PRMIA 8008 Free Sample Exam Questions 2026

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Total Questions: 362

Questions & Answers PDF

• Question 1

  

  Which of the following correctly describes survivorship bias:

  • Survivorship bias is the negative skew in returns data resulting from credits that have survived despite a high probability of default
  • Survivorship bias refers to prudent and conservative risk management
  • Survivorship bias is the tendency for failed companies, markets or investments to be excluded from performance data.
  • Survivorship bias is the positive tail risk that ensures survival over the long run

  Reveal Answer Answer: 3 Next Question

• Question 2

  

  Which of the below are a way to classify risk governance structures:

  • Reactive, Preventative and Active
  • Committee based, regulation based and board mandated
  • Top-down and Bottom-up
  • Active and Passive

  Reveal Answer Answer: 1 Next Question

• Question 3

  

  When compared to a low severity high frequency risk, the operational risk capital requirement for a medium severity medium frequency risk is likely to be:

  • Zero
  • Lower
  • Higher
  • Unaffected by differences in frequency or severity High frequency and low severity risks, for example the risks of fraud losses for a credit card issuer, may have high expected losses, but low unexpected losses. In other words, we can generally expect these losses to stay within a small expected and known range. The capital requirement will be the worst case losses at a given confidence level less expected losses, and in such cases this can be expected to be low. On the other hand, medium severity medium frequency risks, such as the risks of unexpected legal claims, 'fat-finger' trading errors, will have low expected losses but a high level of unexpected losses. Thus the capital requirement for such risks will be high. It is also worthwhile mentioning high severity and low frequency risks - for example a rogue trader circumventing all controls and bringing the bank down, or a terrorist strike or natural disaster creating other losses - will probably have zero expected losses & high unexpected losses but only at very high levels of confidence. In other words, operational risk capital is unlikely to provide for such events and these would lie in the part of the tail that is not covered by most levels of confidence when calculating operational risk capital. Note that risk capital is required for only unexpected losses as expected losses are to be borne by P&L reserves. Therefore the operational risk capital requirements for a low severity high frequency risk is likely to be low when compared to other risks that are lower frequency but higher severity. Thus Choice 'c' is the correct answer.

  Reveal Answer Answer: 3 Next Question

• Question 4

  

  Which of the following steps are required for computing the total loss distribution for a bank for operational risk once individual UoM level loss distributions have been computed from the underlhying frequency and severity curves:I,Simulate number of losses based on the frequency distributionII,Simulate the dollar value of the losses from the severity distributionIII,Simulate random number from the copula used to model dependence between the UoMsIV. Compute dependent losses from aggregate distribution curves

  • None of the above
  • III and IV
  • I and II
  • All of the above

  Reveal Answer Answer: 3 Next Question

• Question 5

  

  Which of the following are true:I,The total of the component VaRs for all components of a portfolio equals the portfolio VaR.II,The total of the incremental VaRs for each position in a portfolio equals the portfolio VaR.III,Marginal VaR and incremental VaR are identical for a $1 change in the portfolio.IV. The VaR for individual components of a portfolio is sub-additive, ie the portfolio VaR is less than (or in extreme cases equal to) the sum of the individual VaRs.V, The component VaR for individual components of a portfolio is sub-additive, ie the portfolio VaR is less than the sum of the individual component VaRs.

  • II and V
  • II and IV
  • I and II
  • I, III and IV

  Reveal Answer Answer: 4 Next Question

• Question 6

  

  Which of the following statements is true in relation to a normal mixture distribution:I,Normal mixtures represent one possible solution to the problem of volatility clusteringII,A normal mixture VaR will always be greater than that under the assumption of normally distributed returnsIII,Normal mixtures can be applied to situations where a number of different market scenarios with different probabilities can be expected

  • II and III
  • III
  • I and II
  • I, II and III

  Reveal Answer Answer: 2 Next Question

• Question 7

  

  Which of the following is NOT true in respect of bilateral close out netting:

  • The net amount due is immediately receivable or payable
  • All transactions are immediately closed out upon the occurrence of a credit event for either of the counterparties
  • All transactions are netted against each other
  • Transactions are separated by transaction type and immediately settled separately at each's replacement value

  Reveal Answer Answer: 4 Next Question

• Question 8

  

  Which of the following statements is true:

  • Both total expected losses and total unexpected losses are less than the sum of expected and unexpected losses on underlying exposures respectively
  • Total expected losses are equal to the sum of individual underlying exposures while total unexpected losses are greater than the sum of unexpected losses on underlying exposures
  • Total expected losses are equal to the sum of expected losses in the individual underlying exposures while total unexpected losses are less than the sum of unexpected losses on underlying exposures
  • Total expected losses are greater than the sum of individual underlying exposures while total unexpected losses are less than the sum of unexpected losses on underlying exposures Total expected losses which are average and anticipated are equal to the sum of expected losses in the underlying exposures. Total unexpected losses, which are the excess of worst case losses at a certain confidence level over the expected losses, benefit from the diversification effect and are lower than the sum of unexpected losses of the underlying exposures. Therefore Choice 'c' is the correct answer. The other choices are incorrect.

  Reveal Answer Answer: 3 Next Question

• Question 9

  

  Which of the following is not an example of a risk concentration?

  • Large combined positions in assets affected by different risk factors that are highly correlated
  • Origination of a large number of SIVs with exposures to the same asset class, where the SIVs are separate legal entities without recourse to the originator
  • Material amounts of treasury obligations held as collateral provided by a single counterparty
  • Location of a portfolio's assets in a single country but spread across different industries Choice 'd' represents a risk concentration due to excessive exposure to a single country, even though spread across different industries as the risk factors (economy, exchange rate, interest rate, political risk etc) are the same for all companies in the country. Choice 'a' represents a risk concentration because even though the risk factors are different, they are highly correlated and therefore effectively behave as one. These undetected correlations proved to be fatal to many financial institutions during the credit crisis. Choice 'b' represents a risk concentration as was borne out by the recent credit crisis. Large banks had to take over the obligations of SIVs they had created, even though the SIVs were separate legal entities with no legally enforceable recourse to the originating bank. This had to be done for moral and reputational reasons, and banks had to absorb the losses of these supposedly separate vehicles. Choice 'c' does not represent a risk concentration, in fact it is not a risk at all because it refers to collateral held, even though the collateral may have been provided by the same counterparty. In this case the risk is to the party providing the collateral (in case the party holding the collateral rehypothecates or sells the collateral and is unable to return it). Therefore Choice 'c' is the correct answer. The BCBS document on stress testing provides a very nice articulation of risk concentration, and the relevant text from that document is produced verbatim here: [Risk concentration] may arise along different dimensions: single name concentrations; concentrations in regions or industries; concentrations in single risk factors; concentrations that are based on correlated risk factors that reflect subtler or more situation-specific factors, such as previously undetected correlations between market and credit risks, as well as between those risks and liquidity risk; concentrations in indirect exposures via posted collateral or hedge positions; concentrations in off-balance sheet exposure, contingent exposure, non-contractual obligations due to reputational reasons.

  Reveal Answer Answer: 3 Next Question

• Question 10

  

  Which of the following are true:I,Monte Carlo estimates of VaR can be expected to be identical or very close to those obtained using analytical methods if both are based on the same parameters.II,Non-normality of returns does not pose a problem if we use Monte Carlo simulations based upon parameters and a distribution assumed to be normal.III,Historical VaR estimates do not require any distribution assumptions.IV. Historical simulations by definition limit VaR estimation only to the range of possibilities that have already occurred.

  • III and IV
  • I, III and IV
  • I, II and III
  • All of the above

  Reveal Answer Answer: 2 Next Question

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Total Questions: 362

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