PRMIA 8010 Exam - Topic 1 Question 47 Discussion

Actual exam question for PRMIA's 8010 exam

Question #: 47
Topic #: 1

[All 8010 Questions]

Which of the following statements are true:

1. Credit risk and counterparty risk are synonymous

2. Counterparty risk is the contingent risk from a counterparty's default in derivative transactions

3. Counterparty risk is the risk of a loan default or the risk from moneys lent directly

4. The exposure at default is difficult to estimate for credit risk as it depends upon market movements

A2 and 3

B1 and 2

D3 and 4

Show Suggested Answer

Suggested Answer: B

The persistence parameter, , is the coefficient of the prior day's variance in EWMA calculations. A higher value of the persistence parameter tends to 'persist' the prior value of variance for longer. Consider an extreme example - if the persistence parameter is equal to 1, the variance under EWMA will never change in response to returns.

1 - is the coefficient of recent market returns. As is lowered, 1 - increases, giving a greater weight to recent market returns or shocks. Therefore, as is lowered, the model will react faster to market shocks and give higher weights to recent returns, and at the same time reduce the weight on prior variance which will tend to persist for a shorter period.

by Ozell at May 08, 2024, 02:47 AM

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Ryan

6 days ago

I disagree, 1 and 2 are not the same!

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Doyle

12 days ago

Statement 2 is definitely true.

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Mattie

18 days ago

I recall that estimating exposure at default can be tricky due to market fluctuations, so statement 4 might be true.

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Sharen

23 days ago

Statement 2 seems correct since it specifically mentions derivatives, which I practiced in a similar question.

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Buddy

28 days ago

I’m a bit unsure about statement 3. I think it refers to loan defaults, but I feel like it might be too broad.

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Shelba

1 month ago

I remember that credit risk and counterparty risk are related but not the same, so I think statement 1 is false.

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Portia

1 month ago

This is a good test of my understanding of these risk types. I'm confident I can identify the true statements based on the definitions I've learned.

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Arlene

1 month ago

Hmm, I'm a bit confused on the distinction between credit risk and counterparty risk. I'll need to review my notes to refresh my memory on these concepts.

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Francis

1 month ago

This question seems straightforward, but I want to make sure I understand the key differences between credit risk and counterparty risk before answering.

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Sylvie

1 month ago

Okay, I think I've got this. Counterparty risk is specifically about the risk of default in derivative transactions, while credit risk is more broadly about loan defaults. I'll select the answer that captures that difference.

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Herman

1 month ago

Hmm, I'm a bit confused about the "length of time needed to pause sending" part. I'm not sure how that would factor into the decision for a Dedicated IP. I'll need to think that one through.

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Sean

2 months ago

/etc/issue, got it. I remember learning about that file in class. Should be a pretty easy one to answer.

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Annmarie

2 months ago

Okay, I think I can handle this. I just need to multiply the matrices and then select the corresponding value from the result.

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Jerry

6 months ago

I'm just going to go with C. 'Counterparty risk' sounds like the fanciest way to say 'someone might not pay me back.' Simple is better, right?

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Marquetta

5 months ago

User 3: I agree with Marquetta, C) 2 sounds right.

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Holley

5 months ago

User 2: I'm going with C) 2.

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Jutta

6 months ago

User 1: I think it's B) 1 and 2.

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Maile

6 months ago

Okay, let me think this through. Counterparty risk is the risk of a default in a derivative transaction, and credit risk is the risk of a loan default. 2 and 3 make the most sense to me.

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Hector

7 months ago

Haha, I bet the exam writer was chuckling when they came up with these options. 'Counterparty risk' just sounds like something you'd find in a finance textbook, not real life.

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Hubert

5 months ago

User 3: I'm going with option D, 3 and 4.

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Ulysses

5 months ago

User 2: Yeah, I agree. Counterparty risk does sound like a fancy term.

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Marylin

6 months ago

Yeah, it's definitely a term you'd come across in finance.

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Denae

6 months ago

User 1: I think the correct statements are 2 and 3.

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Jutta

6 months ago

I agree, counterparty risk does sound like a fancy term.

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Letha

6 months ago

I think the correct answer is B) 1 and 2.

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Aileen

6 months ago

I know, right? These options are so specific.

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Nikita

7 months ago

Wait, I thought credit risk and counterparty risk were the same thing. This is so confusing, I'm going to have to re-read the material on this.

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Serina

7 months ago

Hmm, I see your point. Let's review the definitions again to make sure.

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Angella

7 months ago

I disagree, I believe the answer is A) 2 and 3.

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Serina

7 months ago

I think the correct answer is B) 1 and 2.

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Doug

7 months ago

Hmm, I see your point. Counterparty risk is indeed the contingent risk from a counterparty's default in derivative transactions.

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Audra

7 months ago

I disagree, I believe the answer is A) 2 and 3.

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Doug

7 months ago

I think the correct answer is B) 1 and 2.

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Della

7 months ago

I'm pretty sure 2 and 3 are the correct answers. Counterparty risk is definitely about derivative transactions, and credit risk is more about direct lending. The exposure at default is tricky to estimate, so 4 seems right too.

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