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Prepare for the PRMIA ORM Certificate - 2023 Update exam with our extensive collection of questions and answers. These practice Q&A are updated according to the latest syllabus, providing you with the tools needed to review and test your knowledge.
QA4Exam focus on the latest syllabus and exam objectives, our practice Q&A are designed to help you identify key topics and solidify your understanding. By focusing on the core curriculum, These Questions & Answers helps you cover all the essential topics, ensuring you're well-prepared for every section of the exam. Each question comes with a detailed explanation, offering valuable insights and helping you to learn from your mistakes. Whether you're looking to assess your progress or dive deeper into complex topics, our updated Q&A will provide the support you need to confidently approach the PRMIA 8020 exam and achieve success.
The questions for 8020 were last updated on Feb 21, 2025.
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Which of the following is a correct statement about control rating scales?
Definition of Control Rating Scales
Control rating scales measure the effectiveness and performance of risk management controls.
They help organizations evaluate control strength and identify weaknesses.
Key Components
Control effectiveness Measures how well the control mitigates risks.
Control performance Assesses whether the control operates as designed in practice.
Why Answer C is Correct
Both effectiveness and performance are crucial for assessing control reliability.
A control may be designed effectively but fail in execution, making both factors essential.
Why Other Answers Are Incorrect
Option
Explanation
A . They are enhanced by the use of software that includes inherent risk.
Incorrect -- Software can improve ratings, but control scales are based on evaluation criteria, not just software tools.
B . A control rating scale should consider control effectiveness but not control performance.
Incorrect -- Ignoring performance could lead to misjudging actual control reliability.
D . A control rating scale should consider neither control effectiveness nor control performance.
Incorrect -- This would render the control rating scale useless.
PRMIA Reference for Verification
PRMIA Governance and Control Framework
Basel Operational Risk Management Guidelines
In order for a KRI to be effective it must be:
Definition of an Effective Key Risk Indicator (KRI)
A KRI is a metric used to identify, measure, and monitor emerging risks.
To be effective, KRIs must be both quantitative and qualitative, allowing for a comprehensive risk view.
Key Characteristics of Effective KRIs
Quantitative -- Uses numerical data for trend analysis.
Qualitative -- Incorporates expert judgment and scenario-based insights.
Consistent -- Maintains uniform definitions across reporting periods.
Efficient & Repeatable -- Must be easily measured and consistently reported.
Why Other Answers Are Incorrect
Option
Explanation
B . Qualitative, Consistent, Efficient & Repeatable.
Incorrect -- Excludes quantitative aspects, which are essential for KRIs.
C . Quantitative, Consistent, Comparable, Efficient & Repeatable.
Incorrect -- While comparison is useful, qualitative factors are missing, making this answer incomplete.
D . Quantitative, Repeatable and Efficient.
Incorrect -- Lacks qualitative insights and consistency as key factors for KRIs.
PRMIA Reference for Verification
PRMIA Risk Indicator Guidelines
Basel Committee's Principles on Risk Data and KRI
For credit risk losses containing operational risk elements that have been historically included in an organizations' credit risk database how should the loss amount be treated?
Understanding Credit Risk and Operational Risk Overlap
In some cases, credit risk losses contain elements of operational risk, such as fraud, documentation errors, or IT failures affecting credit transactions.
Basel II and III frameworks require institutions to distinguish between pure credit risk losses and operational risk components within those losses.
Treatment of Losses
The credit-related portion is accounted for under credit risk capital calculations.
The operational risk portion (e.g., fraud-related losses) should be classified separately and included in operational risk databases for risk measurement.
Why Answer C is Correct
Basel III and PRMIA recommend a clear split between credit risk and operational risk components to ensure accurate risk modeling.
If operational risk elements are ignored, an organization may underestimate its true operational risk exposure.
Why Other Answers Are Incorrect
Option
Explanation
A . The entire loss amount is treated as credit risk.
Incorrect -- This ignores operational risk components that should be accounted for separately.
B . The entire loss amount is treated as operational risk.
Incorrect -- Credit risk losses are typically dominant in lending-related losses and should not be fully classified as operational risk.
D . The entire loss amount is treated as credit risk, but the loss is entered as a memorandum within the operational loss database and not used for capital modeling purposes.
Incorrect -- The operational risk portion must be considered for capital modeling, not just recorded as a memo.
PRMIA Reference for Verification
Basel II & III Guidelines on Credit and Operational Risk Integration
PRMIA Operational Risk Framework
Risk Sensitive pricing is required for several good reasons. Which one of the following is not relevant to the Management's evaluation of the correct approach to Risk Sensitive pricing?
Risk-sensitive pricing ensures that financial institutions and businesses properly account for risk in their pricing strategies to maintain stability and sustainability. PRMIA's Risk Pricing and Capital Adequacy Guidelines define the importance of risk-sensitive pricing in ensuring fair compensation for risk exposure and avoiding risk concentration issues.
Step 1: Why Risk-Sensitive Pricing Is Important
Aligns risk with return: Pricing should be designed to reflect the underlying risk and return trade-off.
Protects investors: Investors expect compensation for capital at risk (Option A is correct).
Reinforces risk-aware culture: PRMIA promotes linking incentives to risk-adjusted returns (Option B is correct).
Prevents adverse selection: Proper risk pricing prevents low-quality assets from accumulating (Option C is correct).
Step 2: Why Option D Is Incorrect
Income targets are business-driven, not risk-driven.
Risk-sensitive pricing aims to balance risk and reward, not just maximize revenue.
PRMIA discourages profit-seeking behavior at the expense of risk considerations.
PRMIA Risk Reference Used:
PRMIA Risk Pricing Guidelines -- Defines the principles of risk-sensitive pricing.
PRMIA Risk-Adjusted Return Standards -- Stresses linking incentives to risk-aware decisions.
PRMIA Capital Adequacy Framework -- Highlights the role of risk-sensitive pricing in portfolio management.
Final Conclusion:
Risk-sensitive pricing is designed to align returns with risk exposure, not simply to meet or exceed income targets, making Option D the correct answer.
Compliance departments traditionally provide policy, oversight, and set the standards for monitoring personal dealing. Which control below would assist in implementing such policies?
Definition of DORA
The Digital Operational Resilience Act (DORA) is a regulation by the European Union (EU) aimed at strengthening the digital resilience of financial institutions.
It establishes a regulatory framework for managing information and communication technology (ICT) risks in the financial sector.
Key Objectives of DORA
Ensures that financial institutions can withstand, respond to, and recover from cyber threats and ICT-related disruptions.
Introduces standards for risk management, incident reporting, and third-party ICT risk oversight.
Why Other Answers Are Incorrect
Option
Explanation
A . Domain for Operational Risk Act.
Incorrect -- No such regulation exists under this name.
B . Digital Operational Risk Act.
Incorrect -- The official name is Digital Operational Resilience Act (DORA).
C . Daily Operational Resilience Act.
Incorrect -- DORA is not focused on daily operations but rather long-term digital resilience.
PRMIA Reference for Verification
PRMIA Risk Governance & Digital Resilience Standards
European Commission's Official DORA Regulation
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