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PRMIA Exam 8010 Topic 7 Question 61 Discussion

Actual exam question for PRMIA's 8010 exam
Question #: 61
Topic #: 7
[All 8010 Questions]

Under the contingent claims approach to credit risk, risk increases when:

1. Volatility of the firm's assets increases

2. Risk free rate increases

3. Maturity of the debt increases

Show Suggested Answer Hide Answer
Suggested Answer: B

The point that this question is trying to emphasize is the independence of the risk management function. The risk function should be segregated from the risk taking functions as to maintain independence and objectivity.

Choice 'd', Choice 'c' and Choice 'a' run contrary to this requirement of independence, and are therefore not correct. The risk function should report directly to senior levels, for example directly to the audit committee, and not be a part of the risk taking functions.


by Darci at Sep 13, 2024, 02:43 AM

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Stacey
6 months ago
I see both sides, but I think it should report directly to the traders for better communication and decision-making.
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Mona
6 months ago
I'm going with B. Gotta keep those risk managers on a tight leash, am I right?
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Rima
5 months ago
B is a good choice. Independent reporting can provide unbiased risk assessment.
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Alverta
5 months ago
I'm leaning towards D. Having risk management as part of the trading desks can ensure better coordination.
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Sheridan
6 months ago
I agree with C. Direct reporting to the traders can help in quick decision-making.
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Odette
6 months ago
I think A is the best option. Integration is key for effective risk management.
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Mila
6 months ago
I disagree, I believe it should report independently of the risk taking functions to maintain objectivity.
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Kami
6 months ago
Haha, option D - 'a part of the trading desks'? Might as well just let the foxes guard the henhouse!
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Krissy
6 months ago
C'mon, option C? Letting the traders manage their own risk? That's a recipe for disaster!
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Lisandra
6 months ago
I disagree, option B is the way to go. Risk management needs to be independent to provide objective oversight.
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Cassi
6 months ago
I still believe option B is the best choice, risk management needs to be independent for objective oversight.
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Johnetta
6 months ago
But having risk management report directly to the traders could create conflicts of interest.
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Kallie
6 months ago
I agree with you, it's important for risk management to be pervasive throughout the organization.
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Laura
6 months ago
I think option A is better, risk management should be integrated with the risk taking functions.
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Golda
7 months ago
Option A makes the most sense. Risk management should be integrated throughout the organization, not siloed off.
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Angella
6 months ago
I think it's important for risk management to be a pervasive activity carried out at all levels of the organization.
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Aleisha
6 months ago
I agree, having risk management integrated with the risk taking functions makes the most sense.
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Harris
7 months ago
I think the risk management function should be integrated with the risk taking functions.
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