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| Section | Objectives |
|---|---|
| Topic 1: Best Practices in Risk Management | - Operational and financial risk controls - Enterprise risk management frameworks |
| Topic 2: Ethics and Professional Standards | - Professional conduct and ethical responsibilities - Industry codes of ethics and decision-making standards |
| Topic 3: Governance, Standards and Regulatory Frameworks | - Regulatory expectations and compliance structures - Risk governance principles in financial institutions |
| Topic 4: Case Study Application | - Integrated risk assessment scenarios - Governance and ethics decision analysis |
1. According to the Northern Rock Case Study, what is Forced Insolvency?
A) 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
B) 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)
C) 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
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
2. Which of the following are PRMIA Governance Principles?
I Independence of Key Parties
II Disclosure and Transparency
III Internal Validation
IV Solvency
A) I, II and IV only
B) All are PRMIA Governance Principles
C) I, II and III only
D) I and II only
3. Barings failed to recognize that Nick Leeson's losses were increasing because:
A) Leeson hid his trades in a suspense account
B) Leeson ran the front office
C) The margin report sent to London did not show the true margin needs
D) The London office did not ask for any reports
4. Which items below were at the core of the problems at Bankgesellschaft Berlin?
A) Over exposure to the property market
B) Political corruption and poor management
C) All of the above
D) Rash guarantees given to investors in property linked funds
5. The Fortress Re accounting risk transfer procedures
A) made it straightforward for TFMI to determine whether risk had actually been transferred and they decided not to take out more catastrophe insurance cover
B) made it straightforward for TFMI to determine when the risk had been transferred and to take out additional catastrophe insurance cover
C) made it difficult for TFMI to determine whether risk had actually been transferred so they had to take out additional catastrophe insurance cover
D) made it difficult for TFMI to determine whether risk had actually been transferred and whether it had sufficient catastrophe insurance cover
Solutions:
| Question # 1 Answer: B | Question # 2 Answer: D | Question # 3 Answer: A | Question # 4 Answer: C | Question # 5 Answer: D |
Exam II: Mathematical Foundations of Risk Measurement - 2015 Edition
PRM Certification - Exam II: Mathematical Foundations of Risk Measurement
Exam I: Finance Theory Financial Instruments Financial Markets - 2015 Edition
Exam IV: Case Studies: Standards: Governance, Best Practices and Ethics - 2015 Edition
PRM Certification - Exam IV: Case Studies; Standards: Governance, Best Practices and Ethics
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