8009 Exam IV: Case Studies: Standards: Governance, Best Practices and Ethics - 2015 Edition Questions and Answers

Lending to consumers and small businesses.

Deposit taking activities which generated net interest income.

The provision of fee based services to its customers.

Complex derivative trades based on volatility indices.

Can have their own offices, bylaws and regulations provided they do not conflict with those of PRMIA

Can have meetings that only local members are allowed to attend

Can sign contracts on behalf of PRMIA without prior approval from the Board of Directors

All of the above

relied almost entirely on Fortress Re's management team for information on the risks in its portfolio

relied on the information it received from other members of the reinsurance pool to manage its risks

had a full understanding from Fortress Re of the risks in the pool

had a full understanding from other members of the pool of the pool's liabilities

Provided investors and analysts with insight into the dynamics of value changes, and the sensitivity of fair value to the underlying drivers of interest rates, exchange rates, and commodity prices

Only provided the intrinsic value of its outstanding option positions

Only provided the time value of its outstanding option position

None of the above

Use separate trading agreements for interest rate derivatives, equity derivatives and foreign exchange transactions.

Use a common trading agreement for interest rate and equity derivatives but a separate agreement for foreign exchange transactions.

Use one trading agreement for foreign exchange forwards and another for foreign exchange options.

Use a single master trading agreement as widely as possible with each counter party.

Incentive plans have risk management implications

Front and back offices need to be independent

Large profits can be an indicator of risk

All of the above

Define the organization's definition of risk management as articulated by the Board in clear and uncertain terms

Include financial risk management, compliance and external reporting and, to the extent that resources allow, should exclude legal or accounting

Be independently staffed and report to an employee who is on the Executive Committee (Operating Committee) but who is NOT a business unit leader

Review continually the application of the Principles of Good Governance to the Risk Management Infrastructure, financial accounting and reporting infrastructure and the organization as a whole

Market Risk

Credit Risk

Operational Risk

Both B and C

determined by business-unit leaders

determined at the Board level with inputs from business unit leaders

determined at the Board level without influence by business unit leaders

determined by the regulators

fully aware of the uninsured risks Fortress Re were taking

absolutely unaware of their uninsured liabilities

aware that they had some uninsured liabilities but thought they had enough capital to withstand any uninsured losses

None of the above

Bob Citron engaged in risky strategies to benefit personally

Bob Citron tried to "ride the yield curve"

Bob Citron heavily leveraged his positions using repos

Citron's losses were eventually exposed by massive margin calls

Trying to borrow more money from major money centre banks

Issuing Subordinated Debt

Returning capital to the general partners before others

Unwinding its' more liquid trades thereby creating more liquidity risk overall

Failed corporate governance

Accounting abuses

Unfair pricing to customers

Over stating actual sales