Free Operational Risk Manager (ORM) Exam 8010 Exam Practice Test

For a corporate issuer, which of the following can be used to calculate market implied default probabilities?1. CDS spreads2. Bond prices3. Credit rating issued by S&P4. Altman's scoring model

• 3 and 4
• 1 and 2
• 1, 2 and 3
• 2 and 3

Which of the following risks and reasons justify the use of scenario analysis in operational risk modeling:1. Risks for which no internal loss data is available2. Risks that are foreseeable but have no precedent, internally or externally3. Risks for which objective assessments can be made by experts4. Risks that are known to exist, but for which no reliable external or internal losses can be analyzed5. Reducing the complexity of having to fit statistical models to internal and external loss data6. Managing the capital estimation process as to produce estimates in line with management's desired capital buffers.

• 1, 2 and 3
• 1, 2, 3 and 4
• 5
• All of the above

A stock that follows the Weiner process has its future price determined by:

• its expected return alone
• its expected return and standard deviation
• its standard deviation and past technical movements
• its current price, expected return and standard deviation

Which of the following credit risk models focuses on default alone and ignores credit migration when assessing credit risk?

• CreditPortfolio View
• The contingent claims approach
• The CreditMetrics approach
• The actuarial approach

Once the frequency and severity distributions for loss events have been determined, which of the following is an accurate description of the process to determine a full loss distribution for operational risk?

• A firm wide operational risk distribution is generated by adding together the frequency and severity distributions
• A firm wide operational risk distribution is generated using Monte Carlo simulations
• A firm wide operational risk distribution is set to be equal to the product of the frequency and severity distributions
• The frequency distribution alone forms the basis for the loss distribution for operational risk

A long position in a credit sensitive bond can be synthetically replicated using:

• a long position in a treasury bond and a short position in a CDS
• a long position in a treasury bond and a long position in a CDS
• a short position in a treasury bond and a short position in a CDS
• a short position in a treasury bond and a long position in a CDS

Which of the following decisions need to be made as part of laying down a system for calculating VaR:1. The confidence level and horizon2. Whether portfolio valuation is based upon a delta-gamma approximation or a full revaluation3. Whether the VaR is to be disclosed in the quarterly financial statements4. Whether a 10 day VaR will be calculated based on 10-day return periods, or for 1-day and scaled to 10 days

• 1 and 3
• 2 and 4
• 1, 2 and 4
• All of the above

Which of the following was not a policy response introduced by Basel 2.5 in response to the global financial crisis:

• Comprehensive Risk Model (CRM)
• Comprehensive Capital Analysis and Review (CCAR)
• Stressed VaR (SVaR)
• Incremental Risk Charge (IRC)

For a loan portfolio, unexpected losses are charged against:

• Credit reserves
• Economic credit capital
• Economic capital
• Regulatory capital

Under the KMV Moody's approach to credit risk measurement, which of the following expressions describes the expected 'default point' value of assets at which the firm may be expected to default?

• Short term debt + Long term debt
• 2* Short term debt + Long term debt
• Short term debt + 0.5* Long term debt
• Long term debt + 0.5* Short term debt