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PRMIA 8011: Credit and Counterparty Manager (CCRM) Certificate Exam is designed to test the knowledge and skills of professionals in credit and counterparty risk management. The test assesses the comprehension of the concepts and technical analysis involved in credit risk management and the application of that knowledge to real-life scenarios. 8011 Exam covers topics such as credit analysis techniques, credit risk models, risk quantification and measurement, asset quality assessment, portfolio optimization, and counterparty risk management.

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PRMIA Credit and Counterparty Manager (CCRM) Certificate Exam Sample Questions (Q299-Q304):

NEW QUESTION # 299
For a given notional amount, which of the following carries the greatest counterparty exposure (assuming the same counterparty credit rating for each):

• A. A one year certificate of deposit
• B. A one year interest rate swap
• C. A futures contract on an equity index
• D. A one year forward foreign exchange contract

Answer: A

Explanation:
The exposure at default is the greatest for the certificate of deposit as the entire notional amount is exposed to the risk of default. The other choices represent derivatives for which the current replacement value, which would be far less than notional, would be the credit exposure.
Said another way - if the counterparty were to default, the entire money in the CD would be at risk, whereas for the derivative contracts it would only be the replacement value that would be at risk.

NEW QUESTION # 300
The systemic manifestation of the liquidity crisis during the current credit crisis took many forms. Which of the following is not one of those forms?

• A. Drying up of liquidity in the wholesale money markets
• B. Drying up of liquidity in the cash market for treasury bonds
• C. Drying up of liquidity in the corporate bond markets
• D. Stress and large withdrawals from the money markets

Answer: B

Explanation:
The stresses on liquidity that happened as part of the credit crisis beginning 2007-08 led to drying up of trading and liquidity crisis in the corporate bond markets, the auction rate securities markets, the wholesale (interbank lending) markets, the money markets, the markets for structured products, and even the otherwise liquid futures and forwards markets (as there was no liquidity available to fund the financing of futures). The one market that was not affected was the market for treasuries, in fact the flight to quality ensured that this market was very liquid (even though stressed from a pricing perspective as yields plummetted).
Therefore Choice 'a' is the correct answer.

NEW QUESTION # 301
Under the KMV Moody's approach to calculating expecting default frequencies (EDF), firms' default on obligations is likely when:

• A. expected asset values one year hence are below total liabilities
• B. asset values reach a level below short term debt
• C. asset values reach a level between short term debt and total liabilities
• D. asset values reach a level below total liabilities

Answer: C

Explanation:
An observed fact that the KMV approach relies upon is that firms do not default when their liabilities exceed assets, but when asset values are somewhere between short term liabilities and the total liabilities. In fact, the
'default point' in the KMV methodology is defined as the short term debt plus half of the long term debt. The difference between expected value of the assets in one year and this 'default point', when expressed in terms of standard deviation of the asset values, is called the 'distance-to-default'.
Therefore Choice 'd' is the correct answer. The other choices are incorrect.

NEW QUESTION # 302
An assumption regarding the absence of ratings momentum is referred to as:

• A. Herstatt risk
• B. Time invariance
• C. Markov property
• D. Ratings stability

Answer: C

Explanation:
Choice 'c' is the correct answer. The Markov property is the assumption that there is no ratings momentum, and that transition probabilities are dependent only upon where the rating currently is and where it is going to.
Where it has come from, or what the past changes in ratings have been, have no effect on the transition probabilities. ('Herstatt risk' refers to settlement risk, and is irrelevant.)

NEW QUESTION # 303
A risk analyst peforming PCA wishes to explain 80% of the variance. The first orthogonal factor has a volatility of 100, and the second 40, and the third 30. Assume there are no other factors. Which of the factors will be included in the final analysis?

• A. First
• B. Insufficient information to answer the question
• C. First and Second
• D. First, Second and Third

Answer: A

Explanation:
The total variance of the system is 100