarded as a star-performer in the financial markets.

Its' loan loss record was poor by industry standards.

Market Risk

Credit Risk

Operational Risk

Both B and C

Review compensation plans to ensure consistency with corporate risk appetite, competitive market conditions, and fiduciary responsibility to shareholders

Collectively assume responsibility of understanding and reporting the effectiveness of the firm risk management infrastructure

Be composed of key business unit representatives

Leave shareholder accountability to senior management who decides strategic direction

I, II, III, and IV

IV, III, II, and I

II, I, IV, and III

III, II, IV, and I

I, II and IV only

I and II only

I, III and IV only

All of these are PRMIA Governance Principles

To be consistent with regulatory capital measures, 10-day holding periods should be standardized for VaR reporting

Historic simulations are not effective methods of stress testing

Stress tests should incorporate changes in liquidity

Market risk VaR measures should be multiplied by 3 to get to a stress test figure, as long as the VaR model has been back-tested

PRMIA Standards

the standards of the organization where the work is being performed

his / her established personal standards of work approved in previous work situations

local regulatory authority standards which may be less onerous than PRMIA standards

Gives an accurate result in most cases

Captures portfolio effects but not tenor differences

Can easily reflect the impact of netting

Overstates exposure in most cases

Know and abide by applicable rules and regulations

Clearly inform all affected parties of any apparent or actual conflicts of interest

Report to the Regulator any departures from generally accepted methodology or practices

Provide advice that is clear and accurate

Both relied on a star manger, supposedly in a low risk business.

Both losses grew over time, but were not discovered by management until too late.

Both traded in illiquid and obscure markets that were easy to manipulate.

Both losses were eventually exposed by massive margin calls.

Rogue traders

Improper or insufficient Board-level communication regarding the importance of risk management and oversight

Inadequate back office procedures

Money laundering using foreign exchange trades for political leaders