PRMIA 8008 Exam III: Risk Management Frameworks . Operational Risk . Credit Risk . Counterparty Risk . Market Risk . ALM . FTP – 2015 Edition Online Training
PRMIA 8008 Online Training
The questions for 8008 were last updated at Nov 20,2024.
- Exam Code: 8008
- Exam Name: Exam III: Risk Management Frameworks . Operational Risk . Credit Risk . Counterparty Risk . Market Risk . ALM . FTP - 2015 Edition
- Certification Provider: PRMIA
- Latest update: Nov 20,2024
Which of the following is not a limitation of the univariate Gaussian model to capture the codependence structure between risk factros used for VaR calculations?
- A . The univariate Gaussian model fails to fit to the empirical distributions of risk factors, notably their fat tails and skewness.
- B . Determining the covariance matrix becomes an extremely difficult task as the number of risk factors increases.
- C . It cannot capture linear relationships between risk factors.
- D . A single covariance matrix is insufficient to describe the fine codependence structure among risk factors as non-linear dependencies or tail correlations are not captured.
An investor holds a bond portfolio with three bonds with a modified duration of 5, 10 and 12 years respectively. The bonds are currently valued at $100, $120 and $150.
If the daily volatility of interest rates is 2%, what is the 1-day VaR of the portfolio at a 95% confidence level?
- A . 115.51
- B . 163.11
- C . 370
- D . 165
A bank evaluates the impact of large and severe changes in certain risk factors on its risk using a quantitative valuation model.
Which of the following best describes this exercise?
- A . Stress testing
- B . Simulation
- C . Scenario analysis
- D . Sensitivity analysis
If the cumulative default probabilities of default for years 1 and 2 for a portfolio of credit risky assets is 5% and 15% respectively, what is the marginal probability of default in year 2 alone?
- A . 15.79%
- B . 10.53%
- C . 10.00%
- D . 11.76%
In the case of historical volatility weighted VaR, a higher current volatility when compared to historical volatility:
- A . will not affect the VaR estimate
- B . will increase the confidence interval
- C . will decrease the VaR estimate
- D . will increase the VaR estimate
Which of the following are true:
I. Delta hedges need to be rebalanced frequently as deltas fluctuate with fluctuating prices.
II. Portfolio managers are right to focus on primary risks over secondary risks.
III. Increasing the hedge rebalance frequency reduces residual risks but increases transaction costs.
IV. Vega risk can be hedged using options.
- A . I and II
- B . II, III and IV
- C . I, II, III and IV
- D . I, II and III
Which of the following losses can be attributed to credit risk:
I. Losses in a bond’s value from a credit downgrade
II. Losses in a bond’s value from an increase in bond yields
III. Losses arising from a bond issuer’s default
IV. Losses from an increase in corporate bond spreads
- A . I, III and IV
- B . II and IV
- C . I and II
- D . I and III
Which of the following situations are not suitable for applying parametric VaR:
I. Where the portfolio’s valuation is linearly dependent upon risk factors
II. Where the portfolio consists of non-linear products such as options and large moves are involved
III. Where the returns of risk factors are known to be not normally distributed
- A . I and II
- B . II and III
- C . I and III
- D . All of the above
Which of the following is not a parameter to be determined by the risk manager that affects the level of economic credit capital:
- A . Risk horizon
- B . Confidence level
- C . Probability of default
- D . Definition of credit losses
Which of the following statements is true:
I. Expected credit losses are charged to the unit’s P&L while unexpected losses hit risk capital reserves.
II. Credit portfolio loss distributions are symmetrical
III. For a bank holding $10m in face of a defaulted debt that it acquired for $2m, the bank’s legal claim in the bankruptcy court will be $10m.
IV. The legal claim in bankruptcy court for an over the counter derivatives contract will be the notional value of the contract.
- A . I and III
- B . I, II and IV
- C . III and IV
- D . II and IV
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