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PRMIA 8011 (Credit and Counterparty Manager (CCRM) Certificate) Exam is a globally recognized certification that demonstrates a professional's expertise in managing credit and counterparty risk. 8011 Exam evaluates a candidate's knowledge of principles, practices, and regulations in credit risk management, counterparty risk management, and credit derivatives.
PRMIA Credit and Counterparty Manager (CCRM) Certificate Exam Sample Questions (Q152-Q157):
NEW QUESTION # 152
Which of the following methods cannot be used to calculate Liquidity at Risk?
- A. Scenario analysis
- B. Analytical or parametric approaches
- C. Historical simulation
- D. Monte Carlo simulation
Answer: B
Explanation:
Analytical or parametric approaches are not useful at all for liquidity at risk calculations because there are no neat distributions available to parameterize the large number of factors that affect the calculations of liquidity inflows and outflows. Historical simulations, Monte Carlo and scenario analysis (which can complement historical scenarios) are all valid choices
NEW QUESTION # 153
Which of the following statements are true:
I. Common scenarios for stress tests include the 1997 Asian crisis, the Russian default in 1998 and other well known economic stress situations.
II. Stress tests provide the assurance that an institution's worst case losses will be covered.
III. Performing stress tests is highly recommended but is not mandated under Basel II.
IV. Historical events can be modeled quite accurately as they have defined start and end dates.
- A. I and II
- B. I only
- C. I, III and IV
- D. All of the above
Answer: B
Explanation:
Stress tests can cover known events, but since the future is unknown, and new events may be entirely different from what has happened in the past, they provide no assurance that an institution's worst case losses would be covered. Hence II is false.
Stress testing is required to be performed as part of Basel II, and therefore III is false.
Historical events do not have sharply defined start and end dates. Often, even after a crises ends, its after effects may continue to affect the markets for a long time. In such cases, it may be difficult to define the start and end of the crises. In many cases, the crises may persist for months or even years, making it difficult for the risk manager to identify a time period that covers the essence of the crises, and yet is focused enough to constitute a plausible scenario. Therefore IV is false too. Only I is true, and the correct answer is Choice 'b'.
NEW QUESTION # 154
The backtesting of VaR estimates under the Basel accord requires comparing the ex-ante VaR to:
- A. realized profit and loss for the period
- B. the Basel accord does not require banks to backtest VaR estimates
- C. hypothetical profit and loss keeping the positions constant
- D. ex-ante VaR calculated for the subsequent periods
Answer: A
Explanation:
Basel II requires financial institutions to compare their ex-ante VaR estimates to actual realized P&L.
Therefore Choice 'd' is the correct answer. A bank may use hypothetical P&L based upon constant positions to validate its model, but that is not required for Basel II.
NEW QUESTION # 155
When considering a request for a loan from a retail customer, which of the following factors is relevant for a bank to consider:
- A. All of the above
- B. The credit worthiness of the retail customer
- C. The contribution this new loan would bring to total portfolio risk
- D. The other retail loans in its portfolio
Answer: A
Explanation:
The credit worthiness of the retail customer is certainly a factor for the bank to consider as it will need to price the loan to cover the expectation of default. At the same time, it will need to look at other loans in its portfolio as to avoid unacceptable concentration risk. A corollary of the same theme is that the bank will need to take a portfolio view of the loan request and consider its contribution to total portfolio risk. Therefore all the choices are appropriate considerations for the bank and Choice 'd' is the correct answer.
NEW QUESTION # 156
The 99% 10-day VaR for a bank is $200mm. The average VaR for the past 60 days is $250mm, and the bank specific regulatory multiplier is 3. What is the bank's basic VaR based market risk capital charge?
- A. $750mm
- B. $200mm
- C. $600mm
- D. $250mm
Answer: A
Explanation:
The current Basel rules for the basic VaR based charge for market risk capital set market risk capital requirements as the maximum of the following two amounts:
1. 99%/10-day VaR,
2. Regulatory Multiplier x Average 99%/10-day VaR of the past 60 days
The 'regulatory multiplier' is a number between 3 and 4 (inclusive) calculated based on the number of 1% VaR exceedances in the previous 250 days, as determined by backtesting.
- If the number of exceedances is <= 4, then the regulatory multiplier is 3.
- If the number of exceedances is between 5 and 9, then the multiplier = 3 + 0.2*(N-4), where N is the number of exceedances.
- If the number of exceedances is >=10, then the multiplier is 4.
So you can see that in most normal situations the risk capital requirement will be dictated by the multiplier and the prior 60-day average VaR, because the product of these two will almost often be greater than the current 99% VaR.
The correct answer therefore is = max(200mm, 3*250mm) = $750mm.
Interestingly, also note that a 99% VaR should statistically be exceeded 1%*250 days = 2.5 times,which means if the bank's VaR model is performing as it should, it will still need to use a reg multiplier of 3.
NEW QUESTION # 157
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