Quiz 2025 8011: Accurate Credit and Counterparty Manager (CCRM) Certificate Exam Certification
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PRMIA Credit and Counterparty Manager (CCRM) Certificate Exam Sample Questions (Q150-Q155):
NEW QUESTION # 150
Which of the following credit risk models includes a consideration of macro economic variables such as unemployment, balance of payments etc to assess credit risk?
Answer: A
Explanation:
The correct answer is Choice 'd'. The following is a brief description of the major approaches available to model credit risk, and the analysis that underlies them:
1. CreditMetrics: based on the credit migration framework. Considers the probability of migration to other credit ratings and the impact of such migrations on portfolio value.
2. CreditPortfolio View: similar to CreditMetrics, but adds the impact of the business cycle to the evaluation.
3. The contingent claims approach: uses option theory by considering a debt as a put option on the assets of the firm.
4. KMV's EDF (expected default frequency) based approach: relies on EDFs and distance to default as a measure of credit risk.
5. CreditRisk+: Also called the 'actuarial approach', considers default as a binary event that either happens or does not happen. This approach does not consider the loss of value from deterioration in credit quality (unless the deterioration implies default).
NEW QUESTION # 151
CreditRisk+, the actuarial model for calculating portfolio credit risk, is based upon:
Answer: B
Explanation:
CreditRisk+ treats default as a binary event, ignoring downgrade risk, capital structures of individual firms in the portfolio or the causes of default. It uses a single parameter,#or the mean default rate, and derives credit risk based upon the Poisson distribution. Therefore Choice 'c' is the correct answer.
NEW QUESTION # 152
Which of the following are valid criticisms of value at risk:
I. There are many risks that a VaR framework cannot model
II. VaR does not consider liquidity risk
III. VaR does not account for historical market movements
IV. VaR does not consider the risk of contagion
Answer: C
Explanation:
Risks such as abrupt changes to a firm's business model caused by legislation, or the introduction of capital controls in foreign countries where a firm in invested, geo-political risks etc are not modelable in the traditional sense. These risks cannot be modeled using VaR. Therefore statement I is correct.
VaR indeed does not consider liquidity risk, it is only concerned with the standard deviation of portfolio returns. Statement II is a valid criticism.
Statement III is not correct, as VaR can consider historical price movements.
Statement IV is correct, as VaR does not consider systemic risk or the risk of contagion.
NEW QUESTION # 153
For a 10 year interest rate swap, what would be the worst time for a counterparty to default (in terms of the maximum likely credit exposure)
Answer: A
Explanation:
Right after inception' is incorrect as the interest rate swap (IRS) would be valued at close to zero right after inception and the credit risk would be minimum. Choice 'a' (ie 10 years, at maturity) is incorrect as at maturity there would be no more cash flows to exchange, and the replacement value of the contract would again be close to zero.
Therefore the worst time for the counterparty to default is somewhere between inception andmaturity - in fact the range of possible outcomes for the contract increases with the passage of time, and we should find the worst time to default to be a later date. However, towards maturity, the value of the contract starts to go towards zero again, and the maximum value is reached around 7 years. 2 years is too early for the maximum to be reached for the 10 year IRS, and therefore choice a is the correct answer.
NEW QUESTION # 154
What is the combined VaR of two securities that are perfectly positively correlated.
Answer: D
Explanation:
Choice 'b' is the correct answer. When two securities have a correlation of +1, they are effectively the same security. In such cases, the standard deviations of the two securities are additive, which means the VaRs can simply be added together to get the combined VaR. All the other choices are incorrect.
Choice 'c' in particular would have been correct if the securities were completely uncorrelated, ie if they had a correlation of zero.
Choice 'a' would have been correct if their correlation were -1.
NEW QUESTION # 155
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