8004 Dumps PDF New [2023] Ultimate Study Guide
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NEW QUESTION # 28
What is (are) the lesson(s) of the Barings' failure?
- A. Incentive plans have risk management implications
- B. Front and back offices need to be independent
- C. All of the above
- D. Large profits can be an indicator of risk
Answer: C
NEW QUESTION # 29
The Q4 2003 trading strategy of China Aviation Oil was
- A. to buy puts and sell calls
- B. to sell puts and buy calls
- C. to sell calls and buy puts
- D. to buy calls and sell puts
Answer: C
NEW QUESTION # 30
According to the G-30 Study, the risk management infrastructure's funding must be
- A. determined by business-unit leaders
- B. determined by the regulators
- C. determined at the Board level without influence by business unit leaders
- D. determined at the Board level with inputs from business unit leaders
Answer: C
NEW QUESTION # 31
Which of the following best characterizes the problems that developed at Bankgesellschaft Berlin?
- A. Excessive reliance on volatile trading income.
- B. Volume growth at the expense of margin.
- C. A company culture where profits may justify "excesses."
- D. Banking is a "for-profit" business, not a means of fulfilling political goals.
Answer: D
NEW QUESTION # 32
The problems which initiated the crisis at Northern Rock during the summer of 2007 were:
- A. Doubts arising about the viability of the business model which necessitated Bank of England intervention
- B. A depositor run on the bank, following doubts about the viability of the Northern Rock business model
- C. A general lack of confidence in mortgage backed securities associated in large part with developments in the US sub-prime mortgage market, and doubts emerging about the viability of the Northern Rock business model
- D. Large customer withdrawals despite the UK regulator and the UK Treasury giving assurances that the bank was solvent
Answer: C
NEW QUESTION # 33
Which of the following was a key problem in the Barings Bank case?
- A. Difference in the contract sizes in the OSE and SIMEX
- B. The different time zones that the office was trading in
- C. Having the back office and front office operations under the same person
- D. Leeson was executing an arbitrage strategy even though he was not authorized to do so
Answer: C
NEW QUESTION # 34
The retrocession insurance cover was provided by
- A. Fortress Re and their reinsurers
- B. The fronting insurance companies
- C. The Fortress Re reinsurers only
- D. Fortress Re and other insurers
Answer: C
NEW QUESTION # 35
According to the Group of 30 Report, option contracts:
- A. Usually create credit risk only for the seller (to default by the buyer)
- B. Create credit risk only for the buyer (due to default by the seller) provided the premium is due, and paid, at contract initiation
- C. Create no credit risk, since the buyer need not exercise the option
- D. Always generate credit risk to both counterparties
Answer: B
NEW QUESTION # 36
Which of the following does NOT relate to the Orange County case?
- A. Where there are excess rewards, there must be risks
- B. Fractured organisational structure and poor risk oversight mechanism make it easy for powerful individuals to hide risk in the gaps
- C. Strategies that are not possible to explain to third parties should not be employed by the risk averse
- D. The Know Your Customer rule
Answer: D
NEW QUESTION # 37
Which of the following was not received by Northern Rock as official support from the UK banking and government authorities?
- A. A covert money market support operation designed to cover up the difficulties Northern Rock was facing
- B. The Bank of England's role as Lender-Of-Last-resort was activated at a penalty interest rate of 150 basis points above the Bank Rate
- C. The UK government offered to guarantee all existing and new retail deposits, and to most other creditors
- D. The Bank of England provided an additional unlimited facility secured on the collateral of all Northern Rock assets
Answer: A
NEW QUESTION # 38
With a PRMIA member's need to reconcile their internal and external responsibility to perform their work in an independent and appropriate fiduciary manner, which of the following options must be taken into consideration when performing risk management duties?
- A. Internal controls, and the expectations of stakeholders, shareholders, and the general public
- B. Internal controls of the organization, and the local regulator
- C. Only the internal controls and compliance standards
- D. The local regulator, internal controls, and shareholders
Answer: A
NEW QUESTION # 39
The steps which the US Treasury Department and the Federal Reserve took in July 2008 to boost confidence in both Fannie Mae and Freddie Mac did not include which one of the following:
- A. Removing the prohibition on the Treasury Department to buy both companies stock
- B. Restricting the sale of new Fannie Mae and Freddie Mac securities only to US citizens
- C. Access to the Federal Reserve discount window
- D. Reiterating their belief that both companies played a central role in the US housing finance system
Answer: D
NEW QUESTION # 40
According to the Northern Rock Case Study, what is Forced Insolvency?
- A. 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
- 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 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 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
Answer: B
NEW QUESTION # 41
Washington Mutual's acquisition of Long Beach Financial changed its business model and increased its credit loss profile because
- A. the two banks were focussed in different markets
- B. Long Beach Financial had losses which it hadn't realized at the time of the takeover
- C. Of a general deterioration of credit quality generally
- D. The resulting loss rate for Washington Mutual was more than 3 times higher than other mortgage lenders tracked by the FDIC
Answer: D
NEW QUESTION # 42
According to the Group of 30 Report, important risks associated with dynamic hedging are:
- A. Sudden gaps in market prices
- B. Greater volatility than expected over the life of an option
- C. Neither A nor B
- D. Both A and B
Answer: D
NEW QUESTION # 43
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