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PRMIA 8011 Exam Vce Format - Credit and Counterparty Manager (CCRM) Certificate Exam Realistic Sure Pass 100% Pass

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PRMIA Credit and Counterparty Manager (CCRM) Certificate Exam Sample Questions (Q37-Q42):

NEW QUESTION # 37
For a security with a daily standard deviation of 2%, calculate the 10-day VaR at the 95% confidence level.
Assume expected daily returns to be nil.

A. 0.104
B. 0.02
C. 0.1471
D. None of the above.

Answer: A

Explanation:
If the daily standard deviation is 2%, the 10-day standard deviation will be 2%* #10 = 0.063245. The value of Z at the 95% confidence level is 1.64485. Therefore the VaR value is 1.64485 * 0.063245 = 10.4%. The other choices are incorrect.

NEW QUESTION # 38
For an investor with a long position in market index futures, which of the following is a primary risk:

A. Basis risk between futures and spot prices
B. Risk that expected dividends will differ from realized dividend yields
C. Movement in interest rates underlying the futures prices
D. Increase or decrease in the level of the underlying index

Answer: D

Explanation:
This question emphasizes the difference between primary and secondary risks. Primary risks are the risks consciously undertaken, ie the risks whose premium the investor is trying to earn. Secondary risks are risks that accompany the primary risks that the investor will either hedge, or will ignore if they are small. It is important to watch out for secondary risks because they could become significant and offset the returns being sought even if the investor's market view is proved correct.
An investor in market index futures is betting that the index will rise. Index futures prices are largely driven by the spot value of the index, but are also affected by costs of carry. In particular, futures prices will be driven by interest rates, expected dividends, and any other factors that may cause the basis between spot and futures prices to diverge. These risks are secondary risks.
In this question, Choice 'd' represents the primary risk, and Choice 'a', Choice 'b' and Choice 'c' are all secondary risks. Therefore Choice 'd' is the correct answer.

NEW QUESTION # 39
The VaR of a portfolio at the 99% confidence level is $250,000 when mean return is assumed to be zero. If the assumption of zero returns is changed to an assumption of returns of $10,000, what is the revised VaR?

A. 0
B. 1
C. 2
D. 3

Answer: C

Explanation:
The exact formula for VaR is = -(Z# # + #), where Z # is the z-multiple for the desired confidence level, and # is the mean return. Now Z# is always a negative number, or at least will certainly be provided the desired confidence level is greater than 50%, and # is often assumed to be zero because generally for the short time periods for which market risk VaR is calculated, its value is very close to zero.
Therefore in practice the formula for VaR just becomes -Z##, and since Z is always negative, we normally just multiply the Z factor without the negative sign with the standard deviation to get the VaR.
For this question, there are two ways to get the answer. If we use the formula, we know that -Z##= 250,000 (as #=0), and therefore -Z## - # = 250,000 - 10,000 = $240,000.
The other, easier way to think about this is that if the mean changes, then the distribution's shape stays exactly the same, and the entire distribution shifts to the right by $10,000 as the mean moves up by $10,000.
Therefore the VaR cutoff, which was previously at -250,000 on the graph also moves up by 10k to -240,000, and therefore $240,000 is the correct answer.
The other choices are intended to confuse by multiplying the z-factor for the 99% confidence level with
10,000 etc.

NEW QUESTION # 40
In estimating credit exposure for a line of credit, it is usual to consider:

A. a fixed fraction of the line of credit to be the exposure at default even though the currently drawn amount is quite different from such a fraction.
B. the present value of the line of credit at the agreed rate of lending.
C. only the value of credit exposure currently existing against the credit line as the exposure at default.
D. the full value of the credit line to be the exposure at default as the borrower has an informational advantage that will lead them to borrow fully against the credit line at the time of default.

Answer: A

Explanation:
Choice 'a' is the correct answer. Exposures such as those to a line of credit of which only a part (or none) may be drawn at the time of assessment present a difficulty when attempting to quantify credit risk. It is not correct to take the entire amount of the line as the exposure at default, and likewise the current exposure is likely to be too aggressively low a number to consider.
While the borrower has an information advantage in that he would be aware of the deterioration in credit standing before the bank and would probably draw cash prior to default, it is unlikely that the entire amount of the line of credit would be drawn in all cases. In some cases, none may be drawn. In other cases, the bank would become aware of the situation and curtail or cancel access to the credit line in a timely fashion.
Therefore a fixed proportion of existing credit lines is considered a reasonable approximation of the exposure at default against credit lines.

NEW QUESTION # 41
An investor holds a bond portfolio with three bonds with a modified duration of 5, 10 and 12 years respectively. The bonds are currently valued at $100, $120 and $150. If the daily volatility of interest rates is
2%, what is the 1-day VaR of the portfolio at a 95% confidence level?

A. 0
B. 163.11
C. 1
D. 115.51

Answer: D

Explanation:
The total value of the portfolio is $370 (=$100 + $120 + $150). The modified duration of the portfolio is the weighted average of the MDs of the different bonds, ie =(5 * 100/370) + (10 * 120/370) + (12 * 150/370) =
9.46.
This means that for every 1% change in interest rates, the value of the portfolio changes by 9.46%. Since the daily volatility of interest rates is 2%, the 95% confidence level move will be 1.65 * 2% = 3.30%. Thus, the VaR of the portfolio at the 95% confidence level will be 3.3 * 9.46% * $370 = $115.51.
All other answers are incorrect.

NEW QUESTION # 42
......

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