Best 8010 Exam Questions & Answers For Operational Risk Manager (ORM) Exam [2022]

1. The risk that a counterparty fails to deliver its obligation upon settlement while having received the leg owed to it is called:

2. For a 10 year interest rate swap, what would be the worst time for a counterparty to default (in terms of the maximum likely credit exposure)

3. If F be the face value of a firm's debt, V the value of its assets and E the market value of equity, then according to the option pricing approach a default on debt occurs when:

4. 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?

5. Which of the following are ordered correctly in the order of debt seniority in a bankruptcy situation?

I. Equity, Subordinate debt, Senior debt

II. Senior debt, Preferred stock, Equity

III. Secured debt, Accounts payable, Preferred stock

IV. Secured debt, DIP financing, Equity

6. Which of the following statements are true?

I. Risk governance structures distribute rights and responsibilities among stakeholders in the corporation

II. Cybernetics is the multidisciplinary study of cyber risk and control systems underlying information systems in an organization

III. Corporate governance is a subset of the larger subject of risk governance

IV. The Cadbury report was issued in the early 90s and was one of the early frameworks for corporate governance

7. When compared to a low severity high frequency risk, the operational risk capital requirement for a medium severity medium frequency risk is likely to be:

8. CreditRisk+, the actuarial model for calculating portfolio credit risk, is based upon:

9. Which of the following contributed to the systemic failure during the credit crisis that began in 2007?

10. A bank's detailed portfolio data on positions held in a particular security across the bank does not agree with the aggregate total position for that security for the bank .

What data quality attribute is missing in this situation?

11. The probability of default of a security over a 1 year period is 3% .

What is the probability that it would not have defaulted at theend of four years from now?

12. According to the Basel II framework, subordinated term debt that was originally issued 4 years ago with amaturity of 6 years is considered a part of:

13. Identify the correct sequence of events as it unfolded in the credit crisis beginning 2007:

I. Mortgage defaults increased

II. Collapse in prices of unrelated assets as banks tried to create liquidity

III. Banks refused to lend or transact with each other

IV. Asset prices for CDOs collapsed

14. Which of the following formulae describes Marginal VaR for a portfolio p, where V_i is the value of the i-th asset in the portfolio? (All other notation and symbols have their usual meaning.)

A)





B)





C)





D)

All of the above

15. Under the standardized approach to calculating operational risk capital under Basel II, negative regulatory capital charges for any of the business units:

16. According to the implied capital model, operational risk capital is estimated as:

17. The sum of the stand alone economic capital of all the business units of a bank is:

18. Which of the following is the best description of the spread premium puzzle:

19. Which of the following best describes the concept of marginalVaR of an asset in a portfolio:

20. Which of the following techniques is used to generate multivariate normal random numbers that are correlated?

21. A loan portfolio's full notional value is $100, and its value in a worst case scenario at the 99% level of confidence is $65. Expected losses on the portfolio are estimated at 10% .

What is the level of economic capital required to cushion unexpected losses?

22. A bullet bond and an amortizing loan are issued at the same time with the same maturity and with the same principal .

Which of these would have a greater credit exposure halfway through their life?

23. For creditrisk calculations, correlation between the asset values of two issuers is often proxied with:

24. The generalized Pareto distribution, when used in the context of operational risk, is used to model:

25. If the cumulative default probabilities of default for years 1 and 2 for a portfolio of credit risky assets is 5% and 15% respectively, what is the marginal probability of default in year 2 alone?

26. Which loss event type is the loss of personally identifiableclient information classified as under the Basel II framework?

27. The standalone economic capital estimates for the three uncorrelated business units of a bank are $100, $200 and $150 respectively .

What is the combined economic capital for the bank?

28. Which of the following can be used to reduce credit exposures to a counterparty:

I. Netting arrangements

II. Collateral requirements

III. Offsetting trades with other counterparties

IV. Credit default swaps

29. If the default hazard rate for a company is 10%, and the spread on its bondsover the risk free rate is 800 bps, what is the expected recovery rate?

30. Which of the following credit risk models relies upon theanalysis of credit rating migrations to assess credit risk?

31. Which of the following statements are true:

I. A transition matrix is the probability of a security migrating from one rating class to another during its lifetime.

II. Marginal default probabilities refer to probabilities of default in a particular period, given survival atthe beginning of that period.

III. Marginal default probabilities will always be greater than the corresponding cumulative default probability.

IV. Loss given default is generally greater when recovery rates are low.

32. If a borrower has a default probability of 12% over one year, what is the probability of default over a month?

33. An error by a third party service provider results in a loss to a client that the bank has to make up. Such as loss would be categorized per Basel IIoperational risk categories as:

34. Which of the following cannot be used as an internal credit rating model to assess an individual borrower:

35. If EV be the expected value of a firm's assets in a year, and DP be the 'default point' per the KMV approach to credit risk, and be the standard deviation of future asset returns, then the distance-to-default is given by:

A)





B)





C)





D)

36. Which of the following is not a permitted approach under Basel II for calculating operational riskcapital

37. When combining separate bottom up estimates of market, credit and operational risk measures, a most conservative economic capital estimate results from which of the following assumptions:

38. A risk management function is best organized as:

39. Which of the following are valid approaches for extreme value analysis given a dataset:

I. The Block Maxima approach

II. Least squares approach

III. Maximum likelihood approach

IV. Peak-over-thresholds approach

40. Which of the following risks and reasons justify the use of scenario analysis in operational risk modeling:

I. Risks for which no internal loss data is available

II. Risks that are foreseeable but have no precedent, internally or externally

III. Risks for which objective assessments can be made by experts

IV. Risks that are known to exist, but for which no reliable external or internal losses can be analyzed

V. Reducing the complexity of having to fit statistical models to internal and external loss data

VI. Managing the capital estimation process as to produce estimates in line with management's desired capital buffers.

41. If E denotes the expected value of a loan portfolio at the end on one year and U the value of the portfolio in the worst case scenario at the 99% confidence level, which of the following expressions correctly describes economic capital required in respect of credit risk?

42. For a given notional amount, which of the following carries the greatest counterparty exposure (assuming the same counterparty credit rating for each):

43. If the full notional value of a debt portfolio is $100m, its expected value in a year is $85m, and the worst value of the portfolio in one year's time at 99% confidence level is $60m, then what is the credit VaR?

44. Which of the following is not one of the 'three pillars' specified in the Basel accord:

45. Which of the following situations are not suitable for applying parametric VaR:

I. Where the portfolio's valuation is linearly dependent upon risk factors

II. Where the portfolio consists of non-linear products such as options and large moves are involved

III. Where the returns of risk factors are known to be not normally distributed

46. A bank expects the error rate in transaction data entry for a particular business process to be 0.005% .

What is the range of expected errors in a day within +/- 2 standard deviations if there are 2,000,000 such transactions each day?

47. Which of the following is not a credit event under ISDA definitions?

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

49. For a hypotherical UoM, the number of losses in two non-overlapping datasets is 24 and 32 respectively. The Pareto tail parameters for the two datasets calculated using the maximum likelihood estimation method are 2 and 3 .

What is an estimate of the tail parameter of the combined dataset?

50. For a loan portfolio, unexpected losses are charged against:

51. 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?

52. Under the ISDA MA, which of the following terms best describes the netting applied upon the bankruptcy of a party?

53. Which of the following are a CRO's responsibilities:

I. Statutory financial reporting

II. Reporting to the audit committee

III. Compliance with risk regulatory standards

IV. Operational risk

54. Loss provisioning is intended to cover:

55. In estimating credit exposure for a line of credit, it is usual to consider:

56. A bank prices retail credit loans based on median default rates. Over the long run, it can expect:

57. 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.

58. What would be the correct order of steps to addressing data quality problems in an organization?

59. Which of the following is NOT true in respect of bilateral close out netting:

60. A corporate bond maturing in 1 year yields 8.5% per year,while a similar treasury bond yields 4% .

What is the probability of default for the corporate bond assuming the recovery rate is zero?

61. If the marginal probabilities of default for a corporate bond for years 1, 2 and 3 are 2%, 3% and 4% respectively, what is the cumulative probability of default at the end of year 3?

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

63. The Options Theoretic approach to calculating economic capital considers the value of capital as being equivalent to a call option with a strike price equal to:

64. Which of the following statements are true:

I. Top down approaches help focus management attention on the frequency and severity of loss events, while bottom up approaches do not.

II. Top down approaches rely upon high level data while bottom up approaches need firm specific risk data to estimate risk.

III. Scenario analysis can help capture both qualitative and quantitative dimensions of operational risk.

65. Which of the following need to be assumed to convert a transition probability matrix for a given time period to the transition probability matrix for another length of time:

I. Time invariance

II. Markov property

III. Normal distribution

IV. Zero skewness

66. CORRECT TEXT

Which of the following statements are true in relation to Historical Simulation VaR?

I. Historical Simulation VaR assumes returns are normally distributed but have fat tails

II. It uses full revaluation, as opposed to delta or delta-gamma approximations

III. Acorrelation matrix is constructed using historical scenarios

IV. It particularly suits new products that may not have a long time series of historical data available

67. Which of the following belong to the family of generalized extreme value distributions:

I. Frechet

II. Gumbel

III. Weibull

IV. Exponential

68. Which of the following is closest to the description of a 'risk functional'?

69. Credit exposure for derivatives is measured using

70. Which of the following should be included when calculating the Gross Income indicator used to calculate operational risk capital under the basic indicator and standardized approaches under Basel II?

71. Which of the following is the most accurate description of EPE (Expected Positive Exposure):

72. Which of the following is NOT an approach used to allocate economic capital to underlying business units:

73. What is the risk horizon period used for credit risk as generally used for economic capital calculations and as required by regulation?

74. 1.Which of the following statements are correct?

I. A reliance upon conditional probabilities and a-priori views of probabilities is called the 'frequentist' view

II. Knightian uncertainty refers to things that might happen but for which probabilities cannot be evaluated

III. Risk mitigation and risk elimination are approaches to reacting to identified risks

IV. Confidence accounting is a reference to the accounting frauds that were seen in the past decadeas a reflection of failed governance processes

75. Which of the following carry greater counterparty risk: a forward contract on a 10 year note, or a commercial paper carrying a AA credit rating with identical maturity and notional?

76. Which of the following belong in a credit risk report?

77. When compared to a medium severity medium frequency risk, the operational risk capital requirement for a high severity very low frequency risk is likely to be:

78. The frequency distribution for operational risk loss events can be modeled by which of the following distributions:

I. The binomial distribution

II. The Poisson distribution

III. The negative binomial distribution

IV. The omega distribution

79. Which of the following decisions need to be made as part of laying down a system for calculating VaR:

I. The confidence level and horizon

II. Whether portfolio valuation is based upon a delta-gamma approximation or a full revaluation

III. Whether the VaR is to be disclosed in the quarterly financial statements

IV. Whether a 10 day VaR will be calculated based on 10-day return periods, or for 1-day and scaled to 10 days

80. As the persistence parameter under EWMA is lowered, which of the following would be true: