PRMIA Exam Questions for Exam 3 (Risk Management Practices)
1. You have entered into a financial transaction with a counterparty that requires you to post
collateral. The counterparty will accept the following assets as collateral with applicable haircuts:
Cash/Investment Grade Government debt 0%
Investment Grade Corporate debt 10%
Non investment grade debt 60%
Possible securities you can post as collateral include $1m in AAA government debt, $2.5m in
BBB corporate debt, $2m in BB corporate debt and $1m in traded equity corresponding to a
corporation rated AAA
What is the collateral value of your entire portfolio?
(i) 5.95m
(ii) 4.45m
(iii) 4.05m
(iv) 5.05m
Answer: (iii)
2. You have provided corporation A with a $1m line of credit of which they have currently drawn
down 10%. You are aware that corporation A currently owes a sum of 0.5m to one of its
counterparties. What is your exposure to corporation A?
(i) 0.1m
(ii) 0.6m
(iii) 1m
(iv) None of these
Answer: (i)
3. In a two asset portfolio the assets are slightly negatively correlated. The overall portfolio
variance will therefore be:
(i) Greater than the sum of the individual asset variances
(ii) Less than the sum of the individual asset variances
