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

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.

Volume growth at the expense of margin.

Excessive reliance on volatile trading income.

Banking is a "for-profit" business, not a means of fulfilling political goals.

A company culture where profits may justify "excesses."

sold them derivative products without properly advising them of the relevant risks

did not honour its contractual obligations to pay

was involved in accounting fraud

hid profits

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

Nick Leeson also ran the back office for his trading area

Nick Leeson dealt in complex derivatives lacking transparency of pricing

SIMEX made inquiries to Barings Bank about large margin calls on its positions

Nick Leeson claimed to be running an arbitrage book

Fannie Mae and Freddie Mac will continue to buy home loans from banks to repackage them as mortgage-backed securities

The US government will provide capital as needed in return for preferred shares in the companies

The US government will buy mortgage-backed securities in the open market as needed

There was a 2 year limit to the conservatorship

Internal controls of the organization, and the local regulator

Internal controls, and the expectations of stakeholders, shareholders, and the general public

The local regulator, internal controls, and shareholders

Only the internal controls and compliance standards

A window of time between close of day for reporting purposes and back office checking that allowed traders to hide losses using fictitious trades

The Board received risk management information that was incorrect, incomplete or insufficiently detailed

Both A and B

Neither A nor B

Perform the assignment, noting in the final report the standards to which the assignment was done

Accept the assignment, produce and deliver two reports according to both standards

Accept the assignment, and prior to doing any work, report the conflict of interest to the organization's compliance department

The PRMIA member should place the integrity of the risk management profession and users of risk management above their own personal interests, and refuse the work

made it straightforward for TFMI to determine whether risk had actually been transferred and they decided not to take out more catastrophe insurance cover

made it difficult for TFMI to determine whether risk had actually been transferred so they had to take out additional catastrophe insurance cover

made it straightforward for TFMI to determine when the risk had been transferred and to take out additional catastrophe insurance cover

made it difficult for TFMI to determine whether risk had actually been transferred and whether it had sufficient catastrophe insurance cover

Losses kept increasing while rogue trader(s) hid their positions

The back offices had inadequate procedures

Both A and B

None of the above

30%

40%

50%

60%

Dynamic hedging

A stacked hedge

A differential hedge

Nothing because MG Refining & Marketing did not hedge its position

Money due to unfavourable market moves

Loss of its' reputation due to actions seen as detrimental to their clients

Loss of market share due to their licenses being revoked

Time spent on legal proceedings in courts

Access to the Federal Reserve discount window

Removing the prohibition on the Treasury Department to buy both companies stock

Restricting the sale of new Fannie Mae and Freddie Mac securities only to US citizens

Reiterating their belief that both companies played a central role in the US housing finance system

Market Risk

Credit Risk

Operational and Regulatory Compliance Risk

All of the Above