PRMIA 8013: Your First Step Toward Risk Management Success
The PRMIA (Professional Risk Managers’ International Association) certification is a respected global credential in risk management. The 8013 exam, also called the PRM Exam 1: Finance Foundations, is an important milestone in the Professional Risk Manager (PRM) program. This exam helps candidates understand essential financial concepts needed for today’s challenging financial world.
What the PRMIA 8013 Exam Covers
The PRMIA 8013 exam tests your knowledge of key areas in finance and risk management:
- Understanding Financial Markets: Learn how different markets, like stocks, bonds, and derivatives, work.
- Risk Management Basics: Understand how to measure and manage risk using financial tools.
- Quantitative Finance Skills: Use statistics, probability, and financial models to analyze data.
- Economic Principles: Build a solid foundation in both macroeconomics and microeconomics.
These topics prepare professionals to handle complex risk management tasks in the fast-paced financial industry.
How PRMIA 8013 Can Boost Your Career
Earning the PRMIA 8013 certification comes with several career benefits:
- Higher Earnings: Certified professionals often earn more due to their expertise.
- Global Recognition: The PRM certification is known worldwide, creating opportunities in international markets.
- More Job Offers: Employers in banking, finance, and risk management value PRM-certified professionals.
- Credibility: This certification shows your dedication to improving your skills and growing your career.
Importance of Up-to-Date Study Materials
Success in the PRMIA 8013 exam depends on proper preparation. Using the latest study materials, such as exam dumps from trusted sources like DumpsLink, ensures you focus on the right topics. Updated resources help you stay aligned with the current exam standards and boost your confidence.
Take Your Career to the Next Level
The PRMIA 8013 certification is more than just a test—it’s a step toward a brighter future. By mastering the concepts in the PRM Exam 1: Finance Foundations, you can gain the skills, knowledge, and recognition needed to excel in the field of risk management. Start your journey today and open doors to exciting career opportunities.
8013 Sample Exam Questions and Answers
| QUESTION: 1 |
| For a forward contract on a commodity, an increase in carrying costs (all other factors remaining constant) has the effect of: Option A: increasing the forward price Option B: decreasing the forward price Option C: increasing the spot price Option D: decreasing the spot price |
| Correct Answer: A |
| Explanation/Reference: The forward price for a commodity is nothing but the spot price plus carrying costs till the maturity date of the forward contract. Any increase in carrying costs therefore has the effect of increasing the forward price. Note that carrying costs include interest cost in respect of funding the position, costs of storage, less any convenience yield. Increase in the carrying costs will not affect the spot prices. |
| QUESTION: 2 |
| If zero rates with continuous compounding for 4 and 5 years are 4% and 5% respectively, what is the forward rate for year 5? Option A: 5% Option B: 9% Option C: 9.097% Option D: 7% |
| Correct Answer: B |
| Explanation/Reference: When rates are continuously compounded, we can calculate the marginal rate for year 5 as (5*5% – 4*4%) = 9%. (Note that things would be different if the rates were not continuously compounded, and they were annually compounded. In that case we would need to do a calculation of (1.05^5 / 1.04^4) – 1) |
| QUESTION: 3 |
| Which of the following statements is true for a Credit Linked Note (CLN)? Option A: The CLN will yield the risk free rate Option B: If a credit default occurs, the investors will get their full money back Option C: The investor in the note is the protection buyer Option D: The investor in the note is the protection seller |
| Correct Answer: D |
| Explanation/Reference: A CLN is a form of a funded credit derivative. The investors in the note are the protection sellers, and receive the CDS premiums in addition to any risk free rate on their investment. If a default occurs, the money put up by the investors in the CLN is used to make good the party that has brought the protection. Therefore if a default occurs, the investors in a CLN do not receive their entire investment back, but only what remains after fullfilling their obligations on the credit protection, plus any premiums that might have been earned. In return for this risk, the CLN yields the risk free rate plus the CDS premiums. Only Choice ‘d’ is correct, all other options are incorrect. |
| QUESTION: 4 |
| The two components of risk in a commodities futures portfolio are: Option A: Changes in the convenience yield and storage costs Option B: Changes in spot prices and carrying costs, also called commodity lease rates Option C: Changes in interest rates and spot prices Option D: The risk from change in basis and interest rates |
| Correct Answer: B |
| Explanation/Reference: Commodity futures prices can be expressed as the summation of their spot prices and the carrying costs. Therefore any changes in either of these two would be a risk to the futures prices, and Choice ‘b’ is the correct answer. It is common to decompose complex commodity portfolios into underlying equivalent spot positions and the carrying costs, which includes interest, convenience yield and storage costs. For liquid commodities such as gold where changes of a short squeeze are low, interest costs dominate the carryings costs. Choice ‘b’ is the correct answer as it is most complete and covers the elements in the other choices. The ‘lease rate’ for a commodity is equivalent to (Fwd Price – Spot Price)/Spot Price, and comprises the interest and storage costs and the convenience yield. The other choices do not represent complete answers. |
| QUESTION: 5 |
| A US treasury bill with 90 days to maturity and a face value of $100 is priced at $98. What is the annual bondequivalent yield on this treasury bill? Option A: 8.16% Option B: 8.11% Option C: 8.28% Option D: 8.00% |
| Correct Answer: C |
| Explanation/Reference: The bond equivalent yield for a treasury bill can be calculated as [(Future value – Present value)/Present value x 365/days to maturity]. In this case this works out to ($100-$98)/$98 * 365/90 = 8.28% [Why do we use 365 days and not 360? And is there a different way to calculate treasury bill yields? The answer to this question is that there are alternate ways to calculate these yields. For the exam, I would suggest that you calculate according to one method, see if you get an answer that matches, and pick that. I found the below on the NY Fed’s website – a very clear example: (http://newyorkfed.org/aboutthefed/fedpoint /fed28.html) The Discount Yield Method The following formula is used to determine the discount yield for T-bills that have three- or six-month maturities: Discount yield = [(FV – PP)/FV] * [360/M] FV = face value PP = purchase price M = maturity of bill. For a three-month T-bill (13 weeks) use 91, and for a six-month T-bill (26 weeks) use 182 360 = the number of days used by banks to determine short-term interest rates (the investment yield method is based on a calendar year: 365 days, or 366 in leap years). Example What is the discount yield for a 182-day T-bill, auctioned at an average price of $9,659.30 per $10,000 face value? Discount yield = [(FV – PP)/FV] * [360/M] FV = $10,000 PP = $9,659.30 M = 182 Discount yield = [(10,000) – (9,659.30)] / (10,000) * [360/182] Discount yield = [340.7 / 10,000] * [1.978022] Discount yield = .0673912 = 6.74% For the 13-week bill, the same formula would be used, dividing 360 by a maturity of 91 days rather than 182 days. The Investment Yield Method When comparing the return on investment in T-bills to other short-term investment options, the investment yield method can be used. This yield is alternatively called the bond equivalent yield, the coupon equivalent rate, the effective yield and the interest yield. The following formula is used to calculate the investment yield for T-bills that have three- or six-month maturities: Investment yield = [(FV – PP)/PP] * [365 or 366/M] Example What is the investment yield of a 182-day T-bill, auctioned at an average price of $9,659.30 per $10,000 face value? Investment yield = [(FV – PP)/PP] * [365/M] FV = $10,000 PP = $9,659.30 M = 182 Investment yield = [(10,000 – 9,659.30) / (9,659.30)] * [365/182] Investment yield = [340.70] / 9,659.30] * [2.0054945] Investment yield = .0707372 = 7.07% For the 13-week bill, the same formula can be used, dividing 365 (or 366) by a maturity of 91 days. |
| QUESTION: 6 |
| Callable corporate bonds: Option A: generally yield less than non-callable bonds due to the call feature Option B: need to be priced lower than non-callable bonds to make them attractive to investors Option C: are more convex than their non-callable counterparts Option D: are generally called when their prices have fallen below the issuance price |
| Correct Answer: B |
| Explanation/Reference: Callable corporate bonds need to be priced lower and therefore yield more to investors as they are likely to be called by the issuer when interest rates fall and the issuer finds it attractive to refinance the debt using new cheaper debt. They are most unlikely to be called when their prices have fallen because falling prices indicate higher rates, which means the issuer is able to fund himself at a cheaper rate. Because of their callable feature, they are less convex and may actually carry negative convexity. Therefore Choice ‘b’ is the only correct statement and the right answer. |
| QUESTION: 7 |
| Identify the underlying asset in a treasury note futures contract? Option A: Any long term US Treasury bond with a maturity of more than 10 years and not callable within 10 years Option B: Any long term US Treasury note with a maturity between 6.5 years and 10 years from the date of delivery Option C: Any long term US Treasury bond with a maturity of more than 15 years and not callable within 15 years Option D: Any of the above, with the price adjusted with the coupon and maturity date of the bond delivered |
| Correct Answer: B |
| Explanation/Reference: The underlying asset in a Treasury note futures contract is any long term Treasury note with a maturity of no less than 6.5 years and no more than 10 years. The underlying asset in a treasury bond futures contract is any long term US Treasury bond with a maturity of more than 15 years and not callable within 15 years. Note the difference betwen what the underlying asset is for treasury bond futures and treasury note futures. In either case, adjustments will be made for the coupon and maturity of the actual bond delivered (the concept of the adjustment of ‘cheapest-to-deliver’). |
| QUESTION: 8 |
| A currency with a lower interest rate will trade: Option A: at a forward discount Option B: at a forward premium Option C: at the same prices for forwards as for the spots Option D: cannot be determined solely on the basis of interest rates |
| Correct Answer: B |
| Explanation/Reference: Given covered interest parity, the currency with a lower interest rate will trade at a forward premium. Choice ‘b’ is the correct answer. For an intuitive reasoning, consider a currency forward contract that matures in 3 months. The seller has agreed to sell, say JPY 1,000,000 in exchange for USD 10,000 in the future. In order to cover himself, he borrows the USD right now and converts it to JPY at spot which he puts in a JPY deposit. Assuming JPYinterest rates are less than USD interest rates, he pays more on his USD borrowing than he receives on his JPY deposit. Therefore he has to price the forward contract at a premium to spot to cover the interest rate differential |
| QUESTION: 9 |
| Which of the following have a negative gamma:a long call position a short put position a short call position a long put position Option A: III and IV Option B: I and IV Option C: II and III Option D: I and II |
| Correct Answer: C |
| Explanation/Reference: Short calls and short puts have negative gamma, ie their delta increases at a decreasing rate as the price of the underlying change. Likewise, remember that long calls and long puts have positive gamma. |
| QUESTION: 10 |
| Two portfolios with identical Sharpe ratios will have Option A: identical expected risk Option B: identical expected risk and returns Option C: returns identically proportionate to risk Option D: identical expected returns |
| Correct Answer: C |
| Explanation/Reference: The Sharpe ratio is the ratio of excess returns to risk. Excess returns are measured as the returns over the riskfree rate, and risk is measured in terms of volatility, ie standard deviation. Two portfolios with identical Sharpe ratios will certainly have the same ratio of risk and return, though the absolute levels of the return and the risk may vary. Therefore Choice ‘c’ is the correct answer. |
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