PASS GUARANTEED PRMIA 8011 FANTASTIC STUDY GUIDE PDF

Pass Guaranteed PRMIA 8011 Fantastic Study Guide Pdf

Pass Guaranteed PRMIA 8011 Fantastic Study Guide Pdf

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PRMIA Credit and Counterparty Manager (CCRM) Certificate Exam Sample Questions (Q165-Q170):

NEW QUESTION # 165
The minimum 'multiplication factor' to be applied to VaR calculations for calculating the capital requirements for the trading book per Basel II is equal to:

  • A. 0
  • B. 1
  • C. 2
  • D. 3

Answer: A

Explanation:
The minimum multiplication factor specified under Basel II is 3. Therefore the correct answer is Choice 'a'.
The exact requirements are laid down below.
Each bank must meet, on a daily basis, a capital requirement expressed as the higher of (i) its previous day's value-at-risk number measured according to the parameters specified in this section and (ii) an average of the daily value-at-risk measures on each of the preceding sixty business days, multiplied by a multiplication factor.
The multiplication factor will be set by individual supervisory authorities on the basis of their assessment of the quality of the bank's risk management system, subject to an absolute minimum of 3. Banks will be required to add to this factor a "plus" directly related to the ex-post performance of the model, thereby introducing a built in positive incentive to maintain the predictive quality of the model. The plus will range from 0 to 1 based on the outcome of so-called "backtesting."


NEW QUESTION # 166
For an equity portfolio valued at V whose beta is #, the value at risk at a 99% level of confidence is represented by which of the following expressions? Assume # represents the market volatility.

  • A. 2.326 x # x V x #
  • B. 2.326 x V x # / #
  • C. 1.64 x V x # / #
  • D. 1.64 x # x V x #

Answer: A

Explanation:
For the PRM exam, it is important to remember the z-multiples for both 99% and 95% confidence levels (these are 2.33 and 1.64 respectively).
The value at risk for an equity portfolio is its standard deviation multiplied by the appropriate z factor for the given confidence level. If we knew the standard deviation, VaR would be easy to calculate. The standard deviation can be derived using a correlation matrix for all the stocks in the portfolio, which is not a trivial task. So we simplify the calculation using the CAPM and essentially say that the standard deviation of the portfolio is equal to the beta of the portfolio multiplied by the standard deviation of the market.
Therefore VaR in this case is equal to Beta x Mkt Std Dev x Value x z-factor, and therefore Choice 'a' is the correct answer.


NEW QUESTION # 167
Which of the following are considered counterparty based credit enhancements?
I. Collateral
II. Credit default swaps
III. Close out netting arrangements
IV. Guarantees

  • A. I, II and IV
  • B. I and IV
  • C. I and III
  • D. II and IV

Answer: D

Explanation:
Credit enhancements come in two varieties: counterparty based, where the exercise of the credit enhancement requires a third party to pay, and this includes guarantees and CDS contracts. Asset based credit enhancements are based upon a physical asset in possession, and these include collateral and balances owed on other trades or transactions, and availed through close out netting arrangements.
Of the listed choices, I and III are asset based credit enhancements, and II and IV are third party based.


NEW QUESTION # 168
Which of the following statements are true:
I. A high score according to Altman's Z-Score methodology indicates a lower default risk II. A high score according to the Probit or Logit models indicates a higher default risk III. A high score according to Altman's Z-Score methodology indicates a higher default risk IV. A high score according to the Probit or Logit models indicates a lower default risk

  • A. I and II
  • B. II and III
  • C. III and IV
  • D. I and IV

Answer: A

Explanation:
A high score under the probit and logit models indicates a higher default risk, while under Altman's methodology it indicates a lower default risk. Therefore Choice 'd' is the correct answer.


NEW QUESTION # 169
A statement in the annual report of a bank states that the 10-day VaR at the 95% level of confidence at the end of the year is $253m. Which of the following is true:
I. The maximum loss that the bank is exposed to over a 10-day period is $253m.
II. There is a 5% probability that the bank's losses will not exceed $253m III. The maximum loss in value that is expected to be equaled or exceeded only 5% of the time is $253m IV. The bank's regulatory capital assets are equal to $253m

  • A. III only
  • B. II and IV
  • C. I and IV
  • D. I and III

Answer: A

Explanation:
Statement I is not correct as VaR does not set an upper limit on losses. In this case, the bank expects the losses to exceed $253m 5% of the times, and the VaR number does not indicate any theoretical maximum amount of losses.Statement II is incorrect as there is a 95% (and not 5%) probability that the bank's losses will not exceed $253mStatement III is correct and describes VaR.Statement IV is incorrect, as regulatory capital is a more complex computation for which VaR is only one of the various input.Therefore Choice 'b' is the correct answer.


NEW QUESTION # 170
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