PRM Certification - Exam III: Risk Management Frameworks, Operational Risk, Credit Risk, Counterparty Risk, Market Risk, ALM, FTP - 2015 Edition
Last Update Oct 15, 2025
Total Questions : 362
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Which of the following is not a tool available to financial institutions for managing credit risk:
Which loss event type is the loss of personally identifiable client information classified as under the Basel II framework?
The key difference between 'top down models' and 'bottom up models' for operational risk assessment is:
Assuming all other factors remain the same, an increase in the volatility of the returns on the assets of a firm causes which of the following outcomes?
For the purposes of calculating VaR, an interest rate swap can be modeled as a combination of:
The standalone economic capital estimates for the three business units of a bank are $100, $200 and $150 respectively. What is the combined economic capital for the bank, assuming the risks of the three business units are perfectly correlated?
Which of the following distributions is generally not used for frequency modeling for operational risk
Which of the following was not a policy response introduced by Basel 2.5 in response to the global financial crisis:
Which of the following statements is the most appropriate description of feedback effects:
Which of the following is the most accurate description of EPE (Expected Positive Exposure):
When doing stress tests based on historical scenarios, if no appropriate historical scenarios exist for a security, it is most INAPPROPRIATE to:
Which of the following is NOT true in respect of bilateral close out netting:
The sensitivity (delta) of a portfolio to a single point move in the value of the S&P500 is $100. If the current level of the S&P500 is 2000, and has a one day volatility of 1%, what is the value-at-risk for this portfolio at the 99% confidence and a horizon of 10 days? What is this method of calculating VaR called?
When compared to a low severity high frequency risk, the operational risk capital requirement for a medium severity medium frequency risk is likely to be:
For an option position with a delta of 0.3, calculate VaR if the VaR of the underlying is $100.
Which of the following statements are true ?
I. Risk governance structures distribute rights and responsibilities among stakeholders in the corporation
II. Cybernetics is the multidisciplinary study of cyber risk and control systems underlying information systems in an organization
III. Corporate governance is a subset of the larger subject of risk governance
IV. The Cadbury report was issued in the early 90s and was one of the early frameworks for corporate governance
A corporate bond has a cumulative probability of default equal to 20% in the first year, and 45% in the second year. What is the monthly marginal probability of default for the bond in the second year, conditional on there being no default in the first year?
Under the standardized approach to calculating operational risk capital under Basel II, negative regulatory capital charges for any of the business units:
Which of the following is not a consideration in determining the liquidity needs of a firm (as opposed to determining the time horizon for liquidity risk)?
Which of the following are ordered correctly in the order of debt seniority in a bankruptcy situation?
I. Equity, Subordinate debt, Senior debt
II. Senior debt, Preferred stock, Equity
III. Secured debt, Accounts payable, Preferred stock
IV. Secured debt, DIP financing, Equity
Which of the following is true in relation to Principal Component Analysis (PCA)?
I. An n x n positive definite square matrix will have n-1 eigenvectors
II. The eigenvalues for a correlation matrix can be derived from the corresponding values for the covariance matrix
III. Principal components are uncorrelated to each other
IV. PCA is useful as it allows 100% of the variation in a complex system to be explained by the first three principal components
If E denotes the expected value of a loan portfolio at the end on one year and U the value of the portfolio in the worst case scenario at the 99% confidence level, which of the following expressions correctly describes economic capital required in respect of credit risk?
As part of designing a reverse stress test, at what point should a bank's business plan be considered unviable (ie the point where it can be considered to have failed)?
Pick underlying risk factors for a position in an equity index option:
I. Spot value for the index
II. Risk free interest rate
III. Volatility of the underlying
IV. Strike price for the option
Which of the following are valid criticisms of value at risk:
I. There are many risks that a VaR framework cannot model
II. VaR does not consider liquidity risk
III. VaR does not account for historical market movements
IV. VaR does not consider the risk of contagion
A key problem with return on equity as a measure of comparative performance is:
According to the Basel framework, shareholders' equity and reserves are considered a part of:
When modeling operational risk using separate distributions for loss frequency and loss severity, which of the following is true?
For identical mean and variance, which of the following distribution assumptions will provide a higher estimate of VaR at a high level of confidence?
A bullet bond and an amortizing loan are issued at the same time with the same maturity and with the same principal. Which of these would have a greater credit exposure halfway through their life?
If F be the face value of a firm's debt, V the value of its assets and E the market value of equity, then according to the option pricing approach a default on debt occurs when:
Which of the following statements is true
I. If no loss data is available, good quality scenarios can be used to model operational risk
II. Scenario data can be mixed with observed loss data for modeling severity and frequency estimates
III. Severity estimates should not be created by fitting models to scenario generated loss data points alone
IV. Scenario assessments should only be used as modifiers to ILD or ELD severity models.
A stock that follows the Weiner process has its future price determined by:
Which of the following is not an approach proposed by the Basel II framework to compute operational risk capital?
Which of the following credit risk models includes a consideration of macro economic variables such as unemployment, balance of payments etc to assess credit risk?
The difference between true severity and the best approximation of the true severity is called:
Which of the following is true for the actuarial approach to credit risk modeling (CreditRisk+):
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.
When combining separate bottom up estimates of market, credit and operational risk measures, a most conservative economic capital estimate results from which of the following assumptions:
A Monte Carlo simulation based VaR can be effectively used in which of the following cases:
If the returns of an asset display a strong tendency for mean reversion, what is the relationship between annualized volatility calculated based on daily versus weekly volatilities (using the square root of time rule)?
Which of the following statements is true in relation to a normal mixture distribution:
I. Normal mixtures represent one possible solution to the problem of volatility clustering
II. A normal mixture VaR will always be greater than that under the assumption of normally distributed returns
III. Normal mixtures can be applied to situations where a number of different market scenarios with different probabilities can be expected
If A and B be two uncorrelated securities, VaR(A) and VaR(B) be their values-at-risk, then which of the following is true for a portfolio that includes A and B in any proportion. Assume the prices of A and B are log-normally distributed.
If two bonds with identical credit ratings, coupon and maturity but from different issuers trade at different spreads to treasury rates, which of the following is a possible explanation:
I. The bonds differ in liquidity
II. Events have happened that have changed investor perceptions but these are not yet reflected in the ratings
III. The bonds carry different market risk
IV. The bonds differ in their convexity
In the case of historical volatility weighted VaR, a higher current volatility when compared to historical volatility:
TESTED 15 Oct 2025
