PRMIA Operational Risk Manager (ORM) Sample Questions:

1. The 99% 10-day VaR for a bank is $200mm. The average VaR for the past 60 days is $250mm, and the bank specific regulatory multiplier is 3. What is the bank's basic VaR based market risk capital charge?

A) $200mm
B) $750mm
C) $600mm
D) $250mm

2. A key problem with return on equity as a measure of comparative performance is:

A) that return on equity is not adjusted for risk
B) that return on equity are not adjusted for cash flows being different from accounting earnings
C) that return on equity measures do not account for interest and taxes
D) that return on equity ignores the effect of leverage on returns to shareholders

3. Which of the following statements are true:
I. The sum of unexpected losses for individual loans in a portfolio is equal to the total unexpected loss for the portfolio.
II. The sum of unexpected losses for individual loans in a portfolio is less than the total unexpected loss for the portfolio.
III. The sum of unexpected losses forindividual loans in a portfolio is greater than the total unexpected loss for the portfolio.
IV. The unexpected loss for the portfolio is driven by the unexpected losses of the individual loans in the portfolio and the default correlation between these loans.

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

4. Which of the following best describes Altman's Z-score

A) A numerical computation based upon accounting ratios
B) A standardized z based upon the normal distribution
C) A regression of probability of survival against a given set of factors
D) A calculation of defaultprobabilities

5. The principle underlying the contingent claims approach to measuring credit risk equates the cost of eliminating credit risk for a firm to be equal to:

A) the cost of a call on thefirm's assets with a strike equal to the value of the debt
B) the market valuationof the firm's equity less the value of its liabilities
C) the value of a put on the firm's assets with a strike equal to the value of the debt
D) the probability of the firm's assets falling below the critical value for default

Solutions: