PRMIA 8010 Quiz 1 Topic 1 Questions 1-5

Question: 1

Which of the following describes rating transition matrices published by credit rating firms:

AExpected ex-ante frequencies of migration from one credit rating to another over a one year period

BProbabilities of default for each credit rating class

CProbabilities of ratings transition from one rating to another for a given set of issuers

DRealized frequencies of migration from one credit rating to another over a one year period

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Question: 2

Which of the following can be used to reduce credit exposures to a counterparty:

1. Netting arrangements

2. Collateral requirements

3. Offsetting trades with other counterparties

4. Credit default swaps

A1 and 2

B1, 2, 3 and 4

C1, 2 and 4

D3 and 4

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Question: 3

Which of the following statements is true:

ABoth total expected losses and total unexpected losses are less than the sum of expected and unexpected losses on underlying exposures respectively

BTotal expected losses are equal to the sum of individual underlying exposures while total unexpected losses are greater than the sum of unexpected losses on underlying exposures

CTotal expected losses are equal to the sum of expected losses in the individual underlying exposures while total unexpected losses are less than the sum of unexpected losses on underlying exposures

DTotal expected losses are greater than the sum of individual underlying exposures while total unexpected losses are less than the sum of unexpected losses on underlying exposures

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Question: 4

Which of the following is the most important problem to solve for fitting a severity distribution for operational risk capital:

AThe risk functional's minimization should lead to a good estimate of the 0.999 quantile

BDetermine plausible scenarios to fill the data gaps in the internal and external loss data

CEmpirical loss data needs to be extended to the ranges below the reporting threshold and above large value losses

DThe fit obtained should reduce the combination of the fitting and approximation errors to a minimum

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Question: 5

For credit risk calculations, correlation between the asset values of two issuers is often proxied with:

ACredit migration matrices

BTransition probabilities

CEquity correlations

DDefault correlations

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PRMIA 8010 Quiz:1 Topic:1 Questions:1-5