100% Pass Quiz 8011 - Valid Credit and Counterparty Manager (CCRM) Certificate Exam Braindump Free

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PRMIA Credit and Counterparty Manager (CCRM) Certificate Exam Sample Questions (Q267-Q272):

NEW QUESTION # 267
A long position in a credit sensitive bond can be synthetically replicated using:

A. a long position in a treasury bond and a short position in a CDS
B. a long position in a treasury bond and a long position in a CDS
C. a short position in a treasury bond and a long position in a CDS
D. a short position in a treasury bond and a short position in a CDS

Answer: A

Explanation:
The correct answer is choice 'a'
A long position in a credit sensitive bond is equivalent to earning the risk free rate and the spread on the bond.
The risk free rate can be earned through a long position in a treasury bond, and the spread can be earned in the form of premiums on a CDS, which are received by the protectionseller, ie the party short a CDS contract.
Therefore we can get the same results as a long bond position using a combination of a long treasury bond and a short position in a CDS. Choice 'a' is the correct answer.

NEW QUESTION # 268
Financial institutions need to take volatility clustering into account:
I. To avoid taking on an undesirable level of risk
II. To know the right level of capital they need to hold
III. To meet regulatory requirements
IV. To account for mean reversion in returns

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

Answer: A

Explanation:
Volatility clustering leads to levels of current volatility that can be significantly different from long run averages. When volatility is running high, institutions need to shed risk, and when it is running low, they can afford to increase returns by taking on more risk for a given amount of capital. An institution's response to changes in volatility can be either to adjust risk, or capital, or both. Accounting for volatility clustering helps institutions manage their risk and capital and therefore statements I and II are correct.
Regulatory requirements do not require volatility clustering to be taken into account (at least not yet).
Therefore statement III is not correct, and neither is IV which is completely unrelated to volatility clustering.

NEW QUESTION # 269
There are three bonds in a diversified bond portfolio, whose default probabilities are independent of each other and equal to 1%, 2% and 3% respectively over a 1 year time horizon. Calculate the probability that exactly 1 of the three bonds will default.

A. 5.8%
B. 2%
C. .011%
D. 0%

Answer: A

Explanation:
The probability that only one of the three bonds will default is equal to the sum of the probabilities of the three scenarios where one bond defaults and the other two survive. This probability is given by 1%*(1 - 2%)* (1 - 3%) + (1 - 1%)*2%*(1 - 3%) + (1 - 1%)*(1 - 2%)*3% = 5.7818%. Choice 'c' is the correct answer.

NEW QUESTION # 270
There are two bonds in a portfolio, each with a market value of $50m. The probability of default of the two bonds are 0.03 and 0.08 respectively, over a one year horizon. If the default correlation is 25%, what is the one year expected loss on this portfolio?

A. $1.38m
B. $11m
C. $5.5mc
D. $5.26m

Answer: C

Explanation:
We will need to calculate the joint probability distribution of the portfolio as follows.Probability of the joint default of both A and B = A black line with numbers and symbols Description automatically generated with medium confidence

The marginal probabilities (ie the standalone probabilities of default of the two bonds) are known, and if we can calculate the probability of joint defaults of the two bonds, we can calculate the rest of the entries. We then multiply the probabilities with the expected loss under each scenario and add them up to get the total expected loss.
The calculations are shown below. The expected loss is $5.5m, and therefore the correct answer isChoice 'd'.
A screenshot of a paper Description automatically generated

NEW QUESTION # 271
Which of the following represents a riskier exposure for a bank: A LIBOR based loan, or an Overnight Indexed Swap? Which of the two rates is expected to be higher?
Assume the same counterparty and the same notional.

A. Overnight Index Swap; OIS rate will be higher
B. A LIBOR based loan; OIS rate will be higher
C. A LIBOR based loan; LIBOR rate will be higher
D. Overnight Index Swap; LIBOR rate will be higher

Answer: C

Explanation:
A LIBOR based loan requires cash to move from the lender to the borrower in the amount of the notional. The Overnight Index Swap requires only the exchange of interest payments, and therefore represents less risk.
Therefore the LIBOR based loan is a riskier exposure.
The LIBOR is generally higher than the OIS. In fact, the difference between the two, the LIBOR-OIS spread, is a standard measure of the risk premium in the market that goes up when the risk of default by counterparty banks is considered high. This is because when the market perceives the risk of default to be high, the participants need a risk premium to take on the default risk which is considerably lesser with the OIS.

NEW QUESTION # 272
......

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100% Pass Quiz 8011 - Valid Credit and Counterparty Manager (CCRM) Certificate Exam Braindump Free

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PRMIA Credit and Counterparty Manager (CCRM) Certificate Exam Sample Questions (Q267-Q272):

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