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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. Loss from a lawsuit from an employee due to physical harm caused while at work is categorized per Basel II as:
A) Employment practices and workplace safety
B) Unsafe working environment
C) Damage to physical assets
D) Execution delivery and process management
2. The standalone economic capital estimates for the three business units of a bank are $100, $200 and $150 respectively. What is the combined economic capital for the bank, assuming the risks of the three business units are perfectly correlated?
A) 450
B) 269
C) 72500
D) 21
3. 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) 8.00%
B) 20.00%
C) 40.00%
D) 0.00%
4. Which of the following statements is NOT true in relation to the recent financial crisis of 2007-08?
A) 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
B) Central banks had data on the interconnections between institutions, but poor understanding and analysis meant this data was never analyzed
C) The existence of central counterparties could have limited the damage caused by the financial crisis
D) Counterparty risk was difficult to gauge as it was impossible to know who the counterparty's counterparties were
5. There are three bonds in a diversified bond portfolio, whose default probabilities are independent of each other and equal to 1%, 2% and 3% respectively over a 1 year time horizon. Calculate the probability that exactly 1 of the three bonds will default.
A) 2%
B) 5.8%
C) 0%
D) .011%
Solutions:
Question # 1 Answer: A | Question # 2 Answer: A | Question # 3 Answer: B | Question # 4 Answer: B | Question # 5 Answer: B |