PRMIA 8011 Valid Exam Papers, 8011 Exams

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Earning the PRMIA 8011 Certification provides professionals with a globally recognized credential that demonstrates their expertise in credit and counterparty risk management. Credit and Counterparty Manager (CCRM) Certificate Exam certification can enhance career opportunities, increase earning potential, and demonstrate a commitment to professional development and excellence.

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PRMIA Credit and Counterparty Manager (CCRM) Certificate Exam Sample Questions (Q138-Q143):

NEW QUESTION # 138
When building a operational loss distribution by combining a loss frequency distribution and a loss severity distribution, it is assumed that:
I. The severity of losses is conditional upon the number of loss events II. The frequency of losses is independent from the severity of the losses III. Both the frequency and severity of loss events are dependent upon the state of internal controls in the bank

A. I, II and III
B. II and III
C. I and II
D. II

Answer: D

Explanation:
When a operational loss frequency distribution (which, for example, may be based upon a Poisson distribution) and a loss severity distribution (for example, based upon a lognormal distribution), it is assumed that the frequency of losses and the severity of the losses are completely independent and do not impact each other. Therefore statement II is correct, and the others are not valid assumptions underlying the operational loss distribution.

NEW QUESTION # 139
Which of the following is not a credit event under ISDA definitions?

A. Failure to pay
B. Rating downgrade
C. Restructuring
D. Obligation accelerations

Answer: B

Explanation:
According to ISDA, a credit event is an event linked to the deteriorating credit worthiness of an underlying reference entity in a credit derivative. The occurrence of a credit event usually triggers full or partial termination of the transaction and a payment from protection seller to protection buyer. Credit events include
- bankruptcy,
- failure to pay,
- restructuring,
- obligation acceleration,
- obligation default and
- repudiation/moratorium.
A rating downgrade is not a credit event.

NEW QUESTION # 140
Under the credit migration approach to assessing portfolio credit risk, which of the following are needed to generate a distribution of future portfolio values?

A. The forward yield curve
B. All of the above
C. A rating migration matrix
D. A specified risk horizon

Answer: B

Explanation:
The credit migration approach to assessing portfolio credit risk involves obtaining a distribution of future portfolio values from the ratings migration matrix. First, the frequencies in the matrix are used as probabilities, and expected future values of the securities belonging to each rating category are calculated.
These are then discounted to the present using the discount rate appropriate to the 'future' rating category. This gives us a forward distribution of the value of each security in the portfolio. These are then combined using the default correlations between the issuers. The default correlation between the issuers is often proxied using asset returns, and recognizing that default occurs when asset values fall below a certain threshold. A distribution for the future value of the portfolio is generated using simulation, and from this distribution the Credit VaR can be calculated.
Thus, we need the migration matrix, the risk horizon from which the present values need to be calculated, and the forward yield curve or the discount curve for each rating category for the risk horizon. Thus, Choice 'd' is the correct answer.

NEW QUESTION # 141
A bank prices retail credit loans based on median default rates. Over the long run, it can expect:

A. Underestimation and therefore underpricing of risk in it retail portfolio
B. Overestimation of risk and overpricing, leading to loss of market share
C. Correct pricing of risk in the retail credit portfolio
D. A reduction in the rate of defaults

Answer: A

Explanation:
The key to pricing loans is to make sure that the prices cover expected losses. The correct measure of expected losses is the mean, and not the median. To the extent the median is different from the mean, the loans would be over or underpriced.
The loss curve for credit defaults is a distribution skewed to the right. Therefore its mode is less than its median which is less than its mean. Since the median is less than the mean, the bank is pricing in fewer losses than the mean, which means over the long run it is underestimating risk and underpricing its loans. Therefore Choice 'd' is the correct answer.
If on the other hand for some reason the bank were overpricing risk, its loans would be more expensive than its competitors and it would lose market share. In this case however, this does not apply. Loan pricing decisions are driven by the rate of defaults, and not the other way round, therefore any pricing decisions will not reduce the rate of default.

NEW QUESTION # 142
Which of the following distributions is generally not used for frequency modeling for operational risk

A. Poisson
B. Binomial
C. Negative binomial
D. Gamma

Answer: D

Explanation:
Frequency modeling is performed using discrete distributions that have a positive integer as a resultant - this allows for the number of events per period of time to be modeled. Of the distributions listed above, Poisson, negative binomial and binomial can be used for modeling frequency distributions. The Poisson and negative binomial distributions are encountered the most in practice.
The gamma distribution is a continuous distribution and cannot be used for frequency modeling.

NEW QUESTION # 143
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PRMIA Credit and Counterparty Manager (CCRM) Certificate Exam Sample Questions (Q138-Q143):