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Pass Guaranteed Quiz PRMIA - 8020 - High Pass-Rate ORM Certificate - 2023 Update Exams Torrent

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PRMIA 8020 Exam Syllabus Topics:

Topic
Details

Topic 1

Risk Information: This section of the exam measures the skills of Risk Managers and covers the collection, analysis, and communication of risk-related data. It highlights the role of data-driven decision-making in mitigating uncertainties and ensuring compliance. A key skill measured is interpreting risk data for informed decision-making.

Topic 2

Risk Modeling: This section of the exam measures the skills of Quantitative Risk Analysts and covers mathematical and statistical techniques used to predict risk scenarios. It explores model development, validation, and application in financial and operational risk management. A key skill measured is applying statistical models for risk prediction.

Topic 3

Introduction: This section of the exam measures the skills of Risk Analysts and covers fundamental concepts of risk governance, management, and assessment. It introduces key principles, regulatory frameworks, and industry best practices for identifying and addressing risks. A key skill measured is understanding the foundational principles of risk management.

Topic 4

Case Studies: This section of the exam measures the skills of Business Risk Consultants and covers real-world applications of risk management concepts. It examines case studies on risk governance, assessment, and mitigation strategies across different industries. A key skill measured is analyzing historical risk events for strategic insights.

Topic 5

Insurance Mitigation: This section of the exam measures the skills of Insurance Risk Managers and covers strategies for transferring risk through insurance and other financial instruments. It focuses on risk transfer mechanisms, policy structuring, and claims management. A key skill measured is assessing risk transfer options through insurance.

Topic 6

Risk Management Framework: This section of the exam measures the skills of Risk Managers and covers the development and implementation of structured approaches for risk identification, evaluation, and mitigation. It includes industry-standard frameworks that guide risk strategy and decision-making. A key skill measured is establishing a risk management framework for organizations.

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PRMIA ORM Certificate - 2023 Update Sample Questions (Q27-Q32):

NEW QUESTION # 27
For the WorldCom case, what was one of the causes of the failure?

A. The lack of a CRO during the final IPO.
B. Unauthorized trading in derivatives.
C. Risk models that did not reflect loosened underwriting standards of mortgage originators.
D. A rapid pace of acquisitions and poor integration of acquired companies.

Answer: D

Explanation:
Step 1: Understanding the WorldCom Case
WorldCom was one of the largest U.S. telecom companies before its collapse in 2002 due to fraudulent accounting practices and poor risk management.
The company expanded aggressively through acquisitions but failed to integrate them properly, leading to financial mismanagement and accounting fraud.
Step 2: Why Option C is Correct
WorldCom acquired over 60 companies in a short period without proper integration.
This masked financial problems and led to $11 billion in fraudulent accounting adjustments.
PRMIA and risk management frameworks stress that poor integration after rapid acquisitions increases operational and financial risks.
Step 3: Why the Other Options Are Incorrect
Option A ("Risk models and mortgage underwriting") → Incorrect because this describes the 2008 financial crisis, not WorldCom.
Option B ("Lack of a CRO during IPO") → Incorrect because WorldCom was well-established before its fraud-CRO absence was not the main issue.
Option D ("Unauthorized derivatives trading") → Incorrect because WorldCom's failure was due to fraudulent accounting, not derivatives.
PRMIA Risk Reference Used:
PRMIA Corporate Governance Guidelines - Discusses risks of poor post-merger integration.
SEC Investigation on WorldCom (2002) - Identified fraudulent accounting due to failed acquisitions.

NEW QUESTION # 28
Which of the following is not an action available to management and the governing body to align the strategy with Risk Capacity.

A. Improve quality of risks - pursue lower rewarding risks with better prospects.
B. Reduce scale of risks - shrink balance sheet or activity levels.
C. Improve retained earnings - by increasing net income or reducing dividends in order to increase risk capacity.
D. Reduce retained earning - by increasing dividends in order to return funds to investors and improve reputation.

Answer: D

Explanation:
Step 1: Aligning Strategy with Risk Capacity
Risk capacity is the maximum level of risk a firm can bear based on financial resources, earnings, and capital structure.
Management can adjust risk capacity by modifying risk exposure, balance sheet size, or earnings retention.
Step 2: Why Option C Is Incorrect
Increasing dividends reduces retained earnings, which lowers capital reserves and reduces risk capacity.
Firms seeking to improve risk capacity should retain earnings, not distribute them.
Step 3: Why the Other Options Are Correct
Option A ("Reduce scale of risks") → Correct as reducing balance sheet size lowers risk exposure.
Option B ("Improve quality of risks") → Correct as taking on lower-risk assets improves stability.
Option D ("Improve retained earnings") → Correct as more capital increases risk capacity.
PRMIA Risk Reference Used:
PRMIA Capital Management Framework - Defines risk capacity and earnings retention strategies.
Basel III Capital Standards - Stresses retained earnings as a key factor in risk capacity.
Final Conclusion:
Reducing retained earnings through dividends weakens risk capacity, making Option C the correct answer.

NEW QUESTION # 29
For the Barings case study, segregation of duties was an issue. How did this present itself in this case?

A. A risk manager was responsible for managing the back-office
B. A trader was responsible for managing the expense account.
C. A trader was responsible for managing the front-office.
D. A trader was responsible for managing the back-office.

Answer: D

Explanation:
Background of the Barings Case Study
Nick Leeson, a trader at Barings Bank, caused the collapse of the institution due to unauthorized trading in derivatives.
A critical failure was the lack of segregation of duties, allowing Leeson to both execute trades (front-office) and oversee trade settlement (back-office).
How Segregation of Duties Failed
Proper segregation of duties ensures that no single individual has unchecked control over trading and settlement.
Leeson was responsible for both trading (front-office) and settlement (back-office), meaning he could hide losses without detection.
Why Answer A is Correct
A trader (Leeson) should never have been managing back-office functions.
His dual role allowed him to manipulate records and bypass controls, leading to $1.3 billion in losses and the bank's collapse.
Why Other Answers Are Incorrect
Option
Explanation:
B . A trader was responsible for managing the front-office.
Incorrect - Traders are supposed to manage the front-office; the issue was their involvement in back-office functions.
C . A risk manager was responsible for managing the back-office.
Incorrect - The issue was lack of oversight on the trader, not risk managers handling back-office duties.
D . A trader was responsible for managing the expense account.
Incorrect - The main issue was the trader's control over trade settlement, not expense accounts.
PRMIA Reference for Verification
PRMIA Case Study on Barings Bank Collapse
Basel Principles on Segregation of Duties in Risk Management

NEW QUESTION # 30
For the Northern Rock case study, what was the low-probability-high-impact event that was most responsible for the loss event?

A. The acquisition of Merrill Lynch by Bank of America.
B. An exposure to real estate funds, heavily concentrated in Berlin.
C. The Bank of England's withdrawal of Deposit Protection.
D. Liquidity dried up in the inter-bank and commercial paper markets.

Answer: D

Explanation:
Step 1: Understanding the Northern Rock Case Study
Northern Rock was a UK bank that collapsed in 2007 due to its heavy reliance on short-term wholesale funding rather than customer deposits.
When the 2007 financial crisis hit, the inter-bank lending market and commercial paper market froze, cutting off Northern Rock's access to liquidity.
Step 2: Why Option C Is Correct
Northern Rock depended on short-term borrowing to fund long-term mortgage lending.
When the liquidity crisis hit, it couldn't refinance its debt, leading to a bank run and collapse.
The Bank of England had to intervene, and the UK government nationalized Northern Rock in 2008.
Step 3: Why the Other Options Are Incorrect
Option A ("Acquisition of Merrill Lynch") → Incorrect because this happened in 2008, after Northern Rock's failure.
Option B ("Withdrawal of Deposit Protection") → Incorrect because UK deposit protection remained in place.
Option D ("Real estate exposure in Berlin") → Incorrect because Northern Rock's problem was funding liquidity, not real estate losses.
PRMIA Risk Reference Used:
PRMIA Liquidity Risk Management Framework - Describes how liquidity shocks impact banks like Northern Rock.
Basel III Liquidity Coverage Ratio (LCR) Standards - Created after Northern Rock to prevent similar liquidity crises.
Final Conclusion:
The collapse of the inter-bank and commercial paper markets was the key low-probability-high-impact event that led to Northern Rock's failure, making Option C the correct answer.

NEW QUESTION # 31
Which of the below is a definition of climate risk?

A. Climate risk has been moved out of all risk taxonomies due to international agreement.
B. Climate risk refers to the growing impacts that businesses and our overall society may face due to climate change.
C. Climate risk refers to the growing impacts of credit risk on the business environment.
D. Climate risk refers to change in the business climate during a recession.

Answer: B

Explanation:
Step 1: Definition of Climate Risk
PRMIA and global financial regulators define climate risk as the financial, operational, and societal risks arising from climate change.
Climate risks impact businesses through physical risks (e.g., floods, wildfires) and transition risks (e.g., regulatory changes, carbon pricing).
Step 2: Why the Other Options Are Incorrect
Option A ("Climate risk has been moved out of all risk taxonomies due to international agreement") Incorrect because climate risk is now a central part of risk taxonomies, as emphasized by PRMIA, Basel III, and TCFD.
Option B ("Climate risk refers to the growing impacts of credit risk on the business environment") Incorrect because credit risk is just one aspect of climate risk, not the full definition.
Option C ("Climate risk refers to change in the business climate during a recession") Incorrect because climate risk is about environmental change, not economic cycles.
PRMIA Risk Reference Used:
PRMIA Climate Risk Guidelines - Defines climate risk as a financial and societal risk due to climate change.
TCFD (Task Force on Climate-Related Financial Disclosures) - Outlines regulatory expectations for climate risk management.
Final Conclusion:
Climate risk involves physical and transition risks from climate change, making Option D the correct answer.

NEW QUESTION # 32
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