8020 Guide, Reliable 8020 Exam Review

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ORM Certificate - 2023 Update study guide: exam 8020 real vce collection

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PRMIA 8020 Exam Syllabus Topics:

Topic	Details
Topic 1	Risk Modeling: This section of the exam measures the skills of Quantitative Risk Analysts and covers mathematical and statistical techniques used to predict risk scenarios. It explores model development, validation, and application in financial and operational risk management. A key skill measured is applying statistical models for risk prediction.
Topic 2	Introduction: This section of the exam measures the skills of Risk Analysts and covers fundamental concepts of risk governance, management, and assessment. It introduces key principles, regulatory frameworks, and industry best practices for identifying and addressing risks. A key skill measured is understanding the foundational principles of risk management.
Topic 3	Risk Assessment: This section of the exam measures the skills of Financial Risk Analysts and covers methodologies for evaluating risks in different domains, including qualitative and quantitative approaches. It focuses on assessing vulnerabilities, threats, and potential impacts on business operations. A key skill measured is conducting risk impact analysis for financial threats.
Topic 4	Insurance Mitigation: This section of the exam measures the skills of Insurance Risk Managers and covers strategies for transferring risk through insurance and other financial instruments. It focuses on risk transfer mechanisms, policy structuring, and claims management. A key skill measured is assessing risk transfer options through insurance.
Topic 5	Case Studies: This section of the exam measures the skills of Business Risk Consultants and covers real-world applications of risk management concepts. It examines case studies on risk governance, assessment, and mitigation strategies across different industries. A key skill measured is analyzing historical risk events for strategic insights.
Topic 6	Risk Governance: This section of the exam measures the skills of Compliance Officers and covers the policies, structures, and processes that define how organizations oversee risk. It explores regulatory compliance, ethical considerations, and corporate governance frameworks to ensure accountability. A key skill measured is applying governance frameworks to organizational risk policies.
Topic 7	Risk Information: This section of the exam measures the skills of Risk Managers and covers the collection, analysis, and communication of risk-related data. It highlights the role of data-driven decision-making in mitigating uncertainties and ensuring compliance. A key skill measured is interpreting risk data for informed decision-making.

PRMIA ORM Certificate - 2023 Update Sample Questions (Q14-Q19):

NEW QUESTION # 14
For the WorldCom case, what was one of the causes of the failure?

A. The lack of a CRO during the final IPO.
B. A rapid pace of acquisitions and poor integration of acquired companies.
C. Risk models that did not reflect loosened underwriting standards of mortgage originators.
D. Unauthorized trading in derivatives.

Answer: B

Explanation:
Step 1: Understanding the WorldCom Case
WorldCom was one of the largest U.S. telecom companies before its collapse in 2002 due to fraudulent accounting practices and poor risk management.
The company expanded aggressively through acquisitions but failed to integrate them properly, leading to financial mismanagement and accounting fraud.
Step 2: Why Option C is Correct
WorldCom acquired over 60 companies in a short period without proper integration.
This masked financial problems and led to $11 billion in fraudulent accounting adjustments.
PRMIA and risk management frameworks stress that poor integration after rapid acquisitions increases operational and financial risks.
Step 3: Why the Other Options Are Incorrect
Option A ("Risk models and mortgage underwriting") → Incorrect because this describes the 2008 financial crisis, not WorldCom.
Option B ("Lack of a CRO during IPO") → Incorrect because WorldCom was well-established before its fraud-CRO absence was not the main issue.
Option D ("Unauthorized derivatives trading") → Incorrect because WorldCom's failure was due to fraudulent accounting, not derivatives.
PRMIA Risk Reference Used:
PRMIA Corporate Governance Guidelines - Discusses risks of poor post-merger integration.
SEC Investigation on WorldCom (2002) - Identified fraudulent accounting due to failed acquisitions.

NEW QUESTION # 15
What are some of the properties of Bottom-Up KRIs?

A. Selected by local management, based on key controls or weaknesses identified by audit reports, reported on quarterly.
B. Seated by senior management: tied to internal loss events at the legal entity, country, business and / or product level, reported.
daily, weekly or monthly.
C. Are not used due to changes in regulations.
D. Selected by local management: tied to internal loss events at the legal entity, country, business and / or product level, reported daily, weekly or monthly.

Answer: D

Explanation:
Definition of Bottom-Up KRIs
Bottom-Up Key Risk Indicators (KRIs) are identified at the operational level, focusing on localized risks within business units.
They are tied to actual internal loss events and reported frequently (daily, weekly, or monthly) to capture ongoing trends.
Key Properties of Bottom-Up KRIs
Selected by local management → Ensures relevance to specific business areas.
Tied to internal loss events → Helps in tracking risk patterns within specific legal entities, countries, or business units.
Reported frequently → Allows for timely risk detection and mitigation.
Why Answer D is Correct
Bottom-up KRIs focus on localized risk exposure and are monitored frequently to track operational changes.
Why Other Answers Are Incorrect
Option
Explanation:
A . Seated by senior management: tied to internal loss events at the legal entity, country, business, and/or product level, reported daily, weekly, or monthly.
Incorrect - Senior management sets top-down KRIs, while bottom-up KRIs are managed locally.
B . Selected by local management, based on key controls or weaknesses identified by audit reports, reported quarterly.
Incorrect - While audit reports are useful, bottom-up KRIs are based on loss events, not just audit findings. Quarterly reporting is too infrequent.
C . Are not used due to changes in regulations.
Incorrect - Bottom-up KRIs remain essential despite regulatory changes.
PRMIA Reference for Verification
PRMIA Risk Indicator Best Practices
Basel Committee's Risk Measurement and Reporting Guidelines

NEW QUESTION # 16
In operational resilience, what is impact tolerance?

A. Impact tolerance is a firm's risk capacity statement.
B. Impact tolerance is a firm's tolerance for disruption to a particular business process.
C. Impact tolerance is a firm's tolerance for disruption to a particular business service.
D. Impact tolerance is a firm's risk appetite statement.

Answer: C

NEW QUESTION # 17
Risk Capacity for a bank is defined as the:

A. Amount of risk the regulator sets for the bank.
B. Amount of risk the bank wishes to take.
C. Ability to withstand an extreme event and make a profit.
D. Ability to suffer an extreme event with an orderly wind up with only shareholders losing money.

Answer: D

Explanation:
Step 1: Definition of Risk Capacity
Risk Capacity refers to the maximum level of risk a bank can absorb while still maintaining orderly operations or, in extreme cases, conducting an orderly resolution.
PRMIA and Basel III define risk capacity as a bank's ability to absorb losses in a crisis without systemic consequences.
Step 2: Why Option D Is Correct
The ultimate test of a bank's risk capacity is whether it can survive an extreme shock without harming depositors or financial markets.
Regulators ensure that a bank can be wound up in an orderly manner so that only shareholders lose money, while depositors and creditors remain protected under resolution planning frameworks.
Step 3: Why the Other Options Are Incorrect
Option A ("Amount of risk the bank wishes to take")
Incorrect because this describes Risk Appetite, not Risk Capacity.
Option B ("Amount of risk the regulator sets for the bank")
Incorrect because regulators set capital requirements, but the bank's actual risk capacity is based on its own capital structure and business model.
Option C ("Ability to withstand an extreme event and make a profit")
Incorrect because risk capacity is about survival, not profit-making during extreme events.
PRMIA Risk Reference Used:
Basel III Risk Capacity Standards - Defines the ability to absorb losses during crises.
PRMIA Risk Governance Framework - Describes how banks should manage risk capacity through capital buffers.
Final Conclusion:
Banks must be able to withstand an extreme event and conduct an orderly wind-up if necessary, ensuring that only shareholders bear the loss, making Option D the correct answer.

NEW QUESTION # 18
The Internal Loss Multiplier (ILM) is part of the Basel III Standardized Approach. Which of these definitions best descibes it?

A. t is a scaling factor that is based on a bank's average historical losses.
B. It is a non-financial factor that is based on a bank's average historical losses.
C. It is uniform, and is used for indicating consistent incidents on an average return basis.
D. It is a financial-statement-based proxy for operational risk.

Answer: A

Explanation:
The Internal Loss Multiplier (ILM) is a key component of the Basel III Standardized Approach for Operational Risk. It is designed to adjust capital requirements based on a bank's historical loss experience.
Definition of ILM
ILM is a scaling factor that adjusts the operational risk capital requirement based on a bank's internal loss history.
It is derived using a formula that incorporates historical operational risk losses relative to a bank's revenue.
Why ILM Exists in Basel III
Basel III replaced the Advanced Measurement Approach (AMA) with a Standardized Approach that includes ILM to ensure that banks with high historical losses hold more capital for operational risk.
Why Other Answers Are Incorrect
Option
Explanation:
A . It is a financial-statement-based proxy for operational risk.
Incorrect - ILM is not a general financial statement proxy; it specifically adjusts capital based on past operational losses.
B . It is a non-financial factor that is based on a bank's average historical losses.
Incorrect - ILM is financial in nature because it directly influences capital requirements.
D . It is uniform, and is used for indicating consistent incidents on an average return basis.
Incorrect - ILM is not uniform; it is bank-specific and varies based on loss history.
PRMIA Reference for Verification
PRMIA Operational Risk Standards
Basel III Standardized Approach for Operational Risk

NEW QUESTION # 19
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8020 Guide, Reliable 8020 Exam Review

ORM Certificate - 2023 Update study guide: exam 8020 real vce collection

PRMIA 8020 Exam Syllabus Topics:

PRMIA ORM Certificate - 2023 Update Sample Questions (Q14-Q19):

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