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PRMIA Operational Risk Manager (ORM) Sample Questions:
1. Which of the following best describes economic capital?
A) Economic capital reflects the amount of capital required to maintain a firm's target credit rating
B) Economic capital is the amount of regulatory capital that minimizes the cost ofcapital for firm
C) Economic capital is the amount of regulatory capital mandated for financial institutions in the OECD countries
D) Economic capital is a form of provision for market risk losses should adverse conditions arise
2. For a 10 year interest rate swap, what would be the worst time for a counterparty to default (in terms of the maximum likely credit exposure)
A) 7 years
B) Right after inception
C) 10 years
D) 2 years
3. 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) Default correlations between obligors are accounted for using a multivariate normal model
C) The number ofdefaults is modeled using a binomial distribution where the number of defaults are considered discrete events
D) The approach is based upon historical rating transition matrices
4. The Options Theoretic approach to calculating economic capital considers the value of capital as being equivalent to a call option with a strike price equal to:
A) The value of the firm
B) The market value of the debt
C) The value of the assets
D) The notional value ofthe debt
5. Which of the following decisions need to be made as part of laying down a system for calculating VaR:
I. How returns are calculated, eg absoluted returns, log returns or relative/percentage returns II. Whether VaR is calculated based on historical simulation, Monte Carlo, or is computed parametrically III. Whether binary/digital options are included in the portfolio positions IV. How volatility is estimated
A) All of the above
B) I and III
C) I, II and IV
D) II and IV
Solutions:
| Question # 1 Answer: A | Question # 2 Answer: A | Question # 3 Answer: A | Question # 4 Answer: D | Question # 5 Answer: C |






