Updated: Aug 31, 2025
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1. Which of the following would have contributed to noticing and preventing Leeson's violations at Barings?
A) Recognition that large profits can be an indicator of higher risk
B) More senior level involvement at Barings regarding use of derivatives
C) All of the above
D) Separation of front and back offices
2. 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
A) III only
B) III and IV only
C) All of these were key elements of the problems at LTCM
D) I and III only
3. What was the main risk scenario on the Metallgesellschaft trading strategy?
A) The final price of the underlying being higher than the initial price
B) The initial price of the underlying being higher than the final price
C) The short-term price of the underlying being higher than the long-run contract
D) Realized losses on short-term contracts against unrealized gains on the long-run contract
4. A risk manager has just completed a risk assessment project. The report has been given to the risk manager's direct supervisor, who refuses to escalate the material issues raised in the report. Further, the direct supervisor edits the report to remove the section describing the material risk, who then submits it to the firm's Executive Committee.
According to the PRMIA Standards of Best Practice, Conduct and Ethics (Code of Conduct), which of the following actions is most appropriate:
A) The risk manager has submitted the report to their direct supervisor and their obligation ends at this point, nothing further should be done
B) Escalation of the issue is against the Code of Conduct because one should respect the administrative structure of the organization
C) If the risk manager deems it appropriate, he / she should send a copy of the original report to the CEO
D) The risk manager should attempt to resolve the conflict with the direct supervisor, but if that does not work, they should contact the Whistle-Blowing Hotline of the organization. If no such hot-line is in place, they should contact the PRMIA Ethics Committee
5. The key people involved in the application of good governance and risk management must:
I be trustworthy
II be honest
III be approved by the local regulator
IV treat others fairly at all times
A) I, II, and IV only
B) III only
C) I, II, III and IV above
D) I, II, and III only
Solutions:
Question # 1 Answer: C | Question # 2 Answer: A | Question # 3 Answer: D | Question # 4 Answer: D | Question # 5 Answer: A |
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