Free Practice Questions for the PRMIA PRM Certification 8004 Exam (2026 Updated)

Fortress Re and other insurers

The Fortress Re reinsurers only

The fronting insurance companies

Fortress Re and their reinsurers

stay silent on the basis that they have reported it

report the matter to their PRMIA chapter

contact the Whistle-Blowing Hotline of the organization or, if none exits, to the PRMIA Ethics Committee for guidance and assistance

report the matter to the organization's Compliance Dept.

Rogue traders

Improper or insufficient Board-level communication regarding the importance of risk management and oversight

Inadequate back office procedures

Money laundering using foreign exchange trades for political leaders

relied almost entirely on Fortress Re's management team for information on the risks in its portfolio

relied on the information it received from other members of the reinsurance pool to manage its risks

had a full understanding from Fortress Re of the risks in the pool

had a full understanding from other members of the pool of the pool's liabilities

Fannie Mae and Freddie Mac will continue to buy home loans from banks to repackage them as mortgage-backed securities

The US government will provide capital as needed in return for preferred shares in the companies

The US government will buy mortgage-backed securities in the open market as needed

There was a 2 year limit to the conservatorship

Know and abide by applicable rules and regulations

Clearly inform all affected parties of any apparent or actual conflicts of interest

Report to the Regulator any departures from generally accepted methodology or practices

Provide advice that is clear and accurate

Eliminates risk to the greatest extent possible

Is defined as the assembled knowledge and wisdom of the collective stakeholders in the organization, set to maximize shareholder value

Is defined as business decision making predicated on a belief in potential rewards, balanced with the knowledge, understanding and appreciation of the risk taken to pursue those potential rewards

Is defined as that which is best practiced within an enterprise risk management framework, guided by the PRMIA Standards of Best Practice, Conduct and Ethics above all else

Use separate trading agreements for interest rate derivatives, equity derivatives and foreign exchange transactions.

Use a common trading agreement for interest rate and equity derivatives but a separate agreement for foreign exchange transactions.

Use one trading agreement for foreign exchange forwards and another for foreign exchange options.

Use a single master trading agreement as widely as possible with each counter party.

I and III only

III only

III and IV only

All of these were key elements of the problems at LTCM

Greater volatility than expected over the life of an option

Sudden gaps in market prices

Both A and B

Neither A nor B

Backwardation

Contango

Reverse backwardation

Conchacha

Extreme exposure to foreign currency exposures and losses from non-US$ mortgages

Lawmakers postponed strenghtening regulatory oversight due to partisan infighting

Under-management and under-measurement of market and liquidity risk

They did not raise enough capital to weather the storm as the housing slump expanded

I, II, III, and IV

IV, III, II, and I

II, I, IV, and III

III, II, IV, and I

unhedged

hedged using exchange-traded futures with longer maturities than the retail contracts

hedged using exchange-traded futures with shorter maturities than the retail contracts

fully hedged using exchange-traded futures of the same maturities as the retail contracts

Dynamic hedging

A stacked hedge

A differential hedge

Nothing because MG Refining & Marketing did not hedge its position

fully aware of the uninsured risks Fortress Re were taking

absolutely unaware of their uninsured liabilities

aware that they had some uninsured liabilities but thought they had enough capital to withstand any uninsured losses

None of the above

sold them derivative products without properly advising them of the relevant risks

did not honour its contractual obligations to pay

was involved in accounting fraud

hid profits

Basis Risk

Currency Settlement

Interest Rate

Inflation

Trying to borrow more money from major money centre banks

Issuing Subordinated Debt

Returning capital to the general partners before others

Unwinding its' more liquid trades thereby creating more liquidity risk overall

Provided investors and analysts with insight into the dynamics of value changes, and the sensitivity of fair value to the underlying drivers of interest rates, exchange rates, and commodity prices

Only provided the intrinsic value of its outstanding option positions

Only provided the time value of its outstanding option position

None of the above

Losses kept increasing while rogue trader(s) hid their positions

The back offices had inadequate procedures

Both A and B

None of the above

Alerted senior management to the problems before the major losses occurred

Helped very little as Nick Leeson hid many trades

Not correctly assessed the risk in Nick Leeson's option trades as they have non-linear price characteristics

Been used if senior management had ever seen it

Where there are excess rewards, there must be risks

The Know Your Customer rule

Strategies that are not possible to explain to third parties should not be employed by the risk averse

Fractured organisational structure and poor risk oversight mechanism make it easy for powerful individuals to hide risk in the gaps

Realized losses on short-term contracts against unrealized gains on the long-run contract

The final price of the underlying being higher than the initial price

The initial price of the underlying being higher than the final price

The short-term price of the underlying being higher than the long-run contract

to buy puts and sell calls

to buy calls and sell puts

to sell puts and buy calls

to sell calls and buy puts

Market Risk

Credit Risk

Operational and Regulatory Compliance Risk

All of the Above

The risk manager has submitted the report to their direct supervisor and their obligation ends at this point, nothing further should be done

The risk manager should attempt to resolve the conflict with the direct supervisor, but if that does not work, they should contact the Whistle-Blowing Hotline of the organization. If no such hot-line is in place, they should contact the PRMIA Ethics Committee

Escalation of the issue is against the Code of Conduct because one should respect the administrative structure of the organization

If the risk manager deems it appropriate, he / she should send a copy of the original report to the CEO

The bank is insolvent in that the current value of its assets (measured at book value) is less than the value of its liabilities; thus even if the bank were to liquidate all of its assets it would not be able to repay all depositors and other creditors

The bank is legally solvent but if, because it cannot fund its operations, it is forced to liquidate assets it could do so only at less than nominal values (fire sale) and this would make it legally insolvent (value of assets falls below those of liabilities)

The bank is legally solvent but its current funding costs (which are likely to continue) exceed the average rate of return on its assets and hence it would soon become insolvent as it would be making losses and would eventually exhaust its equity capital

The bank is solvent in that the current value of its assets (measured at book value) is more than the value of its liabilities; so even if the bank were to liquidate all of its assets it would be able to repay all depositors and other creditors

The resulting loss rate for Washington Mutual was more than 3 times higher than other mortgage lenders tracked by the FDIC

the two banks were focussed in different markets

Long Beach Financial had losses which it hadn't realized at the time of the takeover

Of a general deterioration of credit quality generally

II, III and IV only

I, II and IV only

All of the above

I and II only