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

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Question # 1

The Bankers Trust Case Study is about:

Options:

A.  

overexposure to the real estate market

B.  

large losses at the proprietary trading desk

C.  

reliance on thinly traded derivatives to hedge

D.  

failure to guard its clients' best interests

Discussion 0
Question # 2

The failure of Washington Mutual was NOT due to which one of the following?

Options:

A.  

Using a combination of subprime mortgage loans and credit cards

B.  

It failed due to the poor quality of its assets

C.  

Low lending standards and bad quality acquisitions

D.  

A run on its deposits by bank customers

Discussion 0
Question # 3

The multi-dimensional risk problem at Northern Rock did not include which one of the combinations of the following?

Options:

A.  

LPHI Risk; Business Model; Solvency vs. Liquidity: and Deposit Protection

B.  

Corporate Governance; Moral Hazard; Role of Government; and Credit Risk

C.  

Deposit Protection; Moral Hazard; Business Model; and LPHI Risk

D.  

Business Model; Corporate Governance; Moral Hazard; and Deposit Protection

Discussion 0
Question # 4

What was the main type of risk that Metallgesellschaft was exposed to?

Options:

A.  

Basis Risk

B.  

Currency Settlement

C.  

Interest Rate

D.  

Inflation

Discussion 0
Question # 5

An Organization as a Whole must:

I. Provide an environment in which an Escalation Policy can be effective

II. Commit itself to actual enforcement of corporate governance policies

III. Provide ongoing education and training to all employees on the role of risk management and corporate governance in the organization

IV. Publish an external auditor's opinion that the corporation is in compliance with the Board's publicly stated Standards of Corporate Governance

Options:

A.  

I, II and III only

B.  

I, III and IV only

C.  

I, II and IV only

D.  

All of these are expectations of the Organization as a Whole

Discussion 0
Question # 6

Which of the following are PRMIA Governance Principles?

I. Independence of Key Parties

II. Disclosure and Transparency

III. Internal Validation

IV. Solvency

Options:

A.  

I and II only

B.  

I, II and III only

C.  

I, II and IV only

D.  

All are PRMIA Governance Principles

Discussion 0
Question # 7

The "normal" credit loss profile of Washington Mutual was increased by which of the following?

Options:

A.  

The general downturn in the economy of the US

B.  

By lowering its own credit underwriting standards

C.  

Acquisitions like Long Beach and Providian

D.  

Catastrophic losses in its own credit card division

Discussion 0
Question # 8

Which of the following best characterizes the problems that developed at Bankgesellschaft Berlin?

Options:

A.  

Volume growth at the expense of margin.

B.  

Excessive reliance on volatile trading income.

C.  

Banking is a "for-profit" business, not a means of fulfilling political goals.

D.  

A company culture where profits may justify "excesses."

Discussion 0
Question # 9

Bankgesellschaft Berlin's failures can be best characterised as

Options:

A.  

credit risk caused by overexposure to the property market

B.  

credit risk caused by a diversified portfolio of poor-quality loans

C.  

both A and B

D.  

none of the above

Discussion 0
Question # 10

TMFI's internal procedures and management were

Options:

A.  

fully aware of the uninsured risks Fortress Re were taking

B.  

absolutely unaware of their uninsured liabilities

C.  

aware that they had some uninsured liabilities but thought they had enough capital to withstand any uninsured losses

D.  

None of the above

Discussion 0
Question # 11

Which items below were at the core of the problems at Bankgesellschaft Berlin?

Options:

A.  

Political corruption and poor management

B.  

Over exposure to the property market

C.  

Rash guarantees given to investors in property linked funds

D.  

All of the above

Discussion 0
Question # 12

What is (are) the lesson(s) of the Barings' failure?

Options:

A.  

Incentive plans have risk management implications

B.  

Front and back offices need to be independent

C.  

Large profits can be an indicator of risk

D.  

All of the above

Discussion 0
Question # 13

When supervising others, a PRMIA member must comply with

Options:

A.  

PRMIA Standards

B.  

the standards of the organization where the work is being performed

C.  

his / her established personal standards of work approved in previous work situations

D.  

local regulatory authority standards which may be less onerous than PRMIA standards

Discussion 0
Question # 14

With a PRMIA member's need to reconcile their internal and external responsibility to perform their work in an independent and appropriate fiduciary manner, which of the following options must be taken into consideration when performing risk management duties?

Options:

A.  

Internal controls of the organization, and the local regulator

B.  

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

C.  

The local regulator, internal controls, and shareholders

D.  

Only the internal controls and compliance standards

Discussion 0
Question # 15

Which of the following was the key contributory risk factor to the problems at LTCM in the summer of 1998?

I. Model Risk

II. Lack of Transparency

III. Breakdown of Historical Correlations

IV. Over Regulation by Federal Regulators

Options:

A.  

I and III only

B.  

III only

C.  

III and IV only

D.  

All of these were key elements of the problems at LTCM

Discussion 0
Question # 16

Several clients, including Procter and Gamble took legal action against Bankers Trust, claiming Bankers Trust

Options:

A.  

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

B.  

did not honour its contractual obligations to pay

C.  

was involved in accounting fraud

D.  

hid profits

Discussion 0
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