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

Review compensation plans to ensure consistency with corporate risk appetite, competitive market conditions, and fiduciary responsibility to shareholders

Collectively assume responsibility of understanding and reporting the effectiveness of the firm risk management infrastructure

Be composed of key business unit representatives

Leave shareholder accountability to senior management who decides strategic direction

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

Internal controls of the organization, and the local regulator

Internal controls, and the expectations of stakeholders, shareholders, and the general public

The local regulator, internal controls, and shareholders

Only the internal controls and compliance standards

sold them derivative products without properly advising them of the relevant risks

did not honour its contractual obligations to pay

was involved in accounting fraud

hid profits

I and II only

I, II and III only

I, II and IV only

All are PRMIA Governance Principles

To be consistent with regulatory capital measures, 10-day holding periods should be standardized for VaR reporting

Historic simulations are not effective methods of stress testing

Stress tests should incorporate changes in liquidity

Market risk VaR measures should be multiplied by 3 to get to a stress test figure, as long as the VaR model has been back-tested

Dynamic hedging

A stacked hedge

A differential hedge

Nothing because MG Refining & Marketing did not hedge its position

Market Risk

Credit Risk

Operational and Regulatory Compliance Risk

All of the Above

Eliminates risk to the greatest extent possible

Is defined as the assembled knowledge and wisdom of the collective stakeholders in the organization, set to maximize shareholder value

Is defined as business decision making predicated on a belief in potential rewards, balanced with the knowledge, understanding and appreciation of the risk taken to pursue those potential rewards

Is defined as that which is best practiced within an enterprise risk management framework, guided by the PRMIA Standards of Best Practice, Conduct and Ethics above all else

Market Risk

Credit Risk

Operational and Regulatory Compliance Risk

All of the Above

A covert money market support operation designed to cover up the difficulties Northern Rock was facing

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

The UK government offered to guarantee all existing and new retail deposits, and to most other creditors

The Bank of England provided an additional unlimited facility secured on the collateral of all Northern Rock assets

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.

Fannie Mae and Freddie Mac will continue to buy home loans from banks to repackage them as mortgage-backed securities

The US government will provide capital as needed in return for preferred shares in the companies

The US government will buy mortgage-backed securities in the open market as needed

There was a 2 year limit to the conservatorship