# 8010 Exam Dumps

# PRMIA 8010 Dumps - Operational Risk Manager (ORM) Exam PDF Sample Questions

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**Last Update Date :**15 April, 2024

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## Sample **Questions**

Realexamdumps Providing most updated PRM Certification Question Answers. Here are a few sample questions:

## PRMIA 8010 Sample Question 1

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**Which of the following is a cause ofmodel risk in risk management?**

#### Options:

**Answer:
D
Explanation:
Explanation: Model risk is the risk that a model built for estimating a variable will produce erroneous estimates. Model risk is caused by a number of factors, including:a) Misspecifying the model: For example, using a normal distribution when it is not justified.b) Model misuse: For example, using a model built to estimate bond prices to estimate equity pricesc) Parameter estimation errors: In particular, parameters that are subjectively determined can be subject to significant parameter estimation errorsd) Programming errors: Errors in coding the model as part of computer implementation may not be detected by end userse) Data errors: Errors in data used for building the model may also introduce model riskTherefore the correct answer is d, as all the choices are a source of model risk.**

## PRMIA 8010 Sample Question 2

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**The sensitivity (delta) of a portfolio to a single point move in the value of the S&P500 is $100. If the current level of the S&P500 is 2000, and has a one day volatility of 1%, what is the value-at-risk for this portfolio at the 99% confidence and a horizon of 10 days? What is this method of calculating VaR called?**

#### Options:

**Answer:
A
Explanation:
Explanation: If the current level of the S&P 500 is 2000, and a single day volatility is 1%, and the delta (ie change in portfolio value from a one point change) is $100, then the 1 day volatility for the portfolio in dollars is 2000 * 1% * $100 = $2,000.At the 99% confidence level, the value of the inverse cumulative density function for the normal distribution is 2.33 (=NORMSINV(99%), in Excel). Therefore the 1 day VaR will be 2.33 * $2000 =$4,660. Extending it to 10 days using the square root of time rule, we get the 10 day VaR as equal to SQRT(10)*4660 = $14,736.Since this method of calculating VaR relies upon a delta approximation of a risk factor (in this case the S&P500), it is the parametric approach to calculating VaR (the other methods being historical simulation, and Monte Carlo simulation).The 2015 Handbook provides an excellent example of parametric (and other) VaR calculations in Chapter 3 of Volume III of Book 3. The spreadsheet used for the illustration can be downloaded from http://www.prmia.org/prm-exam/handbook-resources.**

## PRMIA 8010 Sample Question 3

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**There are three bonds in a diversified bond portfolio, whose default probabilities are independent of each other and equal to 1%, 2% and 3% respectively over a 1 year time horizon. Calculate the probability that none of the three bonds will default.**

#### Options:

**Answer:
A
Explanation:
Explanation: The probability that only none of the three bonds will default is equal to the probability of all surviving. Since default correlation is zero, we can simply multiply the probabilities of survival. Therefore the correct answer is 94% = (1 - 1%) * (1 - 2%) * (1 - 3%)**

## PRMIA 8010 Sample Question 4

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**Which loss event type is the failure to timely deliver collateral classified as under the Basel II framework?**

#### Options:

**Answer:
D
Explanation:
Explanation: Refer to the detailed loss event type classification under Basel II (see Annex 9 of the accord). You should know the exact names of all loss event types, and examples of each.**

## PRMIA 8010 Sample Question 5

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**Which of the following statements are true:**

**I. Pre-settlement risk is the risk that one of the parties to a contract might default prior to the maturity date or expiry of the contract.**

**II. Pre-settlement risk can be partly mitigated by providing for early settlement in the agreements between the counterparties.**

**III. The current exposure from an OTC derivatives contract is equivalent to its current replacement value.**

**IV. Loan equivalent exposures are calculated even for exposures that are not loans as a practical matter for calculating credit risk exposure.**

#### Options:

**Answer:
C
Explanation:
Explanation: Pre-settlement risk is the risk that one of the counterparties defaults prior to the date for the maturity of the transaction in question. This may be an unrelated default, in fact there may have been no default on that particular contract, but the party may have defaulted on its other obligations, or filed for bankruptcy. To deal with such cases and to protect the interests of both the parties, it is common toprovide for immediate termination of positions and settlement based on the current replacement value of the contracts. Therefore statements I and II are correct.Statement III is correct as well - the exposure from an OTC derivative contract derives fromits current replacement value, and not the notional. If the current replacement value is negative, then the credit exposure is considered equal to zero.Statement IV is correct as it is quite common to restate all exposures - those from credit lines, OTC derivatives etc - in loan equivalent terms prior to estimating credit risk.**

## PRMIA 8010 Sample Question 6

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**Which of the following statements is true**

**I. If no loss data is available, good quality scenarios can be used to model operational risk**

**II. Scenario data can be mixed with observed loss data for modeling severity and frequency estimates**

**III. Severity estimates should not be created by fitting models to scenario generated loss data points alone**

**IV. Scenario assessments should only be used as modifiers to ILD or ELD severity models.**

#### Options:

**Answer:
B
Explanation:
Explanation: There are multiple ways to incorporate scenario analysis for modeling operational risk capital - and the exact approach used depends upon thequantity of loss data available, and the quality of scenario assessments. Generally:- If there is no past loss data available, scenarios are the only practical means to model operational risk loss distributions. Both frequency and severity estimates can be modeled based on scenario data.- If there is plenty of past data available, scenarios can be used as a modifier for estimates that are based solely on data (for example, consider the MAX of the loss estimates at the desired quantile as provided bythe data, and as indicated by scenarios)- If high quality scenario data is available, and there is sufficient past data, one could mix scenario assessments with the loss data and fit the combined data set to create the loss distribution. Alternatively, both could be fitted with severity estimates and then the two severities could be parametrically combined.In short, there is considerable flexibility in how scenarios can be used.Statement I is therefore correct, and so is statement II as both indicate valid uses of scenarios.Statement III is not correct because it may be okay to create severity estimates based on scenario data alone.Statement IV is not correct because while using scenarios as modifiers to other means of estimation is acceptable, that isnot the only use of scenarios.**

## PRMIA 8010 Sample Question 7

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**There are two bonds in a portfolio, each with a market value of $50m. The probability of default of the two bonds are 0.03 and 0.08 respectively, over a one year horizon. If the probability of the two bonds defaulting simultaneously is 1.4%, what is the default correlation between the two?**

#### Options:

**Answer:
D
Explanation:
Explanation: Probability of the joint default of both A and B =We know all the numbers except default correlation, and we can solve for it.DefaultCorrelation*SQRT(0.03*(1 - 0.03)*0.08*(1 - 0.08)) + 0.03*0.08 = 0.014.Solving, we get default correlation = 25%**