8004 PRM Certification - Exam IV: Case Studies; Standards: Governance, Best Practices and Ethics Questions and Answers

Ensure globally accepted standards are adhered to at all costs

Respect local customs

Respect local laws and regulations

Take responsibility for your work

Inadequate separation of front and back offices

Model risk

Changes/breakdowns in historical correlations

Unwinding of liquid positions at the beginning of major losses

Proprietary and agency trading were combined and therefore did not increase risk.

Proprietary and agency trading were separate and therefore did not increase risk.

Proprietary and agency trading were combined and therefore did increase risk.

Proprietary and agency trading were separate and did increase risk.

Both relied on a star manger, supposedly in a low risk business.

Both losses grew over time, but were not discovered by management until too late.

Both traded in illiquid and obscure markets that were easy to manipulate.

Both losses were eventually exposed by massive margin calls.

only regarded the intrinsic value (i.e. the difference between the strike price and the forward price of the underlying commodity) as the fair value of its options

took into account both the intrinsic value and the time value

only took into account the time value of the option (which includes recognizing the time left to maturity of the option, the volatility of the spot price of the underlying commodity, interest rates and other factors)

used neither the intrinsic value nor the time value

courses, conferences, journals

conferences, discussion groups, blog sites

courses, educational certification, journals

journals, courses, compliance mandates

Always generate credit risk to both counterparties

Create credit risk only for the buyer (due to default by the seller) provided the premium is due, and paid, at contract initiation

Create no credit risk, since the buyer need not exercise the option

Usually create credit risk only for the seller (to default by the buyer)

Failed corporate governance

Accounting abuses

Unfair pricing to customers

Over stating actual sales

the oil market went from contango to backwardation

the oil market went from backwardation to contango

the oil market went from weak backwardation to strong backwardation

the oil market went from strong contango to weak contango

The resulting loss rate for Washington Mutual was more than 3 times higher than other mortgage lenders tracked by the FDIC

the two banks were focussed in different markets

Long Beach Financial had losses which it hadn't realized at the time of the takeover

Of a general deterioration of credit quality generally

Offer loans directly to the consumer

Compete directly with banks in selling mortgaged to would-be home owners

Repackage mortgage loans made by banks and sell them on to investors as asset backed securities

Buy mortgage-backed loans for banks and keep them all on their books, using them as collateral for the US government to borrow

only improve their PERSONAL professional competence

maintains and improve their professional competence and strive to maintain and improve the competence of other risk professionals

only possess the required skills and/or certification to complete the risk assessment / management work at hand

learn from a qualified risk management practitioner

Parliamentarian

Secretary

Vice Chair

Chair only