PRMIA 8004 Exam Practice Test Instant Access

Question 1

The retrocession insurance cover was provided by

AFortress Re and other insurers

BThe Fortress Re reinsurers only

CThe fronting insurance companies

DFortress Re and their reinsurers

Answer : B

Question 2

What was the main risk scenario on the Metallgesellschaft trading strategy?

ARealized losses on short-term contracts against unrealized gains on the long-run contract

BThe final price of the underlying being higher than the initial price

CThe initial price of the underlying being higher than the final price

DThe short-term price of the underlying being higher than the long-run contract

Answer : A

Question 3

The problems in the Orange County case can best be characterized as failures related to:

AMarket Risk

BCredit Risk

COperational and Regulatory Compliance Risk

DAll of the Above

Answer : A

Question 4

The Fortress Re accounting risk transfer procedures

Amade it straightforward for TFMI to determine whether risk had actually been transferred and they decided not to take out more catastrophe insurance cover

Bmade it difficult for TFMI to determine whether risk had actually been transferred so they had to take out additional catastrophe insurance cover

Cmade it straightforward for TFMI to determine when the risk had been transferred and to take out additional catastrophe insurance cover

Dmade it difficult for TFMI to determine whether risk had actually been transferred and whether it had sufficient catastrophe insurance cover

Answer : D

Question 5

The sensitivity analysis required under IFRS would have done what for China Aviation Oil?

AProvided investors and analysts with insight into the dynamics of value changes, and the sensitivity of fair value to the underlying drivers of interest rates, exchange rates, and commodity prices

BOnly provided the intrinsic value of its outstanding option positions

COnly provided the time value of its outstanding option position

DNone of the above

Answer : A

Question 6

According to the Northern Rock Case Study, what is Forced Insolvency?

AThe bank is insolvent in that the current value of its assets (measured at book value) is less than the value of its liabilities; thus even if the bank were to liquidate all of its assets it would not be able to repay all depositors and other creditors

BThe bank is legally solvent but if, because it cannot fund its operations, it is forced to liquidate assets it could do so only at less than nominal values (fire sale) and this would make it legally insolvent (value of assets falls below those of liabilities)

CThe bank is legally solvent but its current funding costs (which are likely to continue) exceed the average rate of return on its assets and hence it would soon become insolvent as it would be making losses and would eventually exhaust its equity capital

DThe bank is solvent in that the current value of its assets (measured at book value) is more than the value of its liabilities; so even if the bank were to liquidate all of its assets it would be able to repay all depositors and other creditors

Answer : B

Question 7

Which of the following was not cited within the chain of miscalculations and deferred decisions for the downfall of Fannie Mae and Freddie Mac

AExtreme exposure to foreign currency exposures and losses from non-US$ mortgages

BLawmakers postponed strenghtening regulatory oversight due to partisan infighting

CUnder-management and under-measurement of market and liquidity risk

DThey did not raise enough capital to weather the storm as the housing slump expanded

Answer : A

PRMIA Case Studies; Standards: Governance, Best Practices and Ethics 8004 Exam Practice Test