PRMIA Operational Risk Manager (ORM) - 8010 Exam Practice Test
For a corporate bond, which of the following statements is true:
I. The credit spread is equal to the default rate times the recovery rate II. The spread widens when the ratings of the corporate experience an upgrade III. Both recovery rates and probabilities of default are related to the business cycle and move in oppositedirections to each other IV. Corporate bond spreads are affected by both the risk of default and the liquidity of the particular issue
I. The credit spread is equal to the default rate times the recovery rate II. The spread widens when the ratings of the corporate experience an upgrade III. Both recovery rates and probabilities of default are related to the business cycle and move in oppositedirections to each other IV. Corporate bond spreads are affected by both the risk of default and the liquidity of the particular issue
Correct Answer: D
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Loss from a lawsuit from an employee due to physical harm caused while at work is categorized per Basel II as:
Correct Answer: D
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Which of the following statements are true:
I. The set of UoMs used for frequency and severity modeling should be identical II. UoMs can be grouped together into larger combined UoMs using judgment based on the knowledge of the business III. UoMs can be grouped together into combined UoMs using statistical techniques IV. One may use separate sets of UoMs for frequency and severity modeling
I. The set of UoMs used for frequency and severity modeling should be identical II. UoMs can be grouped together into larger combined UoMs using judgment based on the knowledge of the business III. UoMs can be grouped together into combined UoMs using statistical techniques IV. One may use separate sets of UoMs for frequency and severity modeling
Correct Answer: B
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Which of the following carry greater counterparty risk: a forward contract on a 10 year note, or a commercial paper carrying a AA credit rating with identicalmaturity and notional?
Correct Answer: B
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The probability of default of a security during the first year after issuance is 3%, that during the second and third years is 4%, and during the fourth year is 5%. What is the probability that it would not have defaulted at the end of four years from now?
Correct Answer: B
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Once the frequency and severity distributions for loss events have been determined, which of the following is an accurate description of the process to determine a full loss distribution for operational risk?
Correct Answer: B
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Which of the following measures can be used to reduce settlement risks:
Correct Answer: B
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An investor enters into a 5-year total return swap with Bank A, with the investor paying a fixed rate of 6% annually on a notional value of $100m to the bank and receiving thereturns of the S&P500 index with an identical notional value. The swap is reset monthly, ie the payments are exchanged monthly. On Jan 1 of the fourth year, after settling the last month's payments, the bank enters bankruptcy. What is the legal claim thatthe hedge fund has against the bank in the bankruptcy court?
Correct Answer: B
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Which of the following need to be assumed to convert a transition probability matrix for a given time period to the transition probability matrix for another length of time:
I. Time invariance
II. Markov property
III. Normal distribution
IV. Zero skewness
I. Time invariance
II. Markov property
III. Normal distribution
IV. Zero skewness
Correct Answer: B
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There are two bonds in a portfolio, each with a marketvalue of $50m. The probability of default of the two bonds over a one year horizon are 0.03 and 0.08 respectively. If the default correlation is zero, what is the one year expected loss on this portfolio?
Correct Answer: D
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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?
Correct Answer: B
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