PRM Certification - Exam IV: Case Studies; Standards: Governance, Best Practices and Ethics v6.0

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Exam contains 110 questions

When considering the performance of Northern Rock within its peer group of banks, which of the following is not correct?

  • A. Only a few months previously it had reported record profits.
  • B. The quality of its' assets was never in question.
  • C. For many years it was regarded as a star-performer in the financial markets.
  • D. Its' loan loss record was poor by industry standards.


Answer : D

PRMIA Governance Principles -

  • A. must be adhered to by all PRMIA member organizations
  • B. is a set of recommendations based on research and best practice
  • C. must be adhered to by all PRM charter holders
  • D. must be adhered to by all financial firms that are PRMIA members


Answer : B

Select the one correct statement relative to Barings Bank.

  • A. Proprietary and agency trading were combined and therefore did not increase risk.
  • B. Proprietary and agency trading were separate and therefore did not increase risk.
  • C. Proprietary and agency trading were combined and therefore did increase risk.
  • D. Proprietary and agency trading were separate and did increase risk.


Answer : C

The problems at WorldCom can best be characterized as related to:

  • A. Market Risk
  • B. Credit Risk
  • C. Operational and Regulatory Compliance Risk
  • D. All of the Above


Answer : C

Unlike the case at Barings Bank, National Australia Bank:

  • A. Had a risk management infrastructure that was credited with doing its' job well, despite the losses
  • B. Was not dealing in derivatives
  • C. Had a Board of Directors that was unaware of the true nature of trading activities
  • D. Had a separation of duties between trading and back office


Answer : D

Which of the following was not received by Northern Rock as official support from the UK banking and government authorities?

  • A. A covert money market support operation designed to cover up the difficulties Northern Rock was facing
  • B. The Bank of England's role as Lender-Of-Last-resort was activated at a penalty interest rate of 150 basis points above the Bank Rate
  • C. The UK government offered to guarantee all existing and new retail deposits, and to most other creditors
  • D. The Bank of England provided an additional unlimited facility secured on the collateral of all Northern Rock assets


Answer : A

Barings Bank and Orange County have many similarities. Which of the following is NOT a similarity?

  • A. Both relied on a star manger, supposedly in a low risk business.
  • B. Both losses grew over time, but were not discovered by management until too late.
  • C. Both traded in illiquid and obscure markets that were easy to manipulate.
  • D. Both losses were eventually exposed by massive margin calls.


Answer : C

TMFI's internal procedures and management were

  • A. fully aware of the uninsured risks Fortress Re were taking
  • B. absolutely unaware of their uninsured liabilities
  • C. aware that they had some uninsured liabilities but thought they had enough capital to withstand any uninsured losses
  • D. None of the above


Answer : B

When describing the reasons for the collapse of China Aviation Oil, which of the following was not cited?

  • A. No properly defined risk management policies in place and general lack of oversight by senior management
  • B. Time value was not taken into account during the contract valuation process
  • C. Loss generating positions were rolled over by selling options on larger positions to generate cash premiums' to settle existing position losses
  • D. Senior management in China were aware of the positions but did not understand the complexities of risk managing them


Answer : D

Which of the following is NOT part of the PRMIA Standards of Best Practice, Conduct and
Ethics (Code of Conduct) Guidance on Ethical Behavior?

  • A. Ensure globally accepted standards are adhered to at all costs
  • B. Respect local customs
  • C. Respect local laws and regulations
  • D. Take responsibility for your work


Answer : A

As LTCM started to have major losses, it compounded its problems by doing what?

  • A. Trying to borrow more money from major money centre banks
  • B. Issuing Subordinated Debt
  • C. Returning capital to the general partners before others
  • D. Unwinding its' more liquid trades thereby creating more liquidity risk overall


Answer : D

Boards of Directors, including Audit and Risk Committees must review thoroughly compensation plans of potentially "highly compensated positions" for:

I.competitive market conditions -
II.ensuring compliance with their corporate risk appetite and fiduciary responsibility to shareholders
III.ensuring any discretionary bonus plans are geared towards keeping high income / revenue generators
IV.reporting all such personnel to the local regulator

  • A. II, III and IV only
  • B. I, II and IV only
  • C. All of the above
  • D. I and II only


Answer : D

Boards, including Audit and Risk Committees must:
I.Clearly articulate the corporate risk appetite to senior management
II.Thoroughly review compensation plans of potentially "highly compensated positions" for consistency with corporate risk appetite, competitive market conditions and fiduciary responsibility to shareholders
III.Have a single member formally given responsibility for understanding and reporting the effectiveness of the corporation's risk management infrastructure
IV.Be fully accountable to shareholders and work to the benefit of public good and financial stability

  • A. I and II only
  • B. I, II and IV only
  • C. I, II and III only
  • D. All of these are responsibilities of Board and Audit Committees


Answer : D

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

  • A. Fannie Mae and Freddie Mac will continue to buy home loans from banks to repackage them as mortgage-backed securities
  • B. The US government will provide capital as needed in return for preferred shares in the companies
  • C. The US government will buy mortgage-backed securities in the open market as needed
  • D. There was a 2 year limit to the conservatorship


Answer : D

The problems which initiated the crisis at Northern Rock during the summer of 2007 were:

  • A. Large customer withdrawals despite the UK regulator and the UK Treasury giving assurances that the bank was solvent
  • B. Doubts arising about the viability of the business model which necessitated Bank of England intervention
  • C. A general lack of confidence in mortgage backed securities associated in large part with developments in the US sub-prime mortgage market, and doubts emerging about the viability of the Northern Rock business model
  • D. A depositor run on the bank, following doubts about the viability of the Northern Rock business model


Answer : C

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Exam contains 110 questions

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