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PRMIA 8011 (Credit and Counterparty Manager (CCRM) Certificate) Certification Exam is a globally recognized certification exam for professionals in the field of credit and counterparty risk management. Credit and Counterparty Manager (CCRM) Certificate Exam certification exam is designed to help individuals develop the knowledge and skills necessary to manage credit risk and counterparty risk effectively. Credit and Counterparty Manager (CCRM) Certificate Exam certification exam covers a broad range of topics, including credit risk modeling, credit risk management, counterparty risk management, and regulatory requirements.

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PRMIA Credit and Counterparty Manager (CCRM) Certificate Exam Sample Questions (Q215-Q220):

NEW QUESTION # 215
The Altman credit risk score considers:

A. A historical database of the firms that have defaulted
B. A historical database of the firms that have survived
C. A combination of accounting measures and market values
D. A quadratic approximation of the credit risk based on underlying risk factors

Answer: C

Explanation:
A computation of Altman's Z-score considers the following ratios:
- Working capital to total assets
- Retained earnings to total assets
- EBIT to total assets
- Market cap to debt
- Sales to total assets
Nearly all the numbers above are accounting measures derived straight from the balance sheet or the income statement. Market capitalization is a market driven number. Therefore Choice 'c' is the correct answer as the Altman credit risk score considers both accounting and market based measures.
Altman's score, though computationally straightforward and intuitively easy to understand, was introduced in the late sixties and has been very accurate in predicting corporate bankruptcies, which is why it continues to be used extensively.

NEW QUESTION # 216
If two bonds with identical credit ratings, coupon and maturity but from different issuers trade at different spreads to treasury rates, which of the following is a possible explanation:
I. The bonds differ in liquidity
II. Events have happened that have changed investor perceptions but these are not yet reflected in the ratings III. The bonds carry different market risk IV. The bonds differ in their convexity

A. I and II
B. I, II and IV
C. II and IV
D. III and IV

Answer: A

Explanation:
When two bonds that appear identical in every respect trade at different prices, the difference is often due to differences in liquidity between the two bonds (the less liquid bond will be cheaper and yield higher), and also due to the fact that ratings from the major rating agencies do not generally react to day to day changes in the market. The market's perception of the differences in the two credits will cause a divergence in the prices.
This has been an extremely visible phenomenon during the credit crisis of 2007-2009, where fixed income security prices have changed sharply for many securities without any changes in external credit ratings.
Bonds carrying 'different market risk' is meaningless, and so is the difference in convexity (because the calculated convexity would be identical for similar bonds).
Therefore Choice 'c' is the correct answer.

NEW QUESTION # 217
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?

A. 90 to 110 errors in a day
B. 60 to 80 errors in a day
C. 80 to 120 errors in a day
D. 0 to 200 errors in a day

Answer: C

Explanation:
Error rates are generally modeled using the Poisson distribution. Recall that the Poisson distribution has only one parameter -#- which is its mean and also its variance.
In the given case, the mean number of errors is 2,000,000 x 0.005% = 100. Since this is the variance as well, the standard deviation is #100 = 10. Therefore the range of outcomes within 2 standard deviations of the mean is 100 +/- (2*10) = 80 to 120 errors in a day.

NEW QUESTION # 218
Which of the following cannot be used as an internal credit rating model to assess an individual borrower:

A. Altman's Z-score
B. Probit model
C. Distance to default model
D. Logit model

Answer: C

Explanation:
Altman's Z-score, the Probit and the Logit models can all be used to assess the credit rating of anindividual borrower.There is no such model as the 'distance to default model', and therefore Choice 'a' is the correct answer.

NEW QUESTION # 219
Which of the following statements are true:
I. Stress testing, if exhaustive, can replace traditional risk management tools such as value-at-risk (VaR) II. Stress tests can be particularly useful in identifying risks with new products III. Stress testing is distinct from a bank's ICAAP carried out periodically IV. Stress testing is a powerful communication tool that can convey risks to decisionmakers in an organization

A. I, II and III
B. I and III
C. All of the above
D. II and IV

Answer: D

Explanation:
Stress testing provides an independent and complementary perspective to other risk management tools such as value-at-risk and economic capital. Both are tools that serve similar purposes but are not interchangeable.
Stress testing, no matter how exhaustively done, can not replace other tools such as those based on analytical or historical models. It can provide a useful sense check to validate models and assumptions, but is not a replacement for traditional techniques. Therefore statement I is false.
Stress testing can certainly help identify risks with new products for which historical data may be limited, and analytical models may be based upon many unproven assumptions. It can help challenge the risk characteristics of new products where stress situations have not been observed in the past. Therefore statement II is correct.
ICAAP stands for the 'internal capital adequacy assessment process' performed by a bank (remember the acronym and its expansion). Stress testing is an integral part of a firm's ICAAP, and not distinct. It is one of the elements of the internal process. Therefore statement III is false.
Statement IV is correct as stress testing is indeed a powerful tool that can communicate risks throughout the organization as the stress scenarios are easier to comprehend than arcane statistical models. They are also easier to explain to regulators, and are a powerful communication tool.
Thus Choice 'c' is the correct answer.

NEW QUESTION # 220
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