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8009 Questions and Answers

Question # 6

Zheng Zhu wants to open a new PRMIA Chapter in Wuhan, China. He can do this if:

A.

At least 100 members live within 50 miles

B.

A local business sponsors the chapter

C.

Approved by the Board of Directors

D.

All of the above

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Question # 7

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

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

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Question # 8

An Organization as a Whole must:

I. Provide an environment in which an Escalation Policy can be effective

II. Commit itself to actual enforcement of corporate governance policies

III. Provide ongoing education and training to all employees on the role of risk management and corporate governance in the organization

IV. Publish an external auditor's opinion that the corporation is in compliance with the Board's publicly stated Standards of Corporate Governance

A.

I, II and III only

B.

I, III and IV only

C.

I, II and IV only

D.

All of these are expectations of the Organization as a Whole

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Question # 9

Select the one correct statement relative to Barings Bank.

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.

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Question # 10

TMFI's internal procedures and management were

A.

fully aware of the uninsured risks Fortress Re were taking

B.

absolutely unaware of their uninsured liabilities

C.

aware that they had some uninsured liabilities but thought they had enough capital to withstand any uninsured losses

D.

None of the above

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Question # 11

The problems at WorldCom can best be characterized as related to:

A.

Market Risk

B.

Credit Risk

C.

Operational and Regulatory Compliance Risk

D.

All of the Above

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Question # 12

The financial intermediary services provided by Fannie Mae and Freddie Mac were designed to

A.

Offer loans directly to the consumer

B.

Compete directly with banks in selling mortgaged to would-be home owners

C.

Repackage mortgage loans made by banks and sell them on to investors as asset backed securities

D.

Buy mortgage-backed loans for banks and keep them all on their books, using them as collateral for the US government to borrow

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Question # 13

Which is NOT part of the guidance on Professional Conduct in the PRMIA Standards of Best Practice, Conduct and Ethics (Code of Conduct)?

A.

Know and abide by applicable rules and regulations

B.

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

C.

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

D.

Provide advice that is clear and accurate

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Question # 14

According to the G-30 Study, the risk management infrastructure's funding must be

A.

determined by business-unit leaders

B.

determined at the Board level with inputs from business unit leaders

C.

determined at the Board level without influence by business unit leaders

D.

determined by the regulators

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Question # 15

When describing the reasons for the collapse of China Aviation Oil, which of the following was not cited?

A.

No properly defined risk management policies in place and general lack of oversight by senior management

B.

Time value was not taken into account during the contract valuation process

C.

Loss generating positions were rolled over by selling options on larger positions to generate cash premiums' to settle existing position losses

D.

Senior management in China were aware of the positions but did not understand the complexities of risk managing them

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Question # 16

A risk assessment report generated by a PRMIA member creates an apparent conflict of interest between the PRMIA standards and those of the client organization.

Of the following, which is the correct hierarchy to follow to resolve the conflict?

I. The decision of a superior within the organization

II. PRMIA Standards

III. Guidelines from the regulators in which the organization operates

IV. The laws of the country

A.

I, II, III, and IV

B.

IV, III, II, and I

C.

II, I, IV, and III

D.

III, II, IV, and I

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