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PRMIA 8010 - Operational Risk Manager (ORM) Exam

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Total 240 questions

An error by a third party service provider results in a loss to a client that the bank has to make up. Such as loss would be categorized per Basel IIoperational risk categories as:

A.

Execution delivery and process management

B.

Outsourcing loss

C.

Business disruption and process failure

D.

Abnormal loss

A risk analyst peforming PCA wishes to explain80% of the variance. The first orthogonal factor has a volatility of 100, and the second 40, and the third 30. Assume there are no other factors. Which of the factors will be included in the final analysis?

A.

First, Second and Third

B.

First and Second

C.

First

D.

Insufficient information to answer the question

Which of the following decisions need to be made as part of laying down a system for calculating VaR:

I. How returns are calculated, eg absoluted returns, log returns or relative/percentage returns

II. Whether VaR is calculated based on historical simulation, Monte Carlo, or is computed parametrically

III. Whether binary/digital options are included in the portfolio positions

IV. How volatility is estimated

A.

I, II and IV

B.

II and IV

C.

I and III

D.

All of the above

Under thebasic indicator approach to determining operational risk capital, operational risk capital is equal to:

A.

15% of the average gross income (considering only the positive years) of the past three years

B.

15% of the average net income (considering only thepositive years) of the past three years

C.

25% of the average gross income (considering only the positive years) of the past three years

D.

15% of the average gross income of the past five years

The VaR of a portfolio at the 99% confidence level is $250,000 when mean return is assumed to be zero. If the assumption of zero returns is changed to an assumption of returns of $10,000, what is the revised VaR?

A.

260000

B.

240000

C.

273260

D.

226740

Under the standardized approach to determining operational risk capital, operations risk capital is equal to:

A.

a fixed percentage of the latest gross income of the bank

B.

a varying percentage, determined by the national regulator, of the gross revenue of each of the bank's business lines

C.

15% of the average gross income (considering only the positive years) of the past three years

D.

a fixed percentage (different for each business line) of the gross income of the eight specified business lines, averaged over three years

Aderivative contract has a negative current replacement value. Which of the following statements is true about its loan equivalent value for credit risk calculations over a 2-year horizon?

A.

Since the derivatives contract has a negative current replacementvalue, exposure will be zero.

B.

The credit exposure will be a given quintile of the expected distribution of the value of the derivatives contract in the future.

C.

The notional value of the derivatives contract should be used for loan equivalence calculations.

D.

The current exposure can be used for loan equivalence calculations as that is an unbiased proxy for the future value.

The frequency distribution for operational risk loss events can be modeled by which of the following distributions:

I. The binomial distribution

II. The Poisson distribution

III. The negative binomial distribution

IV. The omega distribution

A.

I, II and III

B.

I and III

C.

I, III and IV

D.

I, II, III and IV

Credit exposure for derivatives is measured using

A.

Current replacement value

B.

Notional value of the derivative

C.

Forward looking exposure profile of the derivative

D.

Standard normal distribution

Which of the formulae below describes incremental VaR where a new position 'm' is added to the portfolio? (where p is theportfolio, and V_i is the value of the i-th asset in the portfolio. All other notation and symbols have their usual meaning.)

A)

B)

C)

D)

A.

Option A

B.

Option B

C.

Option C

D.

Option D