Effective Study Techniques for the PRMIA 8004 Exam

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I and II

I, II and IV

I, II and III

I only

Basis Risk

Currency Settlement

Interest Rate

Inflation

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.

The general downturn in the economy of the US

By lowering its own credit underwriting standards

Acquisitions like Long Beach and Providian

Catastrophic losses in its own credit card division

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.

Volume growth at the expense of margin.

Excessive reliance on volatile trading income.

Banking is a "for-profit" business, not a means of fulfilling political goals.

A company culture where profits may justify "excesses."

Large customer withdrawals despite the UK regulator and the UK Treasury giving assurances that the bank was solvent

Doubts arising about the viability of the business model which necessitated Bank of England intervention

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

A depositor run on the bank, following doubts about the viability of the Northern Rock business model

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

A window of time between close of day for reporting purposes and back office checking that allowed traders to hide losses using fictitious trades

The Board received risk management information that was incorrect, incomplete or insufficiently detailed

Both A and B

Neither A nor B