Relevant 8011 Questions | Exam 8011 Overviews

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PRMIA 8011 certification exam is ideal for professionals who are looking to enhance their skills and knowledge in credit and counterparty risk management. It is also suitable for individuals who are looking to advance their careers in the banking and finance industry. Credit and Counterparty Manager (CCRM) Certificate Exam certification exam is recognized globally and is a valuable asset for professionals who want to demonstrate their expertise in credit and counterparty risk management.

The Professional Risk Manager's International Association (PRMIA) is a global non-profit organisation dedicated to promoting sound risk management standards and practices throughout the financial industry. As part of their goal, the association offers various certifications designed to benefit risk professionals in pursuing their career goals. Among these is the PRMIA 8011 or Credit and Counterparty Manager (CCRM) Certificate exam.

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PRMIA Credit and Counterparty Manager (CCRM) Certificate Exam Sample Questions (Q144-Q149):

NEW QUESTION # 144
The difference between true severity and the best approximation of the true severity is called:

A. Total error
B. Fitting error
C. Estimation error
D. Approximation error

Answer: D

Explanation:
This question relates to fitting a distribution to the true severity of the operational risk loss we are trying to model. The quality of the fit, or the precision of the fit, has two elements to the difference between the severity as represented by our model and the true severity. To understand this, consider the three data points below:
a. The true severity,
b. The best approximation of the true severity in the model space, and
c. The fit based on the dataset.
- True severity is what we are trying to model.
- The model space refers to the collection of analytical distributions (log-normal, burr etc) that we are considering to arrive at the estimate of the severity.
- The 'best approximation of the true severity in the model space' is reached by estimating the parameters of the distribution that optimizes the risk functional.
- The 'fit' is the actual parameter estimates we settle for with the distribution we have determined best fits the true estimate of our severity. When estimating parameters, we have various methods available for estimation - the least squares method, the maximum likelihood method, for example, and we can get different estimates depending upon the method we choose to use.
Our severity model will be different from the true severity, and the total difference can be split into two types of errors:
1. Fitting error, represented by 'c - b' above: The difference between the fit based on the dataset and the best approximation of the true severity is called 'fitting error', ie, a measure of the extent to which we could have estimated the parameters better.
2. Approximation error, represented by 'b - a' above: Approximation error is the difference between the true severity, and the best approximation of the true severity that can be achieved within the model space is called
'approximation error'.
One can reduce the approximation error by expanding the model space by adding more distributions. This will reduce the approximation error, but generally has the effect of increasing the fitting error because the complexity of the model space increases, and there are more ways to fit to the true severity.

NEW QUESTION # 145
Under the internal ratings based approach for risk weighted assets, for which of the following parameters must each institution make internal estimates (as opposed to relying upon values determined by a national supervisor):

A. Probability of default
B. Exposure at default
C. Loss given default
D. Effective maturity

Answer: A

Explanation:
Regardless of the approach being followed by a bank (ie, whether foundation IRB or advanced IRB), it must make its own estimates for the probability of default. Banks following the foundation IRB approach may use values set by the supervisor for the other three parameters, though those following the advanced IRB approach may use their own estimates for all four inputs. (This is also the difference between advanced IRB and the foundation IRB approaches.) Therefore Choice 'a' is the correct answer.
Also note the four difference elements that go as inputs to the internal ratings based approach in the choices provided.

NEW QUESTION # 146
Which of the following techniques is used to generate multivariate normal random numbers that are correlated?

A. Simulation
B. Cholesky decomposition of the correlation matrix
C. Pseudo random number generator
D. Markov process

Answer: B

Explanation:
A PRNG (pseudo random number generators of the kind included in statistical packages and Excel) is used to generate random numbers that are not correlated with each other, ie they are random. A Markov process is a stochastic model that depends only upon its current state. Simulation underlies many financial calculations.
None of these directly relate to generating correlated multivariate normal random numbers. That job is done utilizing a Cholesky decomposition of the correlation matrix.
Specifically, a Cholesky decomposition involves the factorization of the correlation matrix into a lower triangular matrix (a square matrix all of whose entries above the diagonal are zero) and its transpose. This can then be combined with random numbers to generate a set of correlated normal random numbers. This technique is used for calculating Monte Carlo VaR.

NEW QUESTION # 147
For a corporate issuer, which of the following can be used to calculate market implied default probabilities?
I. CDS spreads
II. Bond prices
III. Credit rating issued by S&P
IV. Altman's scoring model

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

Answer: B

Explanation:
Generally, the probability of default is an input into determining the price of a security. However, if we know the market price of a security, we can back out the probability of default that the market is factoring into pricing that security. Market implied default probabilities are the probabilities of default priced into security prices, and can be determined from both bond prices and CDS spreads. Credit ratings issued by a credit agency do not give us 'market implied default probabilities', and neither does an internal scoring model like Altman's as these do not consider actual market prices in any way.
Therefore Choice 'b' is the correct answer and the others are not.

NEW QUESTION # 148
Which of the following statements are true:
I. Liquidity risks during time of crisis may be exacerbated by large collateral calls continuing over a period of time.
II. Stress tests are always separately modeled from VaR computations which cannot deal with stress scenarios of the kind considered in stress tests.
III. A maximum loss scenario considers the maximum possible loss given a 'plausibility constraint' that is based upon the joint probability of such a loss happening

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

Answer: C

Explanation:
If VaR is calculated based upon historical simulations, and these simulations are designed as to include all stress scenarios of interest, then VaR and stress tests can be a part of an integrated risk measurement system.
Therefore it is not correct to say that stress tests are always separately modeled from VaR and II is false. I and III are true, and therefore Choice 'd' is the correct answer.

NEW QUESTION # 149
......

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