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PRMIA 8010 - Operational Risk Manager (ORM) Exam

Page: 5 / 8
Total 240 questions

The cumulative probability of default for a security for 4 years is 11.47%. The marginal probability of default for the security for year 5 is 5% during year 5. What is the cumulative probability of default for the security for 5 years?

A.

16.47%

B.

5.00%

C.

15.90%

D.

None of the above

Which of the following measures can be used to reduce settlement risks:

A.

escrow arrangements using a central clearing house

B.

increasing the timing differences between the two legs of the transaction

C.

providing for physical delivery instead of netted cash settlements

D.

all of the above

Which of the following statements is true:

I. Recovery rate assumptions can be easily made fairly accurately given past data available from credit rating agencies.

II. Recovery rate assumptions are difficult to make given the effect of the business cycle, nature of the industry and multiple other factors difficult to model.

III. The standard deviation of observed recovery rates is generally very high, making any estimate likely to differ significantly from realized recovery rates.

IV. Estimation errors for recovery rates are not a concern as they are not directionally biased and will cancel each other out over time.

A.

II and IV

B.

I, II and IV

C.

III and IV

D.

II and III

Which of the following belong in a credit risk report?

A.

Exposures by country

B.

Exposures by industry

C.

Largest exposures by counterparty

D.

All of the above

Which of the following is the most important problem to solve for fitting a severity distribution for operational risk capital:

A.

The risk functional's minimization should lead to a good estimate of the 0.999 quantile

B.

Determine plausible scenarios to fill the data gaps inthe internal and external loss data

C.

Empirical loss data needs to be extended to the ranges below the reporting threshold and above large value losses

D.

The fit obtained should reduce the combination of the fitting and approximation errors to a minimum

For a given mean, which distribution would you prefer for frequency modeling where operational risk events are considered dependent, or in other words are seen as clustering together (as opposed to being independent)?

A.

Binomial

B.

Gamma

C.

Negative binomial

D.

Poisson

Which of the following cannot be used as an internal credit rating model to assess an individual borrower:

A.

Distance to default model

B.

Probit model

C.

Logit model

D.

Altman's Z-score

There are three bonds in a diversified bond portfolio, whose default probabilities are independent of each other and equal to 1%, 2% and 3% respectively over a 1 year time horizon. Calculate the probability that none of the three bonds will default.

A.

94%

B.

0.11%

C.

0.0006%

D.

2%

A stock that follows the Weiner process has its future price determined by:

A.

its current price, expected return and standard deviation

B.

its standard deviation and past technical movements

C.

its expected return and standard deviation

D.

its expected return alone

Which of the following statements are correct:

I. A training set is a set of data used to create a model, while a control set is a set of data is used to prove that the model actually works

II. Cleansing, aggregating or ensuring data integrity is a task for the IT department, and is not a risk manager's responsibility

III. Lack of information on the quality of underlying securities and assets was a major cause of the collapse in the CDO markets during the credit crisis that started in 2007

IV. The problem of lack of historical data can be addressed reasonably satisfactorily by using analytical approaches

A.

II and IV

B.

I, III and IV

C.

I and III

D.

All of the above