Test-Taking Questions 8011 Pre-assessment Test
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PRMIA 8011 (Credit and Counterparty Manager (CCRM) Certificate) Certification Exam is specifically designed for professionals who are working in the field of credit and counterparty risk management. Credit and Counterparty Manager (CCRM) Certificate Exam certification exam is offered by the Professional Risk Managers’ International Association (PRMIA) and is recognized globally as a benchmark for credit and counterparty risk management expertise.
The Professional Risk Managers' International Association (PRMIA) is a global non-profit organization that promotes sound risk management practices in the financial industry. One of PRMIA's core objectives is to provide professional development opportunities to its members and the wider risk management community. To this end, PRMIA offers a range of certification programs, including the Credit and Counterparty Manager (CCRM) Certificate.
PRMIA Credit and Counterparty Manager (CCRM) Certificate Exam Sample Questions (Q227-Q232):
NEW QUESTION # 227
Which of the following is closest to the description of a 'risk functional'?
Answer: A
Explanation:
For operational risk modeling, both frequency and severity distributions need to be modeled. Modeling severity involves finding an analytical distribution, such as log-normal or other that approximates the distribution best represented by known data - whether from the internal loss database, the external loss database or scenario data. A 'risk functional' is a measure of the deviation of the model distribution from the risk's actual severity distribution. It assigns a penalty value for the deviation, using a statistical measure, such as the KS distance (Kolmogorov-Smirnov distance).
The problem of finding the right distribution then becomes the problem of optimizing the risk functional. For example, if F is the model distribution, and G is the actual, or empirical severity distribution, and we are using the KS test, then the Risk Functional R is defined as follows:
A diagram of a function Description automatically generated with medium confidence
Note that supx stands for 'supremum', which is a more technical way of saying 'maximum'. In other words, we are calculating the maximum absolute KS distance between the two distributions. (Note that the KS distance is the max of the distance between identical percentiles of the two distributions using the CDFs of the two.) Once the risk functional is identified, we can minimize it to determine the best fitting distribution for severity.
NEW QUESTION # 228
The CDS rate on a defaultable bond is approximated by which of the following expressions:
Answer: A
Explanation:
The CDS rate is approximated by the [Loss given default x Default hazard rate]. Thus Choice 'b' is the correct answer.
Note that this is also equal to the credit spread on the reference bond over the risk free rate. Therefore credit spreads and CDS rates are generally the same. Also, 'loss given default' is nothing but (1 - Recovery rate).
This can be substituted in the formula for the credit spread to get an alternative expression that directly refers to the recovery rate. Therefore all other choices are incorrect.
NEW QUESTION # 229
Which of the following statements are true:
I. Liquidity risks during time of crisis may be exacerbated by large collateral calls continuing over a period of time.
II. Stress tests are always separately modeled from VaR computations which cannot deal with stress scenarios of the kind considered in stress tests.
III. A maximum loss scenario considers the maximum possible loss given a 'plausibility constraint' that is based upon the joint probability of such a loss happening
Answer: B
Explanation:
If VaR is calculated based upon historical simulations, and these simulations are designed as to include all stress scenarios of interest, then VaR and stress tests can be a part of an integrated risk measurement system.
Therefore it is not correct to say that stress tests are always separately modeled from VaR and II is false. I and III are true, and therefore Choice 'd' is the correct answer.
NEW QUESTION # 230
Which of the following assumptions underlie the 'square root of time' rule used for computing VaR estimates over different time horizons?
I. the portfolio is static from day to day
II. asset returns are independent and identically distributed (i.i.d.)
III. volatility is constant over time
IV. no serial correlation in the forward projection of volatility
V. negative serial correlations exist in the time series of returns
VI. returns data display volatility clustering
Answer: B
Explanation:
The square root of time rule can be used to convert, say a 1-day VaR to a 10-day VaR, by multiplying the known number by the square root of time to get the VaR over a different time horizon. However, there are key assumptions that underlie the application of this rule, and statements I to IV correctly state those assumptions.
Statements V and VI are not correct, because the application of the square root of time rule requires the absence of serial correlations, and also the absence of volatility clustering (ie independence). Therefore Choice 'c' is the correct answer.
The square root of time rule is also applied to convert volatility or standard deviation for one period to the volatility for a different time period. Remember that VaR is just a multiple of volatility, and therefore the assumptions that apply to the square root of time rule for VaR also apply to the same rule when used in the context of volatilities or standard deviation.
NEW QUESTION # 231
A long position in a credit sensitive bond can be synthetically replicated using:
Answer: C
Explanation:
The correct answer is choice 'a'
A long position in a credit sensitive bond is equivalent to earning the risk free rate and the spread on the bond.
The risk free rate can be earned through a long position in a treasury bond, and the spread can be earned in the form of premiums on a CDS, which are received by the protectionseller, ie the party short a CDS contract.
Therefore we can get the same results as a long bond position using a combination of a long treasury bond and a short position in a CDS. Choice 'a' is the correct answer.
NEW QUESTION # 232
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