8010 Exam Dumps : Operational Risk Manager (ORM) Exam

The exposure at default is the greatest for the certificate of deposit as the entire notional amount is exposed to the risk of default. The other choices represent derivatives for which the current replacement value, which would be far less than notional, would be the credit exposure.

Said another way - if the counterparty were to default, the entire money in the CD would be at risk, whereas for the derivative contracts it would only be the replacement value that would be at risk.

A LIBOR based loan requires cash to move from the lenderto the borrower in the amount of the notional. The Overnight Index Swap requires only the exchange of interest payments, and therefore represents less risk.

Therefore the LIBOR based loan is a riskier exposure.

The LIBOR is generally higher than the OIS. In fact, the difference between the two, the LIBOR-OIS spread, is a standard measure of the risk premium in the market that goes up when the risk of default by counterparty banks is considered high. This is because when the market perceives the risk of default to be high, the participants need a risk premium to take on the default risk which is considerably lesser with the OIS.

Statement I is correct. Retail Risk Based Pricing (RRBP) involves the use of borrower specific data (such as FICO scores, average balances etc) to arrive at credit decisions. These 'retail' credit decisions may include decisions on whether to grant a line of credit, a mortgage, issue a credit card, or any of the various other retail activities abank may be dealing with. At the same time, this data can also be used to price the product, in addition to providing a yes or no credit decision so that risky borrowers are charged more than less risky borrowers.

Statement II is not correct, because an integrated Risk Information Management Environment includes three elements - people, processes and technology (and not just people and processes).

Statement III is correct. An LDM is a blue print of an organization's data, and describes the relationships between the various data elements.

Statement IV is not correct because reference data and metadata are not the same thing. Reference data refers to relatively static data, such as customer name (while actual transactions may not be so static). Metadata refers to data about data, and is stored in a data dictionary.

Therefore Choice 'b' is the correct answer and the rest are incorrect.