100% PASS QUIZ UNPARALLELED PRMIA - 8020 - ORM CERTIFICATE - 2023 UPDATE NEW EXAM BOOTCAMP

100% Pass Quiz Unparalleled PRMIA - 8020 - ORM Certificate - 2023 Update New Exam Bootcamp

100% Pass Quiz Unparalleled PRMIA - 8020 - ORM Certificate - 2023 Update New Exam Bootcamp

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PRMIA 8020 Exam Syllabus Topics:

TopicDetails
Topic 1
  • Risk Assessment: This section of the exam measures the skills of Financial Risk Analysts and covers methodologies for evaluating risks in different domains, including qualitative and quantitative approaches. It focuses on assessing vulnerabilities, threats, and potential impacts on business operations. A key skill measured is conducting risk impact analysis for financial threats.
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
  • 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.
Topic 4
  • 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.

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PRMIA ORM Certificate - 2023 Update Sample Questions (Q54-Q59):

NEW QUESTION # 54
The Internal Loss Multiplier (ILM) is part of the Basel III Standardized Approach. Which of these definitions best descibes it?

  • A. It is a financial-statement-based proxy for operational risk.
  • B. It is a non-financial factor that is based on a bank's average historical losses.
  • C. t is a scaling factor that is based on a bank's average historical losses.
  • D. It is uniform, and is used for indicating consistent incidents on an average return basis.

Answer: C

Explanation:
The Internal Loss Multiplier (ILM) is a key component of the Basel III Standardized Approach for Operational Risk. It is designed to adjust capital requirements based on a bank's historical loss experience.
Definition of ILM
ILM is a scaling factor that adjusts the operational risk capital requirement based on a bank's internal loss history.
It is derived using a formula that incorporates historical operational risk losses relative to a bank's revenue.
Why ILM Exists in Basel III
Basel III replaced the Advanced Measurement Approach (AMA) with a Standardized Approach that includes ILM to ensure that banks with high historical losses hold more capital for operational risk.
Why Other Answers Are Incorrect
Option
Explanation:
A . It is a financial-statement-based proxy for operational risk.
Incorrect - ILM is not a general financial statement proxy; it specifically adjusts capital based on past operational losses.
B . It is a non-financial factor that is based on a bank's average historical losses.
Incorrect - ILM is financial in nature because it directly influences capital requirements.
D . It is uniform, and is used for indicating consistent incidents on an average return basis.
Incorrect - ILM is not uniform; it is bank-specific and varies based on loss history.
PRMIA Reference for Verification
PRMIA Operational Risk Standards
Basel III Standardized Approach for Operational Risk


NEW QUESTION # 55
Which of the following best describes the role of the compliance department?

  • A. The compliance department is responsible for providing oversight over the auditor's implementation of compliance risk management controls.
  • B. The compliance department is responsible for providing oversight over the board's implementation of compliance risk management controls.
  • C. The compliance department is responsible for implementing the first line's compliance risk management controls.
  • D. The compliance department is responsible for providing oversight over the first line's implementation of compliance risk management controls.

Answer: D

Explanation:
Three Lines of Defense Model
The compliance department functions as the second line of defense, ensuring oversight over the first line's compliance controls.
It does not directly implement controls but monitors and advises on compliance risk management.
Responsibilities of the Compliance Department
Ensures regulatory compliance with laws, policies, and industry standards.
Monitors and enforces risk management controls within business operations.
Provides advisory and training on compliance risks.
Why Answer D is Correct
The first line of defense (business operations) is responsible for executing compliance controls.
The compliance department (second line) provides oversight and governance to ensure compliance adherence.
Why Other Answers Are Incorrect
Option
Explanation:
A . The compliance department is responsible for implementing the first line's compliance risk management controls.
Incorrect - The first line (business units) implement compliance controls, while compliance oversees.
B . The compliance department is responsible for providing oversight over the auditor's implementation of compliance risk management controls.
Incorrect - Internal audit is part of the third line of defense, not directly overseen by compliance.
C . The compliance department is responsible for providing oversight over the board's implementation of compliance risk management controls.
Incorrect - The board provides high-level governance; compliance ensures business adherence to regulations.
PRMIA Reference for Verification
PRMIA Governance & Compliance Oversight Framework
Basel Committee's Guidelines on Compliance Risk Management


NEW QUESTION # 56
For the National Australia Bank - FX Options case study, large and unusual transaction activity was a concern for what reason?

  • A. Deep-in-the-money options and other complex structured transactions aided in the smoothing of losses.
  • B. Complex structured transactions aided in the smoothing of losses.
  • C. Deep-in-the-money options and other complex structured transactions aided in the smoothing of profits and losses.
  • D. Deep-in-the-money options aided in the smoothing of losses.

Answer: C

Explanation:
The National Australia Bank (NAB) FX Options Case Study is a well-known example of operational risk, fraud, and governance failure.
What Happened?
Traders engaged in unauthorized foreign exchange (FX) options trading, using deep-in-the-money options and other complex instruments.
They manipulated profits and losses to smooth earnings and mislead risk managers and auditors.
Why Answer C is Correct
The traders smoothed both profits and losses to avoid detection and ensure continued trading bonuses.
This aligns with PRMIA's Operational Risk Management Guidelines, which highlight that hidden trading losses and smoothing techniques increase financial crime risk.
Why Other Answers Are Incorrect
Option
Explanation:
A . Complex structured transactions aided in the smoothing of losses.
Incorrect - Smoothing occurred with both profits and losses, not just losses.
B . Deep-in-the-money options and other complex structured transactions aided in the smoothing of losses.
Incorrect - Profits were also manipulated, making this answer incomplete.
D . Deep-in-the-money options aided in the smoothing of losses.
Incorrect - This focuses only on deep-in-the-money options and ignores other structured transactions involved in the fraud.
PRMIA Reference for Verification
PRMIA Fraud and Risk Management Case Studies
Basel Principles on Market Risk and Internal Control Failures


NEW QUESTION # 57
For the Barings case study, what external event may have accelerated the discovery of the loss event?

  • A. The collapse of Lehman Brothers into bankruptcy m 2008.
  • B. The collapse of Lehman Brothers into bankruptcy in 2002.
  • C. The Singapore earthquake of January 17th 1995.
  • D. The Kobe earthquake of January 17th 1995.

Answer: D

Explanation:
Background of the Barings Case Study
The Barings Bank collapse occurred due to unauthorized derivatives trading by Nick Leeson in Singapore.
Leeson concealed losses, and his trading positions became unmanageable.
How the Kobe Earthquake Affected Barings
On January 17, 1995, the Kobe earthquake caused extreme market volatility.
Leeson's unauthorized trades were highly exposed to the Nikkei 225 index, and the earthquake triggered heavy losses.
The event accelerated the exposure of Leeson's fraudulent activities, leading to Barings' collapse.
Why Answer D is Correct
The Kobe earthquake created market turmoil, forcing Barings to confront its financial position, ultimately revealing the hidden losses.
Why Other Answers Are Incorrect
Option
Explanation:
A . The collapse of Lehman Brothers into bankruptcy in 2002.
Incorrect - Lehman Brothers collapsed in 2008, not 2002.
B . The Singapore earthquake of January 17th, 1995.
Incorrect - No significant earthquake occurred in Singapore on that date.
C . The collapse of Lehman Brothers into bankruptcy in 2008.
Incorrect - Barings collapsed in 1995, not related to Lehman Brothers' 2008 failure.
PRMIA Reference for Verification
PRMIA Case Study on Barings Bank Collapse
Basel Committee Principles on Risk Oversight and Fraud Prevention


NEW QUESTION # 58
Which of the following is not an action available to management and the governing body to align the strategy with Risk Capacity.

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

Answer: B

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 # 59
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