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  4. 8009 - Exam IV: Case Studies: Standards: Governance, Best Practices and Ethics - 2015 Edition

PRMIA 8009 Exam IV: Case Studies: Standards: Governance, Best Practices and Ethics - 2015 Edition Exam Practice Test

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Total 110 questions
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Exam IV: Case Studies: Standards: Governance, Best Practices and Ethics - 2015 Edition Questions and Answers

Question 1

Which of the following best characterizes the problems that developed at Bankgesellschaft Berlin?

Options:

A.

Volume growth at the expense of margin.

B.

Excessive reliance on volatile trading income.

C.

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

D.

A company culture where profits may justify "excesses."

Question 2

Which of the following was NOT a factor in the Long Term Capital Management case?

Options:

A.

Inadequate separation of front and back offices

B.

Model risk

C.

Changes/breakdowns in historical correlations

D.

Unwinding of liquid positions at the beginning of major losses

Question 3

Up until 2006, which of the following was not a primary driver for Washington Mutual's earning?

Options:

A.

Lending to consumers and small businesses.

B.

Deposit taking activities which generated net interest income.

C.

The provision of fee based services to its customers.

D.

Complex derivative trades based on volatility indices.

Question 4

With a PRMIA member's need to reconcile their internal and external responsibility to perform their work in an independent and appropriate fiduciary manner, which of the following options must be taken into consideration when performing risk management duties?

Options:

A.

Internal controls of the organization, and the local regulator

B.

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

C.

The local regulator, internal controls, and shareholders

D.

Only the internal controls and compliance standards

Question 5

Select the one correct statement relative to Barings Bank.

Options:

A.

Proprietary and agency trading were combined and therefore did not increase risk.

B.

Proprietary and agency trading were separate and therefore did not increase risk.

C.

Proprietary and agency trading were combined and therefore did increase risk.

D.

Proprietary and agency trading were separate and did increase risk.

Question 6

According to the PwC report China Aviation Oil, in order to avoid recording and reporting losses, the company adopted which approach covering up its losses?

Options:

A.

selling short-term options with extremely low-risk profiles to generate premiums to cover the cost of closing out loss-making option positions

B.

selling long-term options with extremely low-risk profiles to generate premiums to cover the cost of closing out loss-making option positions

C.

selling short-term options with extremely high-risk profiles to generate premiums to cover the cost of closing out loss-making option positions

D.

selling long-term options with extremely high-risk profiles to generate premiums to cover the cost of closing out loss-making option positions

Question 7

The "normal" credit loss profile of Washington Mutual was increased by which of the following?

Options:

A.

The general downturn in the economy of the US

B.

By lowering its own credit underwriting standards

C.

Acquisitions like Long Beach and Providian

D.

Catastrophic losses in its own credit card division

Question 8

For the sentence

"The organization shall encourage all employees to keep abreast of the latest developments in their particular areas of expertise, through ____________, _____________, and _____________ and shall make adequate resources available to enable this to occur,"

Choose the correct combinations of words from the following options:

Options:

A.

courses, conferences, journals

B.

conferences, discussion groups, blog sites

C.

courses, educational certification, journals

D.

journals, courses, compliance mandates

Question 9

Which of the following does NOT relate to the Orange County case?

Options:

A.

Where there are excess rewards, there must be risks

B.

The Know Your Customer rule

C.

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

D.

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

Question 10

A VaR model for managing market risk at Barings Bank in London would most likely have:

Options:

A.

Alerted senior management to the problems before the major losses occurred

B.

Helped very little as Nick Leeson hid many trades

C.

Not correctly assessed the risk in Nick Leeson's option trades as they have non-linear price characteristics

D.

Been used if senior management had ever seen it

Question 11

Which of the following are PRMIA Governance Principles?

I. Independence of Key Parties

II. Disclosure and Transparency

III. Internal Validation

IV. Solvency

Options:

A.

I and II only

B.

I, II and III only

C.

I, II and IV only

D.

All are PRMIA Governance Principles

Question 12

Mary Jones wants the Bylaws of PRMIA to be changed so that people can't join PRMIA unless they meet a set of criteria she has devised with her colleagues. She can do this by getting which of the following approvals:

Options:

A.

The Board of Directors, but only if the Blue Ribbon Panel affirms the change

B.

The Board of Directors and a majority of the Members

C.

The Board of Directors alone

D.

34 of all Members

Question 13

The failure of Washington Mutual was NOT due to which one of the following?

Options:

A.

Using a combination of subprime mortgage loans and credit cards

B.

It failed due to the poor quality of its assets

C.

Low lending standards and bad quality acquisitions

D.

A run on its deposits by bank customers

Question 14

As LTCM started to have major losses, it compounded its problems by doing what?

Options:

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

Question 15

PRMIA Governance Principles

Options:

A.

must be adhered to by all PRMIA member organizations

B.

is a set of recommendations based on research and best practice

C.

must be adhered to by all PRM charter holders

D.

must be adhered to by all financial firms that are PRMIA members

Question 16

Which of the following best characterize the problems that developed at Bankers Trust?

Options:

A.

Volume growth at the expense of margin

B.

Excessive reliance on volatile and sophisticated derivatives

C.

A failure to try to protect their clients' interests

D.

Over exposure to the property market

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