Best Quality PRMIA 8009 Exam Questions 2Pass4sure Realistic Practice Exams [2021]
Critical Information To Exam IV: Case Studies: Standards: Governance, Best Practices and Ethics - 2015 Edition Pass the First Time
NEW QUESTION 55
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. Respect local customs
- B. Take responsibility for your work
- C. Ensure globally accepted standards are adhered to at all costs
- D. Respect local laws and regulations
Answer: C
NEW QUESTION 56
According to LTCM managers:
- A. Stress Testing was not necessary because their trades were hedged
- B. Stress Testing was not conducted
- C. Stress Testing was elaborate, complex and conducted on their entire portfolio. It included the assumptions of a major breakdown in historical correlations
- D. Stress Testing looked at the 12 biggest deals with each of their top 20 counterparties
Answer: D
NEW QUESTION 57
According to the Group of 30 Report, option contracts:
- A. Create no credit risk, since the buyer need not exercise the option
- B. Create credit risk only for the buyer (due to default by the seller) provided the premium is due, and paid, at contract initiation
- C. Always generate credit risk to both counterparties
- D. Usually create credit risk only for the seller (to default by the buyer)
Answer: B
NEW QUESTION 58
The condition where futures prices of an underlying asset are lower than cash (spot) prices is known as:
- A. Reverse backwardation
- B. Contango
- C. Backwardation
- D. Conchacha
Answer: C
NEW QUESTION 59
According to the Group of 30 Report, deriving aggregate potential credit exposure for a counterparty by adding up the potential exposure of multiple transactions:
- A. Captures portfolio effects but not tenor differences
- B. Overstates exposure in most cases
- C. Can easily reflect the impact of netting
- D. Gives an accurate result in most cases
Answer: B
NEW QUESTION 60
The multi-dimensional risk problem at Northern Rock did not include which one of the combinations of the following?
- A. Business Model; Corporate Governance; Moral Hazard; and Deposit Protection
- B. LPHI Risk; Business Model; Solvency vs. Liquidity: and Deposit Protection
- C. Corporate Governance; Moral Hazard; Role of Government; and Credit Risk
- D. Deposit Protection; Moral Hazard; Business Model; and LPHI Risk
Answer: C
NEW QUESTION 61
Which of the following was a key problem in the Barings Bank case?
- A. The different time zones that the office was trading in
- B. Difference in the contract sizes in the OSE and SIMEX
- C. Leeson was executing an arbitrage strategy even though he was not authorized to do so
- D. Having the back office and front office operations under the same person
Answer: D
NEW QUESTION 62
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
NEW QUESTION 63
The "Renewing the Dream" program signed into law by President George W Bush in 2002 was designed to
- A. Provide tax credits of nearly US$2.4 billion over the next 5 years to investors and builders who developed affordable single-family housing in poor and distressed areas
- B. Provide grants of US$800 million to help home buyers with down-payment and closing costs
- C. Allow risky, high-cost loans to be credited towards affordable housing goals
- D. Recapitalise Fannie Mae and Freddie Mac with US$2.4 billion of additional capital to ensure they weathered the risks associated with any future downturn in the housing markets
Answer: A
NEW QUESTION 64
Several clients, including Procter and Gamble took legal action against Bankers Trust, claiming Bankers Trust
- A. did not honour its contractual obligations to pay
- B. sold them derivative products without properly advising them of the relevant risks
- C. hid profits
- D. was involved in accounting fraud
Answer: B
NEW QUESTION 65
As a result of the US government's intervention, which of the following is true?
- A. The cost of borrowing for house buyers will rise because of the risk premium now built into the cost of such a government guarantee
- B. Foreign Central Banks will continue to sell their holdings of Fannie Mae and Freddie Mac securities
- C. The cost of borrowing for Fannie Mae and Freddie Mac should decline because the government will be standing behind their debts and the buying and selling of mortgage debt will continue
- D. The systemic risks still remain in the housing market because it increases the US government's debt
Answer: C
NEW QUESTION 66
When local rules and regulations conflict with the PRMIA Standards of Best Practice, Conduct and Ethics the PRMIA member should ...
- A. Seek advice from a qualified party, being mindful of legal and confidentiality requirements
- B. Modify the interpretation of local rules and regulations to meet the situation
- C. Ignore local rules and regulations
- D. Respect local rules and regulations
Answer: A
NEW QUESTION 67
According to the Group of 30 Report, important risks associated with dynamic hedging are:
- A. Both A and B
- B. Greater volatility than expected over the life of an option
- C. Sudden gaps in market prices
- D. Neither A nor B
Answer: A
NEW QUESTION 68
When describing the reasons for the collapse of China Aviation Oil, which of the following was not cited?
- A. Loss generating positions were rolled over by selling options on larger positions to generate cash premiums' to settle existing position losses
- B. No properly defined risk management policies in place and general lack of oversight by senior management
- C. Time value was not taken into account during the contract valuation process
- D. Senior management in China were aware of the positions but did not understand the complexities of risk managing them
Answer: D
NEW QUESTION 69
Which is NOT part of the guidance on Professional Conduct in the PRMIA Standards of Best Practice, Conduct and Ethics (Code of Conduct)?
- A. Provide advice that is clear and accurate
- B. Report to the Regulator any departures from generally accepted methodology or practices
- C. Clearly inform all affected parties of any apparent or actual conflicts of interest
- D. Know and abide by applicable rules and regulations
Answer: B
NEW QUESTION 70
The problems at Bankgesellschaft Berlin can best be characterized as failures related to:
- A. Both B and C
- B. Market Risk
- C. Operational Risk
- D. Credit Risk
Answer: A
NEW QUESTION 71
Every PRMIA chapter is designed to serve the local needs of members, so they often have fairly independent planning structures and ideas. According to the PRMIA Bylaws, Regional Chapters and Regional Directors:
- A. Can have their own offices, bylaws and regulations provided they do not conflict with those of PRMIA
- B. Can sign contracts on behalf of PRMIA without prior approval from the Board of Directors
- C. Can have meetings that only local members are allowed to attend
- D. All of the above
Answer: A
NEW QUESTION 72
According to the Northern Rock Case Study, what is Forced Insolvency?
- A. The 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
- B. The 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
- C. The 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
- D. The 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)
Answer: D
NEW QUESTION 73
The failure of Washington Mutual was NOT due to which one of the following?
- A. Low lending standards and bad quality acquisitions
- B. A run on its deposits by bank customers
- C. It failed due to the poor quality of its assets
- D. Using a combination of subprime mortgage loans and credit cards
Answer: B
NEW QUESTION 74
According to the Group of 30 Report, dealers and end-users are encouraged to:
- A. Use one trading agreement for foreign exchange forwards and another for foreign exchange options.
- B. Use separate trading agreements for interest rate derivatives, equity derivatives and foreign exchange transactions.
- C. Use a single master trading agreement as widely as possible with each counter party.
- D. Use a common trading agreement for interest rate and equity derivatives but a separate agreement for foreign exchange transactions.
Answer: C
NEW QUESTION 75
Which of the following was NOT a factor in the WorldCom collapse?
- A. Accounting abuses
- B. Over stating actual sales
- C. Unfair pricing to customers
- D. Failed corporate governance
Answer: C
NEW QUESTION 76
With respect to the Purpose of Professional Standards, in the event of any difference in standards between local laws/rules and those of PRMIA, members must
- A. use their best judgment
- B. refer the matter to their supervisor
- C. abide by the applicable laws, rules, and regulations of PRMIA and any government and/or regulatory bodies
- D. comply with the higher standard under all circumstances
Answer: D
NEW QUESTION 77
What was the main type of risk that Metallgesellschaft was exposed to?
- A. Interest Rate
- B. Inflation
- C. Currency Settlement
- D. Basis Risk
Answer: D
NEW QUESTION 78
Which of the following best characterizes the problems that developed at Bankgesellschaft Berlin?
- A. Banking is a "for-profit" business, not a means of fulfilling political goals.
- B. Excessive reliance on volatile trading income.
- C. Volume growth at the expense of margin.
- D. A company culture where profits may justify "excesses."
Answer: A
NEW QUESTION 79
Which of the following was not cited within the chain of miscalculations and deferred decisions for the downfall of Fannie Mae and Freddie Mac
- A. Extreme exposure to foreign currency exposures and losses from non-US$ mortgages
- B. They did not raise enough capital to weather the storm as the housing slump expanded
- C. Lawmakers postponed strenghtening regulatory oversight due to partisan infighting
- D. Under-management and under-measurement of market and liquidity risk
Answer: A
NEW QUESTION 80
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