PRMIA 8010 : Operational Risk Manager (ORM) Exam

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PRMIA 8010 Exam Syllabus Topics:

PRMIA Operational Risk Manager (ORM) Sample Questions:

1. Which of the following is true for the actuarial approach to credit risk modeling (CreditRisk+):

A) The approach considers only default risk, and ignores the risk to portfolio value from credit downgrades
B) The approach is based upon historical rating transition matrices
C) Default correlations between obligors are accounted for using a multivariate normal model
D) The number ofdefaults is modeled using a binomial distribution where the number of defaults are considered discrete events

2. Aderivative contract has a negative current replacement value. Which of the following statements is true about its loan equivalent value for credit risk calculations over a 2-year horizon?

A) The notional value of the derivatives contract should be used for loan equivalence calculations.
B) The credit exposure will be a given quintile of the expected distribution of the value of the derivatives contract in the future.
C) The current exposure can be used for loan equivalence calculations as that is an unbiased proxy for the future value.
D) Since the derivatives contract has a negative current replacementvalue, exposure will be zero.

3. If the annual default hazard rate for a borrower is 10%, what is the probability that there is no default at the end of 5 years?

A) 60.65%
B) 39.35%
C) 59.05%
D) 50.00%

4. Which of the following statements is true:
I. Confidence levels for economic capital calculations are driven by desired credit ratings II. Loss distributions for operational risk are affected more by theseverity distribution than the frequency distribution III. The Advanced Measurement Approach (AMA) referred to in the Basel II standard is a type of a Loss Distribution Approach (LDA) IV. The loss distribution for operational risk under the LDA (Loss Distribution Approach) is estimated by separately estimating the frequency and severity distributions.

A) I, II and IV
B) I, III and IV
C) I and II
D) III and IV

5. If two bonds with identical credit ratings, coupon and maturity but from different issuers trade at different spreads to treasury rates, which of the following is a possible explanation:
I. The bonds differ in liquidity
II. Events have happened that have changed investor perceptions but these are not yet reflected in the ratings III. The bonds carry different market risk IV. The bonds differ in their convexity

A) II and IV
B) I, II and IV
C) I and II
D) III and IV

Solutions: