PRMIA 8004 Exam Questions Instant Access - No Installation Required

Question 1

Which of the following was NOT a factor in the Long Term Capital Management case?

AInadequate separation of front and back offices

BModel risk

CChanges/breakdowns in historical correlations

DUnwinding of liquid positions at the beginning of major losses

Answer : A

Question 2

Unlike the case at Barings Bank, National Australia Bank:

AHad a risk management infrastructure that was credited with doing its' job well, despite the losses

BWas not dealing in derivatives

CHad a Board of Directors that was unaware of the true nature of trading activities

DHad a separation of duties between trading and back office

Answer : D

Question 3

Which of the following was NOT a factor in the WorldCom collapse?

AFailed corporate governance

BAccounting abuses

CUnfair pricing to customers

DOver stating actual sales

Answer : C

Question 4

When Fannie Mae and Freddie Mac were taken under US government conservatorship, which of the following was not included within their operating mandate?

AFannie Mae and Freddie Mac will continue to buy home loans from banks to repackage them as mortgage-backed securities

BThe US government will provide capital as needed in return for preferred shares in the companies

CThe US government will buy mortgage-backed securities in the open market as needed

DThere was a 2 year limit to the conservatorship

Answer : D

Question 5

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 6

The steps which the US Treasury Department and the Federal Reserve took in July 2008 to boost confidence in both Fannie Mae and Freddie Mac did not include which one of the following:

AAccess to the Federal Reserve discount window

BRemoving the prohibition on the Treasury Department to buy both companies stock

CRestricting the sale of new Fannie Mae and Freddie Mac securities only to US citizens

DReiterating their belief that both companies played a central role in the US housing finance system

Answer : D

Question 7

The Fortress Re finite reinsurance model

Aallowed Fortress to claim re-insurance claims payments from the finite reinsurers and paid premiums to cover these deals over a 5 year period, and as the risks were spread out over time the annual premiums were accounted for as current liabilities on the books of the pool members, giving a true impression of profitability

Ballowed Fortress to claim re-insurance claims payments from the finite reinsurers and paid annual premiums to cover these policies, and as the risks were spread out over the year the annual premiums were accounted for as current liabilities on the books of the pool members, giving a true impression of profitability

Callowed Fortress to claim re-insurance claims payments from the finite reinsurers and paid premiums to cover these deals over a 5 year period, and as the risks were spread out over time the future premiums were accounted for as current liabilities on the books of the pool members, giving a true impression of profitability

Dallowed Fortress to claim re-insurance claims payments from the finite reinsurers and paid premiums to cover these deals over a 5 year period, but as the risks were spread out over time the future premiums were not accounted for as current liabilities on the books of the pool members, thus giving a false impression of profitability

Answer : D

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