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8004 Questions and Answers

Question # 6

As a result of the US government's intervention, which of the following is true?

A.

The cost of borrowing for Fannie Mae and Freddie Mac should decline because the government will be standing behind their debts and the buying and selling of mortgage debt will continue

B.

The cost of borrowing for house buyers will rise because of the risk premium now built into the cost of such a government guarantee

C.

The systemic risks still remain in the housing market because it increases the US government's debt

D.

Foreign Central Banks will continue to sell their holdings of Fannie Mae and Freddie Mac securities

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Question # 7

The Basic Knowledge a PPRMIA member should comply with, as stipulated within the PRMIA Standards of Best Practice, Conduct & Ethics, is to

A.

only improve their PERSONAL professional competence

B.

maintains and improve their professional competence and strive to maintain and improve the competence of other risk professionals

C.

only possess the required skills and/or certification to complete the risk assessment / management work at hand

D.

learn from a qualified risk management practitioner

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Question # 8

What was the main risk scenario on the Metallgesellschaft trading strategy?

A.

Realized losses on short-term contracts against unrealized gains on the long-run contract

B.

The final price of the underlying being higher than the initial price

C.

The initial price of the underlying being higher than the final price

D.

The short-term price of the underlying being higher than the long-run contract

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Question # 9

The Bankers Trust Case Study is about:

A.

overexposure to the real estate market

B.

large losses at the proprietary trading desk

C.

reliance on thinly traded derivatives to hedge

D.

failure to guard its clients' best interests

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Question # 10

Boards of Directors, including Audit and Risk Committees must review thoroughly compensation plans of potentially "highly compensated positions" for:

I. competitive market conditions

II. ensuring compliance with their corporate risk appetite and fiduciary responsibility to shareholders

III. ensuring any discretionary bonus plans are geared towards keeping high income / revenue generators

IV. reporting all such personnel to the local regulator

A.

II, III and IV only

B.

I, II and IV only

C.

All of the above

D.

I and II only

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Question # 11

A risk manager finds that a client is engaged in a practice that looks like money laundering.

According to the PRMIA Standards of Best Practice, Conduct and Ethics (Code of Conduct), the risk manager should:

A.

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

B.

Respect the client's confidentiality as that takes precedence

C.

Report this conduct to their immediate supervisor

D.

Report the findings immediately to authorities

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Question # 12

Which of the following was a key problem in the Barings Bank case?

A.

Having the back office and front office operations under the same person

B.

Difference in the contract sizes in the OSE and SIMEX

C.

The different time zones that the office was trading in

D.

Leeson was executing an arbitrage strategy even though he was not authorized to do so

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Question # 13

The Risk Management Infrastructure of an organization must:

I. To the extent possible, avoid silos of control and oversight

II. Have budgets set by the business unit leaders

III. Actively provide ongoing professional development for risk management staff and require them to be committed to standards of best practice, conduct and ethics in their work

IV. Provide general risk management and related corporate governance training for employees of the organization as a Whole

A.

I only

B.

I, III and IV only

C.

I and III only

D.

All of these are expected of the Risk Management Infrastructure

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Question # 14

Every PRMIA chapter is designed to serve the local needs of members, so they often have fairly independent planning structures and ideas. According to the PRMIA Bylaws, Regional Chapters and Regional Directors:

A.

Can have their own offices, bylaws and regulations provided they do not conflict with those of PRMIA

B.

Can have meetings that only local members are allowed to attend

C.

Can sign contracts on behalf of PRMIA without prior approval from the Board of Directors

D.

All of the above

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Question # 15

Which of the following regarding Orange County is FALSE?

A.

Bob Citron engaged in risky strategies to benefit personally

B.

Bob Citron tried to "ride the yield curve"

C.

Bob Citron heavily leveraged his positions using repos

D.

Citron's losses were eventually exposed by massive margin calls

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Question # 16

A PRMIA member is offered a highly paid work assignment on the condition that some aspects of assignment are not to be done according to PRMIA standards.

What should they do?

A.

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

B.

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

C.

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

D.

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

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