PRMIA 8010 Exam - Topic 1 Question 24 Discussion

Actual exam question for PRMIA's 8010 exam

Question #: 24
Topic #: 1

[All 8010 Questions]

The definition of operational risk per Basel II includes which of the following:

1. Risk of loss resulting from inadequate or failed internal processes, people and systems or from external events

2. Legal risk

3. Strategic risk

4. Reputational risk

A1, 2, 3 and 4

B2 and 3

C1 and 3

D1 and 2

Show Suggested Answer

Suggested Answer: B

Extreme value theory focuses on the extreme and rare events, and in the case of VaR calculations, it is focused on the right tail of the loss distribution. In very simple and non-technical terms, EVT says the following:

1. Pull a number of large iid random samples from the population,

2. For each sample, find the maximum,

3. Then the distribution of these maximum values will follow a Generalized Extreme Value distribution.

(In some ways, it is parallel to the central limit theorem which says that the the mean of a large number of random samples pulled from any population follows a normal distribution, regardless of the distribution of the underlying population.)

Generalized Extreme Value (GEV) distributions have three parameters: (shape parameter), (location parameter) and (scale parameter). Based upon the value of , a GEV distribution may either be a Frechet, Weibull or a Gumbel. These are the only three types of extreme value distributions.

by Georgene at Jan 05, 2023, 09:21 PM

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Dorcas

7 months ago

Agreed, 1 and 2 are spot on.

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Makeda

7 months ago

Wait, legal risk is operational risk? That’s surprising!

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Rolande

7 months ago

Just 1 and 2 are operational risks, right?

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Latrice

7 months ago

I think 3 and 4 should be in there too.

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Zack

7 months ago

Definitely includes 1 and 2!

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Antonio

8 months ago

I’m pretty certain that operational risk is mostly about internal failures and legal issues, so I’m leaning towards option D.

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Marti

8 months ago

I feel like I’ve seen a question like this before, and I think it was about excluding strategic and reputational risks. So maybe it’s just 1 and 2?

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Pearline

8 months ago

I remember studying that Basel II specifically mentions legal risk as part of operational risk, so I think option A might be correct.

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Timothy

8 months ago

I think operational risk definitely includes the risk from internal processes and external events, but I'm not sure about legal risk being part of it.

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James

8 months ago

I've seen similar questions before. I'll start by analyzing the code step-by-step and then select the option that matches the expected output.

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Sylvia

8 months ago

Configuring AAR to reroute calls through the PSTN seems like the most promising solution here. That way, we can avoid overloading the WAN links.

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Jose

1 year ago

Ugh, I hate these Basel II questions. They're like a puzzle wrapped in an enigma, wrapped in a very boring regulatory framework. But hey, at least we can laugh about it, right? The correct answer is D) 1 and 2, and that's the only thing that's certain in this crazy world of operational risk.

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Anna

11 months ago

At least we can try to find some humor in it, right?

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Lou

11 months ago

The correct answer is D) 1 and 2.

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Bronwyn

11 months ago

Yeah, they're definitely not the most exciting topic.

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Jin

11 months ago

I know, Basel II questions can be a headache.

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Rocco

1 year ago

Hah, this is a tricky one! I almost chose C) 1 and 3, but then I remembered that strategic risk and reputational risk are separate categories. Gotta love these Basel II definitions, they really keep us on our toes!

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Mi

11 months ago

User 3: That makes sense. Operational risk covers a lot of different areas.

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Jesusita

11 months ago

User 2: I agree. I think the answer is A) 1, 2, 3 and 4.

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Tesha

12 months ago

User 1: I know, right? Basel II definitions can be confusing.

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Leatha

1 year ago

I think the answer is A) 1, 2, 3 and 4. Operational risk includes all the factors mentioned in the question, so the entire list should be selected.

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Jennie

12 months ago

Absolutely, it's crucial to have a comprehensive understanding of operational risk.

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Jesusa

12 months ago

Yes, it's important to consider all potential risks in operations.

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Mozelle

12 months ago

I agree, operational risk covers all those aspects.

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Albina

1 year ago

The correct answer is D) 1 and 2. Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, which is option 1. Legal risk is also included in the definition per Basel II, which is option 2.

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