PRMIA PRM Certification - Exam IV: Case Studies; Standards: Governance, Best Practices and Ethics Sample Questions:

1. According to the Group of 30 Report, option contracts:

A) Always generate credit risk to both counterparties
B) Usually create credit risk only for the seller (to default by the buyer)
C) Create no credit risk, since the buyer need not exercise the option
D) Create credit risk only for the buyer (due to default by the seller) provided the premium is due, and paid, at contract initiation

2. MGRM's losses due to "stacking" started to increase when

A) the oil market went from strong contango to weak contango
B) the oil market went from contango to backwardation
C) the oil market went from backwardation to contango
D) the oil market went from weak backwardation to strong backwardation

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

A) 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)
B) 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
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 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

4. Mary Jones wants the Bylaws of PRMIA to be changed so that people can't join PRMIA unless they meet a set of criteria she has devised with her colleagues. She can do this by getting which of the following approvals:

A) 34 of all Members
B) The Board of Directors alone
C) The Board of Directors, but only if the Blue Ribbon Panel affirms the change
D) The Board of Directors and a majority of the Members

5. Washington Mutual's acquisition of Long Beach Financial changed its business model and increased its credit loss profile because

A) Of a general deterioration of credit quality generally
B) The resulting loss rate for Washington Mutual was more than 3 times higher than other mortgage lenders tracked by the FDIC
C) Long Beach Financial had losses which it hadn't realized at the time of the takeover
D) the two banks were focussed in different markets

Solutions: