{"id":972,"date":"2023-10-26T11:13:21","date_gmt":"2023-10-26T11:13:21","guid":{"rendered":"https:\/\/exam.real4prep.com\/?p=972"},"modified":"2023-10-26T11:13:21","modified_gmt":"2023-10-26T11:13:21","slug":"get-instant-access-of-100-real-prmia-8010-exam-questions-with-verified-answers-q93-q113","status":"publish","type":"post","link":"https:\/\/exam.real4prep.com\/zh\/2023\/10\/26\/get-instant-access-of-100-real-prmia-8010-exam-questions-with-verified-answers-q93-q113\/","title":{"rendered":"Get Instant Access of 100% Real PRMIA 8010 Exam Questions with Verified Answers [Q93-Q113]"},"content":{"rendered":"\n\n<div class=\"kk-star-ratings kksr-auto kksr-align-left kksr-valign-top\"\n    data-payload='{&quot;align&quot;:&quot;left&quot;,&quot;id&quot;:&quot;972&quot;,&quot;slug&quot;:&quot;default&quot;,&quot;valign&quot;:&quot;top&quot;,&quot;ignore&quot;:&quot;&quot;,&quot;reference&quot;:&quot;auto&quot;,&quot;class&quot;:&quot;&quot;,&quot;count&quot;:&quot;2&quot;,&quot;legendonly&quot;:&quot;&quot;,&quot;readonly&quot;:&quot;&quot;,&quot;score&quot;:&quot;5&quot;,&quot;starsonly&quot;:&quot;&quot;,&quot;best&quot;:&quot;5&quot;,&quot;gap&quot;:&quot;5&quot;,&quot;greet&quot;:&quot;Rate this post&quot;,&quot;legend&quot;:&quot;5\\\/5 - (2 votes)&quot;,&quot;size&quot;:&quot;24&quot;,&quot;title&quot;:&quot;Get Instant Access of 100% Real PRMIA 8010 Exam Questions with Verified Answers [Q93-Q113]&quot;,&quot;width&quot;:&quot;142.5&quot;,&quot;_legend&quot;:&quot;{score}\\\/{best} - ({count} {votes})&quot;,&quot;font_factor&quot;:&quot;1.25&quot;}'>\n            \n<div class=\"kksr-stars\">\n    \n<div class=\"kksr-stars-inactive\">\n            <div class=\"kksr-star\" data-star=\"1\" style=\"padding-right: 5px\">\n            \n\n<div class=\"kksr-icon\" style=\"width: 24px; height: 24px;\"><\/div>\n        <\/div>\n            <div class=\"kksr-star\" data-star=\"2\" style=\"padding-right: 5px\">\n            \n\n<div class=\"kksr-icon\" style=\"width: 24px; height: 24px;\"><\/div>\n        <\/div>\n            <div class=\"kksr-star\" data-star=\"3\" style=\"padding-right: 5px\">\n            \n\n<div class=\"kksr-icon\" style=\"width: 24px; height: 24px;\"><\/div>\n        <\/div>\n            <div class=\"kksr-star\" data-star=\"4\" style=\"padding-right: 5px\">\n            \n\n<div class=\"kksr-icon\" style=\"width: 24px; height: 24px;\"><\/div>\n        <\/div>\n            <div class=\"kksr-star\" data-star=\"5\" style=\"padding-right: 5px\">\n            \n\n<div class=\"kksr-icon\" style=\"width: 24px; height: 24px;\"><\/div>\n        <\/div>\n    <\/div>\n    \n<div class=\"kksr-stars-active\" style=\"width: 142.5px;\">\n            <div class=\"kksr-star\" style=\"padding-right: 5px\">\n            \n\n<div class=\"kksr-icon\" style=\"width: 24px; height: 24px;\"><\/div>\n        <\/div>\n            <div class=\"kksr-star\" style=\"padding-right: 5px\">\n            \n\n<div class=\"kksr-icon\" style=\"width: 24px; height: 24px;\"><\/div>\n        <\/div>\n            <div class=\"kksr-star\" style=\"padding-right: 5px\">\n            \n\n<div class=\"kksr-icon\" style=\"width: 24px; height: 24px;\"><\/div>\n        <\/div>\n            <div class=\"kksr-star\" style=\"padding-right: 5px\">\n            \n\n<div class=\"kksr-icon\" style=\"width: 24px; height: 24px;\"><\/div>\n        <\/div>\n            <div class=\"kksr-star\" style=\"padding-right: 5px\">\n            \n\n<div class=\"kksr-icon\" style=\"width: 24px; height: 24px;\"><\/div>\n        <\/div>\n    <\/div>\n<\/div>\n                \n\n<div class=\"kksr-legend\" style=\"font-size: 19.2px;\">\n            5\/5 - (2 votes)    <\/div>\n    <\/div>\n<p><span style=\"color: red;font-size: 18px\"><strong>Get Instant Access of 100% Real PRMIA 8010 Exam Questions with Verified Answers<\/strong><\/span><\/p>\n<p><span style=\"color: red\"><strong>Exam Dumps for the Preparation of Latest 8010 Exam Questions<\/strong><\/span><\/p>\n<p><\/p>\n<p>PRMIA 8010 exam is widely recognized as a benchmark for excellence in operational risk management. Operational Risk Manager (ORM) Exam certification program is designed to provide individuals with a comprehensive understanding of the fundamental concepts and best practices in operational risk management. 8010 exam is ideal for those who are looking to enhance their career in risk management or those who are looking to start a career in this field. Operational Risk Manager (ORM) Exam certification program is also suitable for professionals who are responsible for managing operational risks in other areas, such as compliance, auditing, or business operations. By earning the PRMIA 8010 certification, individuals can demonstrate their expertise in operational risk management and enhance their credibility and marketability in the industry.<\/p>\n<p><\/p>\n<p>The PRMIA 8010 exam is designed for professionals in the financial industry who are involved in operational risk management, including risk managers, compliance officers, internal auditors, and regulators. Operational Risk Manager (ORM) Exam certification is particularly relevant for individuals working in banks, insurance companies, asset management firms, and other financial institutions.<\/p>\n<p>&nbsp;<\/p>\n<div id=\"watu_quiz\" class=\"quiz-area single-page-quiz\">\n<form action=\"\" method=\"post\" class=\"quiz-form \" id=\"quiz-436\" >\n<div class='watu-question' id='question-1'><div class='question-content'><p><strong>Q93.<\/strong> Under the standardized approach to determining operational risk capital, operations risk capital is equal to:<\/p>\n<\/div><input type='hidden' name='question_id[]' value='8541' \/><div class='watu-questions-wrap '><input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33146' \/><div class='watu-question-choice'><input type='radio' name='answer-8541[]' id='answer-id-33146' class='answer answer-1 js-answer-label answerof-8541' value='33146' \/>&nbsp;<label for='answer-id-33146' id='answer-label-33146' class='js-answer-label answer label-1'><span class='answer'>a fixed percentage of the latest gross income of the bank<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33147' \/><div class='watu-question-choice'><input type='radio' name='answer-8541[]' id='answer-id-33147' class='answer answer-1 js-answer-label answerof-8541' value='33147' \/>&nbsp;<label for='answer-id-33147' id='answer-label-33147' class='js-answer-label answer label-1'><span class='answer'>a varying percentage, determined by the national regulator, of the gross revenue of each of the bank&#8217;s business lines<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33148' \/><div class='watu-question-choice'><input type='radio' name='answer-8541[]' id='answer-id-33148' class='answer answer-1 js-answer-label answerof-8541' value='33148' \/>&nbsp;<label for='answer-id-33148' id='answer-label-33148' class='js-answer-label answer label-1'><span class='answer'>15% of the average gross income (considering only the positive years) of the past three years<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33149' \/><div class='watu-question-choice'><input type='radio' name='answer-8541[]' id='answer-id-33149' class='answer answer-1 php-answer-label answerof-8541' value='33149' \/>&nbsp;<label for='answer-id-33149' id='answer-label-33149' class='php-answer-label answer label-1'><span class='answer'>a fixed percentage (different for each business line) of the gross income of the eight specified business lines, averaged over three years<\/span><\/label><\/div>\n<\/div><div class='show-question-feedback' style='display:none;'>Explanation<br\/>Choice &#8216;d&#8217; is the correct answer, as laid down in the Basel II document. The other choices are incorrect.<\/div><input type='button' class='showchecked' style='margin: 10px 0;' onclick='showanswer1(1,this)' id='btn-1' value='See Answer'  \/><input type='hidden' id='questionType1' value='radio' class=''><\/div><div class='watu-question' id='question-2'><div class='question-content'><p><strong>Q94.<\/strong> The probability of default of a security during the first year after issuance is 3%, that during the second and third years is 4%, and during the fourth year is 5%. What is the probability that it would not have defaulted at the end of four years from now?<\/p>\n<\/div><input type='hidden' name='question_id[]' value='8542' \/><div class='watu-questions-wrap '><input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33150' \/><div class='watu-question-choice'><input type='radio' name='answer-8542[]' id='answer-id-33150' class='answer answer-2 js-answer-label answerof-8542' value='33150' \/>&nbsp;<label for='answer-id-33150' id='answer-label-33150' class='js-answer-label answer label-2'><span class='answer'>12.00%<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33151' \/><div class='watu-question-choice'><input type='radio' name='answer-8542[]' id='answer-id-33151' class='answer answer-2 js-answer-label answerof-8542' value='33151' \/>&nbsp;<label for='answer-id-33151' id='answer-label-33151' class='js-answer-label answer label-2'><span class='answer'>88.53%<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33152' \/><div class='watu-question-choice'><input type='radio' name='answer-8542[]' id='answer-id-33152' class='answer answer-2 js-answer-label answerof-8542' value='33152' \/>&nbsp;<label for='answer-id-33152' id='answer-label-33152' class='js-answer-label answer label-2'><span class='answer'>88.00%<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33153' \/><div class='watu-question-choice'><input type='radio' name='answer-8542[]' id='answer-id-33153' class='answer answer-2 php-answer-label answerof-8542' value='33153' \/>&nbsp;<label for='answer-id-33153' id='answer-label-33153' class='php-answer-label answer label-2'><span class='answer'>84.93%<\/span><\/label><\/div>\n<\/div><div class='show-question-feedback' style='display:none;'>Explanation<br\/>The probability that the security would not default in the next 4 years is equal to the probability of survival at the end of the four years. In other words, =(1 &#8211; 3%)*(1 &#8211; 4%)*(1 &#8211; 4%)*(1 &#8211; 5%) = 84.93%. Choice &#8216;d&#8217; is the correct answer.<\/div><input type='button' class='showchecked' style='margin: 10px 0;' onclick='showanswer1(2,this)' id='btn-2' value='See Answer'  \/><input type='hidden' id='questionType2' value='radio' class=''><\/div><div class='watu-question' id='question-3'><div class='question-content'><p><strong>Q95.<\/strong> Which of the following formulae describes Marginal VaR for a portfolio p, where V_i is the value of the i-th asset in the portfolio? (All other notation and symbols have their usual meaning.) A)<br \/><img decoding=\"async\" src=\"https:\/\/exam.real4prep.com\/wp-content\/uploads\/2023\/10\/8010-bca6e7dfd7192f7cb002f8840f4a0df5.jpg\"\/><br \/>B)<br \/><img decoding=\"async\" src=\"https:\/\/exam.real4prep.com\/wp-content\/uploads\/2023\/10\/8010-563ac63d25bf74257b2fb5ec37505b5f.jpg\"\/><br \/>C)<br \/><img decoding=\"async\" src=\"https:\/\/exam.real4prep.com\/wp-content\/uploads\/2023\/10\/8010-e06bd3c2a1396c4d3d3b7a45a8240955.jpg\"\/><br \/>D)<br \/>All of the above<\/p>\n<\/div><input type='hidden' name='question_id[]' value='8543' \/><div class='watu-questions-wrap '><input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33154' \/><div class='watu-question-choice'><input type='radio' name='answer-8543[]' id='answer-id-33154' class='answer answer-3 js-answer-label answerof-8543' value='33154' \/>&nbsp;<label for='answer-id-33154' id='answer-label-33154' class='js-answer-label answer label-3'><span class='answer'>Option A<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33155' \/><div class='watu-question-choice'><input type='radio' name='answer-8543[]' id='answer-id-33155' class='answer answer-3 js-answer-label answerof-8543' value='33155' \/>&nbsp;<label for='answer-id-33155' id='answer-label-33155' class='js-answer-label answer label-3'><span class='answer'>Option B<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33156' \/><div class='watu-question-choice'><input type='radio' name='answer-8543[]' id='answer-id-33156' class='answer answer-3 js-answer-label answerof-8543' value='33156' \/>&nbsp;<label for='answer-id-33156' id='answer-label-33156' class='js-answer-label answer label-3'><span class='answer'>Option C<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33157' \/><div class='watu-question-choice'><input type='radio' name='answer-8543[]' id='answer-id-33157' class='answer answer-3 php-answer-label answerof-8543' value='33157' \/>&nbsp;<label for='answer-id-33157' id='answer-label-33157' class='php-answer-label answer label-3'><span class='answer'>Option D<\/span><\/label><\/div>\n<\/div><div class='show-question-feedback' style='display:none;'>Explanation<br\/>Marginal VaR of a component of a portfolio is the change in the portfolio VaR from a $1 change in the value of the component. It helps a risk analyst who may be trying to identify the best way to influence VaR by changingthe components of the portfolio. Marginal VaR is also important for calculating component VaR (for VaR disaggregation), as component VaR is equal to the marginal VaR multiplied by the value of the component in the portfolio.<br\/>Marginal VaR is by definitionthe derivative of the portfolio value with respect to the component i. This is reflected in Choice &#8216;a&#8217; above. Using the definitions and relationships between correlation, covariance, beta and volatility of the portfolio and\/or the component, we can show that the other two choices are also equivalent to Choice &#8216;a&#8217;.<br\/>Therefore all the choices present are correct.<\/div><input type='button' class='showchecked' style='margin: 10px 0;' onclick='showanswer1(3,this)' id='btn-3' value='See Answer'  \/><input type='hidden' id='questionType3' value='radio' class=''><\/div><div class='watu-question' id='question-4'><div class='question-content'><p><strong>Q96.<\/strong> Which of the following statements are correct?<br \/>I. A reliance upon conditional probabilities and a-priori views of probabilities is called the &#8216;frequentist&#8217; view II. Knightian uncertainty refers to thingsthat might happen but for which probabilities cannot be evaluated III. Risk mitigation and risk elimination are approaches to reacting to identified risks IV. Confidence accounting is a reference to the accounting frauds that were seen in the past decadeas a reflection of failed governance processes<\/p>\n<\/div><input type='hidden' name='question_id[]' value='8544' \/><div class='watu-questions-wrap '><input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33158' \/><div class='watu-question-choice'><input type='radio' name='answer-8544[]' id='answer-id-33158' class='answer answer-4 js-answer-label answerof-8544' value='33158' \/>&nbsp;<label for='answer-id-33158' id='answer-label-33158' class='js-answer-label answer label-4'><span class='answer'>II, III and IV<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33159' \/><div class='watu-question-choice'><input type='radio' name='answer-8544[]' id='answer-id-33159' class='answer answer-4 php-answer-label answerof-8544' value='33159' \/>&nbsp;<label for='answer-id-33159' id='answer-label-33159' class='php-answer-label answer label-4'><span class='answer'>II and III<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33160' \/><div class='watu-question-choice'><input type='radio' name='answer-8544[]' id='answer-id-33160' class='answer answer-4 js-answer-label answerof-8544' value='33160' \/>&nbsp;<label for='answer-id-33160' id='answer-label-33160' class='js-answer-label answer label-4'><span class='answer'>I and IV<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33161' \/><div class='watu-question-choice'><input type='radio' name='answer-8544[]' id='answer-id-33161' class='answer answer-4 js-answer-label answerof-8544' value='33161' \/>&nbsp;<label for='answer-id-33161' id='answer-label-33161' class='js-answer-label answer label-4'><span class='answer'>All of the above<\/span><\/label><\/div>\n<\/div><div class='show-question-feedback' style='display:none;'>Explanation<br\/>In statistics, which is relevant to risk management, a distinction is often drawn between &#8216;frequentists&#8217; and<br\/>&#8216;Bayesians&#8217;.Frequentists rely upon data to draw conclusions as to probabilities. Bayesians consider conditional probabilities, ie, take into account what things are already known, and inject sometimes subjective a-priori probabilities into the calculations. StatementI describes Bayesians, and not frequentists. In reality however, the difference is merely academic. Risk managers use whichever technique best applies to the given situation without making it about ideology.<br\/>The difference between &#8216;Knightian uncertainty&#8217;and &#8216;Risk&#8217; is similarly academic. Knightian uncertainty refers to risk that cannot be measured or calculated. &#8216;Risk&#8217; on the other hand refers to things for which past data exists and calculations of exposure can be made. To give an example in the contextof the financial world, the risk from a pandemic creating systemic failures from a failure of payment and settlement systems and the like is<br\/>&#8216;Knightian uncertainty&#8217;, but the market risk from equity price movements can be modeled (albeit with limitations) and is calculable. Statement II is therefore correct.<br\/>Once a risk is identified, it can be mitigated, accepted, avoided or eliminated, or transferred by way of insurance. Therefore statement III is correct.<br\/>Confidence accounting is a conceptual idea that suggests that accounting statements make reference to ranges as opposed to point estimates in financial statements. For example, instead of saying that the pension obligation is $xx million, the company should say the pension obligation is in a range of $xxm &#8211; $yy m with a certain confidence level. Statement IV is therefore inaccurate.<\/div><input type='button' class='showchecked' style='margin: 10px 0;' onclick='showanswer1(4,this)' id='btn-4' value='See Answer'  \/><input type='hidden' id='questionType4' value='radio' class=''><\/div><div class='watu-question' id='question-5'><div class='question-content'><p><strong>Q97.<\/strong> For a loan portfolio, unexpected losses are charged against:<\/p>\n<\/div><input type='hidden' name='question_id[]' value='8545' \/><div class='watu-questions-wrap '><input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33162' \/><div class='watu-question-choice'><input type='radio' name='answer-8545[]' id='answer-id-33162' class='answer answer-5 js-answer-label answerof-8545' value='33162' \/>&nbsp;<label for='answer-id-33162' id='answer-label-33162' class='js-answer-label answer label-5'><span class='answer'>Credit reserves<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33163' \/><div class='watu-question-choice'><input type='radio' name='answer-8545[]' id='answer-id-33163' class='answer answer-5 php-answer-label answerof-8545' value='33163' \/>&nbsp;<label for='answer-id-33163' id='answer-label-33163' class='php-answer-label answer label-5'><span class='answer'>Economic credit capital<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33164' \/><div class='watu-question-choice'><input type='radio' name='answer-8545[]' id='answer-id-33164' class='answer answer-5 js-answer-label answerof-8545' value='33164' \/>&nbsp;<label for='answer-id-33164' id='answer-label-33164' class='js-answer-label answer label-5'><span class='answer'>Economic capital<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33165' \/><div class='watu-question-choice'><input type='radio' name='answer-8545[]' id='answer-id-33165' class='answer answer-5 js-answer-label answerof-8545' value='33165' \/>&nbsp;<label for='answer-id-33165' id='answer-label-33165' class='js-answer-label answer label-5'><span class='answer'>Regulatory capital<\/span><\/label><\/div>\n<\/div><div class='show-question-feedback' style='display:none;'>Explanation<br\/>Creditreserves are created in respect of expected losses, which are considered the cost of doing business.<br\/>Unexpected losses are borne by economic credit capital, which is a part of economic capital. This question is a bit nuanced &#8211; and &#8216;economic capital&#8217; wouldgenerally be a good answer as well. However, taking a rather beady eyed view of the terminology and distinguishing between &#8216;economic credit capital&#8217; which is a subset of<br\/>&#8216;economic capital&#8217;, we can say that &#8216;economic credit capital&#8217; is a more appropriateChoice &#8216;a&#8217;s the question relates to credit losses.<\/div><input type='button' class='showchecked' style='margin: 10px 0;' onclick='showanswer1(5,this)' id='btn-5' value='See Answer'  \/><input type='hidden' id='questionType5' value='radio' class=''><\/div><div class='watu-question' id='question-6'><div class='question-content'><p><strong>Q98.<\/strong> Under the KMV Moody&#8217;s approach to credit risk measurement, how is the distance to default converted to expected default frequencies?<\/p>\n<\/div><input type='hidden' name='question_id[]' value='8546' \/><div class='watu-questions-wrap '><input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33166' \/><div class='watu-question-choice'><input type='radio' name='answer-8546[]' id='answer-id-33166' class='answer answer-6 php-answer-label answerof-8546' value='33166' \/>&nbsp;<label for='answer-id-33166' id='answer-label-33166' class='php-answer-label answer label-6'><span class='answer'>Using a proprietary database based on historical information<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33167' \/><div class='watu-question-choice'><input type='radio' name='answer-8546[]' id='answer-id-33167' class='answer answer-6 js-answer-label answerof-8546' value='33167' \/>&nbsp;<label for='answer-id-33167' id='answer-label-33167' class='js-answer-label answer label-6'><span class='answer'>Using migration matrices<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33168' \/><div class='watu-question-choice'><input type='radio' name='answer-8546[]' id='answer-id-33168' class='answer answer-6 js-answer-label answerof-8546' value='33168' \/>&nbsp;<label for='answer-id-33168' id='answer-label-33168' class='js-answer-label answer label-6'><span class='answer'>Using a normal distribution<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33169' \/><div class='watu-question-choice'><input type='radio' name='answer-8546[]' id='answer-id-33169' class='answer answer-6 js-answer-label answerof-8546' value='33169' \/>&nbsp;<label for='answer-id-33169' id='answer-label-33169' class='js-answer-label answer label-6'><span class='answer'>Using Monte Carlo simulations<\/span><\/label><\/div>\n<\/div><div class='show-question-feedback' style='display:none;'>Explanation<br\/>KMV Moody&#8217;s uses a proprietary database to convert the distance to default to expected default probabilities.<\/div><input type='button' class='showchecked' style='margin: 10px 0;' onclick='showanswer1(6,this)' id='btn-6' value='See Answer'  \/><input type='hidden' id='questionType6' value='radio' class=''><\/div><div class='watu-question' id='question-7'><div class='question-content'><p><strong>Q99.<\/strong> Under the internal ratings based approach for risk weighted assets, for which of the following parameters must each institution make internal estimates (as opposed to relying upon values determined by a national supervisor):<\/p>\n<\/div><input type='hidden' name='question_id[]' value='8547' \/><div class='watu-questions-wrap '><input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33170' \/><div class='watu-question-choice'><input type='radio' name='answer-8547[]' id='answer-id-33170' class='answer answer-7 php-answer-label answerof-8547' value='33170' \/>&nbsp;<label for='answer-id-33170' id='answer-label-33170' class='php-answer-label answer label-7'><span class='answer'>Probability of default<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33171' \/><div class='watu-question-choice'><input type='radio' name='answer-8547[]' id='answer-id-33171' class='answer answer-7 js-answer-label answerof-8547' value='33171' \/>&nbsp;<label for='answer-id-33171' id='answer-label-33171' class='js-answer-label answer label-7'><span class='answer'>Effective maturity<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33172' \/><div class='watu-question-choice'><input type='radio' name='answer-8547[]' id='answer-id-33172' class='answer answer-7 js-answer-label answerof-8547' value='33172' \/>&nbsp;<label for='answer-id-33172' id='answer-label-33172' class='js-answer-label answer label-7'><span class='answer'>Loss given default<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33173' \/><div class='watu-question-choice'><input type='radio' name='answer-8547[]' id='answer-id-33173' class='answer answer-7 js-answer-label answerof-8547' value='33173' \/>&nbsp;<label for='answer-id-33173' id='answer-label-33173' class='js-answer-label answer label-7'><span class='answer'>Exposure at default<\/span><\/label><\/div>\n<\/div><div class='show-question-feedback' style='display:none;'>Explanation<br\/>Regardless of the approach being followed by a bank (ie, whether foundation IRB or advanced IRB), it must make its own estimates for the probability of default. Banks following the foundation IRB approach may use values set by the supervisor for the other three parameters, though those following the advanced IRB approach may use their own estimates for all four inputs.(This is also the difference between advanced IRB and the foundation IRB approaches.) Therefore Choice &#8216;a&#8217; is the correct answer.<br\/>Also note the four difference elements that go as inputs to the internal ratings based approach in the choicesprovided.<\/div><input type='button' class='showchecked' style='margin: 10px 0;' onclick='showanswer1(7,this)' id='btn-7' value='See Answer'  \/><input type='hidden' id='questionType7' value='radio' class=''><\/div><div class='watu-question' id='question-8'><div class='question-content'><p><strong>Q100.<\/strong> Which of the following was not a policy response introduced by Basel 2.5 in response to the global financial crisis:<\/p>\n<\/div><input type='hidden' name='question_id[]' value='8548' \/><div class='watu-questions-wrap '><input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33174' \/><div class='watu-question-choice'><input type='radio' name='answer-8548[]' id='answer-id-33174' class='answer answer-8 js-answer-label answerof-8548' value='33174' \/>&nbsp;<label for='answer-id-33174' id='answer-label-33174' class='js-answer-label answer label-8'><span class='answer'>Comprehensive Risk Model (CRM)<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33175' \/><div class='watu-question-choice'><input type='radio' name='answer-8548[]' id='answer-id-33175' class='answer answer-8 php-answer-label answerof-8548' value='33175' \/>&nbsp;<label for='answer-id-33175' id='answer-label-33175' class='php-answer-label answer label-8'><span class='answer'>Comprehensive Capital Analysis and Review (CCAR)<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33176' \/><div class='watu-question-choice'><input type='radio' name='answer-8548[]' id='answer-id-33176' class='answer answer-8 js-answer-label answerof-8548' value='33176' \/>&nbsp;<label for='answer-id-33176' id='answer-label-33176' class='js-answer-label answer label-8'><span class='answer'>Stressed VaR (SVaR)<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33177' \/><div class='watu-question-choice'><input type='radio' name='answer-8548[]' id='answer-id-33177' class='answer answer-8 js-answer-label answerof-8548' value='33177' \/>&nbsp;<label for='answer-id-33177' id='answer-label-33177' class='js-answer-label answer label-8'><span class='answer'>Incremental Risk Charge (IRC)<\/span><\/label><\/div>\n<\/div><div class='show-question-feedback' style='display:none;'>Explanation<br\/>The CCAR is a supervisory mechanism adopted by the US Federal Reserve Bank to assess capital adequacy for bank holding companies it supervises. Itwas not a concept introduced by the international Basel framework.<br\/>The other three were indeed rules introduced by Basel 2.5, which was ultimately subsumed into Basel III.<br\/>Stressed VaR is just the standard 99%\/10 day VaR, calculated with theassumption that relevant market factors are under stress.<br\/>The Incremental Risk Charge (IRC) is an estimate of default and migration risk of unsecuritized credit products in the trading book. (Though this may sound like a credit risk term, it relates to market risk &#8211; for example, a bond rated A being downgraded to BBB. In the old days, the banking book where loans to customers are held was the primary source of credit risk, but with OTC trading and complex products the trading book also now holds a good dealof credit risk. Both IRC and CRM account for these.) While IRC considers only non-securitized products, the CRM (Comprehensive Risk Model) considers securitized products such as tranches, CDOs, and correlation based instruments.<br\/>The IRC, SVaR and CRMcomplement standard VaR by covering risks that are not included in a standard VaR model. Their results are therefore added to the VaR for capital adequacy determination.<\/div><input type='button' class='showchecked' style='margin: 10px 0;' onclick='showanswer1(8,this)' id='btn-8' value='See Answer'  \/><input type='hidden' id='questionType8' value='radio' class=''><\/div><div class='watu-question' id='question-9'><div class='question-content'><p><strong>Q101.<\/strong> Altman&#8217;s Z-score does not consider which of the following ratios:<\/p>\n<\/div><input type='hidden' name='question_id[]' value='8549' \/><div class='watu-questions-wrap '><input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33178' \/><div class='watu-question-choice'><input type='radio' name='answer-8549[]' id='answer-id-33178' class='answer answer-9 js-answer-label answerof-8549' value='33178' \/>&nbsp;<label for='answer-id-33178' id='answer-label-33178' class='js-answer-label answer label-9'><span class='answer'>Market capitalization to debt<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33179' \/><div class='watu-question-choice'><input type='radio' name='answer-8549[]' id='answer-id-33179' class='answer answer-9 js-answer-label answerof-8549' value='33179' \/>&nbsp;<label for='answer-id-33179' id='answer-label-33179' class='js-answer-label answer label-9'><span class='answer'>Sales to total assets<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33180' \/><div class='watu-question-choice'><input type='radio' name='answer-8549[]' id='answer-id-33180' class='answer answer-9 php-answer-label answerof-8549' value='33180' \/>&nbsp;<label for='answer-id-33180' id='answer-label-33180' class='php-answer-label answer label-9'><span class='answer'>Net income to total assets<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33181' \/><div class='watu-question-choice'><input type='radio' name='answer-8549[]' id='answer-id-33181' class='answer answer-9 js-answer-label answerof-8549' value='33181' \/>&nbsp;<label for='answer-id-33181' id='answer-label-33181' class='js-answer-label answer label-9'><span class='answer'>Working capital to totalassets<\/span><\/label><\/div>\n<\/div><div class='show-question-feedback' style='display:none;'>Explanation<br\/>A computation of Altman&#8217;s Z-score considers the following ratios:<br\/>&#8211; Working capital to total assets<br\/>&#8211; Retained earnings to total assets<br\/>&#8211; EBIT to total assets<br\/>&#8211; Market cap to debt<br\/>&#8211; Sales to total assets<br\/>It does not consider Net Income to total assets, therefore Choice &#8216;c&#8217; is the correct answer. This makes sense as net income is after interest and taxes, both of which are not relevant for considering the cash flows for debt servicing.<\/div><input type='button' class='showchecked' style='margin: 10px 0;' onclick='showanswer1(9,this)' id='btn-9' value='See Answer'  \/><input type='hidden' id='questionType9' value='radio' class=''><\/div><div class='watu-question' id='question-10'><div class='question-content'><p><strong>Q102.<\/strong> Which of the following can be used to reduce credit exposures to a counterparty:<br \/>I. Netting arrangements<br \/>II. Collateral requirements<br \/>III. Offsetting tradeswith other counterparties<br \/>IV. Credit default swaps<\/p>\n<\/div><input type='hidden' name='question_id[]' value='8550' \/><div class='watu-questions-wrap '><input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33182' \/><div class='watu-question-choice'><input type='radio' name='answer-8550[]' id='answer-id-33182' class='answer answer-10 js-answer-label answerof-8550' value='33182' \/>&nbsp;<label for='answer-id-33182' id='answer-label-33182' class='js-answer-label answer label-10'><span class='answer'>I and II<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33183' \/><div class='watu-question-choice'><input type='radio' name='answer-8550[]' id='answer-id-33183' class='answer answer-10 js-answer-label answerof-8550' value='33183' \/>&nbsp;<label for='answer-id-33183' id='answer-label-33183' class='js-answer-label answer label-10'><span class='answer'>I, II, III and IV<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33184' \/><div class='watu-question-choice'><input type='radio' name='answer-8550[]' id='answer-id-33184' class='answer answer-10 php-answer-label answerof-8550' value='33184' \/>&nbsp;<label for='answer-id-33184' id='answer-label-33184' class='php-answer-label answer label-10'><span class='answer'>I, II and IV<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33185' \/><div class='watu-question-choice'><input type='radio' name='answer-8550[]' id='answer-id-33185' class='answer answer-10 js-answer-label answerof-8550' value='33185' \/>&nbsp;<label for='answer-id-33185' id='answer-label-33185' class='js-answer-label answer label-10'><span class='answer'>III and IV<\/span><\/label><\/div>\n<\/div><div class='show-question-feedback' style='display:none;'>Explanation<br\/>Offsetting trades with other counterparties will not reduce credit exposure to a given counterparty. All other choices represent means of reducing credit risk. Therefore Choice &#8216;c&#8217; is the correct answer.<\/div><input type='button' class='showchecked' style='margin: 10px 0;' onclick='showanswer1(10,this)' id='btn-10' value='See Answer'  \/><input type='hidden' id='questionType10' value='radio' class=''><\/div><div class='watu-question' id='question-11'><div class='question-content'><p><strong>Q103.<\/strong> Loss provisioning is intended to cover:<\/p>\n<\/div><input type='hidden' name='question_id[]' value='8551' \/><div class='watu-questions-wrap '><input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33186' \/><div class='watu-question-choice'><input type='radio' name='answer-8551[]' id='answer-id-33186' class='answer answer-11 js-answer-label answerof-8551' value='33186' \/>&nbsp;<label for='answer-id-33186' id='answer-label-33186' class='js-answer-label answer label-11'><span class='answer'>Unexpected losses<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33187' \/><div class='watu-question-choice'><input type='radio' name='answer-8551[]' id='answer-id-33187' class='answer answer-11 js-answer-label answerof-8551' value='33187' \/>&nbsp;<label for='answer-id-33187' id='answer-label-33187' class='js-answer-label answer label-11'><span class='answer'>Losses in excessof unexpected losses<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33188' \/><div class='watu-question-choice'><input type='radio' name='answer-8551[]' id='answer-id-33188' class='answer answer-11 js-answer-label answerof-8551' value='33188' \/>&nbsp;<label for='answer-id-33188' id='answer-label-33188' class='js-answer-label answer label-11'><span class='answer'>Both expected and unexpected losses<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33189' \/><div class='watu-question-choice'><input type='radio' name='answer-8551[]' id='answer-id-33189' class='answer answer-11 php-answer-label answerof-8551' value='33189' \/>&nbsp;<label for='answer-id-33189' id='answer-label-33189' class='php-answer-label answer label-11'><span class='answer'>Expected losses<\/span><\/label><\/div>\n<\/div><div class='show-question-feedback' style='display:none;'>Explanation<br\/>Loss provisioning is intended to cover expected losses. Economic capital is expected to cover unexpected losses. No capital or provisions are set aside for losses in excess of unexpected losses, which will ultimately be borne by equity.<br\/>Choice &#8216;d&#8217; is the correct answer.<\/div><input type='button' class='showchecked' style='margin: 10px 0;' onclick='showanswer1(11,this)' id='btn-11' value='See Answer'  \/><input type='hidden' id='questionType11' value='radio' class=''><\/div><div class='watu-question' id='question-12'><div class='question-content'><p><strong>Q104.<\/strong> Which of the following best describes a &#8216;break clause ?<\/p>\n<\/div><input type='hidden' name='question_id[]' value='8552' \/><div class='watu-questions-wrap '><input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33190' \/><div class='watu-question-choice'><input type='radio' name='answer-8552[]' id='answer-id-33190' class='answer answer-12 php-answer-label answerof-8552' value='33190' \/>&nbsp;<label for='answer-id-33190' id='answer-label-33190' class='php-answer-label answer label-12'><span class='answer'>A break clause gives either party to a transaction the right to terminate the transaction at market price at future date(s)<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33191' \/><div class='watu-question-choice'><input type='radio' name='answer-8552[]' id='answer-id-33191' class='answer answer-12 js-answer-label answerof-8552' value='33191' \/>&nbsp;<label for='answer-id-33191' id='answer-label-33191' class='js-answer-label answer label-12'><span class='answer'>A break clausedetermines the process by which amounts due on early termination will be determined<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33192' \/><div class='watu-question-choice'><input type='radio' name='answer-8552[]' id='answer-id-33192' class='answer answer-12 js-answer-label answerof-8552' value='33192' \/>&nbsp;<label for='answer-id-33192' id='answer-label-33192' class='js-answer-label answer label-12'><span class='answer'>A break clause describes rights and obligations when the derivative contract is broken<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33193' \/><div class='watu-question-choice'><input type='radio' name='answer-8552[]' id='answer-id-33193' class='answer answer-12 js-answer-label answerof-8552' value='33193' \/>&nbsp;<label for='answer-id-33193' id='answer-label-33193' class='js-answer-label answer label-12'><span class='answer'>A break clause sets out the conditions under which the transaction will be terminated upon non-compliance with the ISDA MA<\/span><\/label><\/div>\n<\/div><div class='show-question-feedback' style='display:none;'>Explanation<br\/>A break close, also called a &#8216;mutual put&#8217;, gives either party the right to terminate a transaction at market price at a given date, or dates in the future. These are usually availed of in longer dated transactions, eg 10 years and over. For example, a 15-year swap might have a mutual put in year 5, and every 2 years thereafter.<br\/>All other choices are incorrect.<\/div><input type='button' class='showchecked' style='margin: 10px 0;' onclick='showanswer1(12,this)' id='btn-12' value='See Answer'  \/><input type='hidden' id='questionType12' value='radio' class=''><\/div><div class='watu-question' id='question-13'><div class='question-content'><p><strong>Q105.<\/strong> If X represents a matrix with ratings transition probabilities for one year, the transition probabilities for 3 years are given by the matrix:<\/p>\n<\/div><input type='hidden' name='question_id[]' value='8553' \/><div class='watu-questions-wrap '><input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33194' \/><div class='watu-question-choice'><input type='radio' name='answer-8553[]' id='answer-id-33194' class='answer answer-13 js-answer-label answerof-8553' value='33194' \/>&nbsp;<label for='answer-id-33194' id='answer-label-33194' class='js-answer-label answer label-13'><span class='answer'>P ^ (-3)<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33195' \/><div class='watu-question-choice'><input type='radio' name='answer-8553[]' id='answer-id-33195' class='answer answer-13 php-answer-label answerof-8553' value='33195' \/>&nbsp;<label for='answer-id-33195' id='answer-label-33195' class='php-answer-label answer label-13'><span class='answer'>P x P x P<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33196' \/><div class='watu-question-choice'><input type='radio' name='answer-8553[]' id='answer-id-33196' class='answer answer-13 js-answer-label answerof-8553' value='33196' \/>&nbsp;<label for='answer-id-33196' id='answer-label-33196' class='js-answer-label answer label-13'><span class='answer'>3 [P ^ (-1)]<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33197' \/><div class='watu-question-choice'><input type='radio' name='answer-8553[]' id='answer-id-33197' class='answer answer-13 js-answer-label answerof-8553' value='33197' \/>&nbsp;<label for='answer-id-33197' id='answer-label-33197' class='js-answer-label answer label-13'><span class='answer'>3 [P]<\/span><\/label><\/div>\n<\/div><div class='show-question-feedback' style='display:none;'>Explanation<br\/>Assuming timeinvariance and the Markov property, it is easy to calculate the transition matrix for any time period as P^n, where P is the given transition matrix for one period and n the number of time periods that we need to compute the new transition matrix for. ThusChoice &#8216;b&#8217; is the correct answer.<\/div><input type='button' class='showchecked' style='margin: 10px 0;' onclick='showanswer1(13,this)' id='btn-13' value='See Answer'  \/><input type='hidden' id='questionType13' value='radio' class=''><\/div><div class='watu-question' id='question-14'><div class='question-content'><p><strong>Q106.<\/strong> If the odds of default are 1:5, what is the probability of default?<\/p>\n<\/div><input type='hidden' name='question_id[]' value='8554' \/><div class='watu-questions-wrap '><input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33198' \/><div class='watu-question-choice'><input type='radio' name='answer-8554[]' id='answer-id-33198' class='answer answer-14 php-answer-label answerof-8554' value='33198' \/>&nbsp;<label for='answer-id-33198' id='answer-label-33198' class='php-answer-label answer label-14'><span class='answer'>16.67%<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33199' \/><div class='watu-question-choice'><input type='radio' name='answer-8554[]' id='answer-id-33199' class='answer answer-14 js-answer-label answerof-8554' value='33199' \/>&nbsp;<label for='answer-id-33199' id='answer-label-33199' class='js-answer-label answer label-14'><span class='answer'>20.00%<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33200' \/><div class='watu-question-choice'><input type='radio' name='answer-8554[]' id='answer-id-33200' class='answer answer-14 js-answer-label answerof-8554' value='33200' \/>&nbsp;<label for='answer-id-33200' id='answer-label-33200' class='js-answer-label answer label-14'><span class='answer'>12.00%<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33201' \/><div class='watu-question-choice'><input type='radio' name='answer-8554[]' id='answer-id-33201' class='answer answer-14 js-answer-label answerof-8554' value='33201' \/>&nbsp;<label for='answer-id-33201' id='answer-label-33201' class='js-answer-label answer label-14'><span class='answer'>50.00%<\/span><\/label><\/div>\n<\/div><div class='show-question-feedback' style='display:none;'>Explanation<br\/>Odds are the ratio between the probability of the occurence of an event to the probability that the event does not occur.<br\/>If odds are H, then p = H\/(1 + H) and H = p\/(1-p). In this case the odds are 1:5, or 1\/5, therefore the correct answer is Choice &#8216;a&#8217;, equal to (1\/5)\/(1 + 1\/5) = 1\/6 = 16.67%. All other choices are incorrect.<\/div><input type='button' class='showchecked' style='margin: 10px 0;' onclick='showanswer1(14,this)' id='btn-14' value='See Answer'  \/><input type='hidden' id='questionType14' value='radio' class=''><\/div><div class='watu-question' id='question-15'><div class='question-content'><p><strong>Q107.<\/strong> Which of the following is the best description of the spread premium puzzle:<\/p>\n<\/div><input type='hidden' name='question_id[]' value='8555' \/><div class='watu-questions-wrap '><input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33202' \/><div class='watu-question-choice'><input type='radio' name='answer-8555[]' id='answer-id-33202' class='answer answer-15 php-answer-label answerof-8555' value='33202' \/>&nbsp;<label for='answer-id-33202' id='answer-label-33202' class='php-answer-label answer label-15'><span class='answer'>The spread premium puzzle refers to observed default rates being much less than implied default rates, leading to lower credit bonds being relatively cheap when compared to their actual default probabilities<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33203' \/><div class='watu-question-choice'><input type='radio' name='answer-8555[]' id='answer-id-33203' class='answer answer-15 js-answer-label answerof-8555' value='33203' \/>&nbsp;<label for='answer-id-33203' id='answer-label-33203' class='js-answer-label answer label-15'><span class='answer'>The spread premium puzzle refers to dollar denominated non-US sovereign bonds being priced a at significant discount to other similar USD denominated assets<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33204' \/><div class='watu-question-choice'><input type='radio' name='answer-8555[]' id='answer-id-33204' class='answer answer-15 js-answer-label answerof-8555' value='33204' \/>&nbsp;<label for='answer-id-33204' id='answer-label-33204' class='js-answer-label answer label-15'><span class='answer'>The spread premium puzzle refers to AAA corporate bonds being priced at almost the same prices as equivalent treasury bonds without offering the same liquidity or guarantee as treasury bonds<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33205' \/><div class='watu-question-choice'><input type='radio' name='answer-8555[]' id='answer-id-33205' class='answer answer-15 js-answer-label answerof-8555' value='33205' \/>&nbsp;<label for='answer-id-33205' id='answer-label-33205' class='js-answer-label answer label-15'><span class='answer'>The spread premium puzzle refers to the moral hazard implicit in the monoline insurance market<\/span><\/label><\/div>\n<\/div><div class='show-question-feedback' style='display:none;'>Explanation<br\/>Choice &#8216;a&#8217; is the correct answer. The other choices represent non-sensical statements.<\/div><input type='button' class='showchecked' style='margin: 10px 0;' onclick='showanswer1(15,this)' id='btn-15' value='See Answer'  \/><input type='hidden' id='questionType15' value='radio' class=''><\/div><div class='watu-question' id='question-16'><div class='question-content'><p><strong>Q108.<\/strong> Which of the following decisions need to be made as part of laying down a system for calculating VaR:<br \/>I. The confidence level and horizon<br \/>II. Whether portfolio valuation is based upon a delta-gamma approximation or a full revaluation III. Whether the VaR is to be disclosed in the quarterly financial statements IV. Whether a 10 day VaR will be calculated based on 10-day return periods, or for 1-day and scaled to 10 days<\/p>\n<\/div><input type='hidden' name='question_id[]' value='8556' \/><div class='watu-questions-wrap '><input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33206' \/><div class='watu-question-choice'><input type='radio' name='answer-8556[]' id='answer-id-33206' class='answer answer-16 js-answer-label answerof-8556' value='33206' \/>&nbsp;<label for='answer-id-33206' id='answer-label-33206' class='js-answer-label answer label-16'><span class='answer'>I and III<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33207' \/><div class='watu-question-choice'><input type='radio' name='answer-8556[]' id='answer-id-33207' class='answer answer-16 js-answer-label answerof-8556' value='33207' \/>&nbsp;<label for='answer-id-33207' id='answer-label-33207' class='js-answer-label answer label-16'><span class='answer'>II and IV<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33208' \/><div class='watu-question-choice'><input type='radio' name='answer-8556[]' id='answer-id-33208' class='answer answer-16 php-answer-label answerof-8556' value='33208' \/>&nbsp;<label for='answer-id-33208' id='answer-label-33208' class='php-answer-label answer label-16'><span class='answer'>I, II and IV<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33209' \/><div class='watu-question-choice'><input type='radio' name='answer-8556[]' id='answer-id-33209' class='answer answer-16 js-answer-label answerof-8556' value='33209' \/>&nbsp;<label for='answer-id-33209' id='answer-label-33209' class='js-answer-label answer label-16'><span class='answer'>All of the above<\/span><\/label><\/div>\n<\/div><div class='show-question-feedback' style='display:none;'>Explanation<br\/>While conceptually VaR is a fairly straightforward concept, a number of decisions need to be made to select between the different choices available for the exact mechanism to be used for the calculations.<br\/>The Basel framework requires banks toestimate VaR at the 99% confidence level over a 10 day horizon. Yet this is a decision that needs to be explicitly made and documented. Therefore &#8216;I&#8217; is a correct choice.<br\/>At various stages of the calculations, portfolio values need to be determined. The valuation can be done using a &#8216;full valuation&#8217;, where each position is explicitly valued; or the portfolio(s) can be reduced to a handful of risk factors, and risk sensitivities such as delta, gamma, convexity etc be used to value the portfolio. The decisionbetween the two approaches is generally based on computational efficiency, complexity of the portfolio, and the degree of exactness desired. &#8216;II&#8217; therefore is one of the decisions that needs to be made.<br\/>The decision as to disclosing the VaR in financial filings comes after the VaR has been calculated, and is unrelated to the VaR calculation system a bank needs to set up. &#8216;III&#8217; is therefore not a correct answer.<br\/>Though the Basel framework requires a 10-day VaR to be calculated, it also allows the calculation of the 1-day VaR and and scaling it to 10 days using the square root of time rule. The bank needs to decide whether it wishes to scale the VaR based on a 1-day VaR number, or compute VaR for a 10 day period to begin with. &#8216;IV&#8217; therefore is a decision tobe made for setting up the VaR system.<\/div><input type='button' class='showchecked' style='margin: 10px 0;' onclick='showanswer1(16,this)' id='btn-16' value='See Answer'  \/><input type='hidden' id='questionType16' value='radio' class=''><\/div><div class='watu-question' id='question-17'><div class='question-content'><p><strong>Q109.<\/strong> According to Basel II&#8217;s definition of operational loss event types, losses due to acts by third parties intended to defraud, misappropriate property or circumvent the law are classified as:<\/p>\n<\/div><input type='hidden' name='question_id[]' value='8557' \/><div class='watu-questions-wrap '><input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33210' \/><div class='watu-question-choice'><input type='radio' name='answer-8557[]' id='answer-id-33210' class='answer answer-17 js-answer-label answerof-8557' value='33210' \/>&nbsp;<label for='answer-id-33210' id='answer-label-33210' class='js-answer-label answer label-17'><span class='answer'>Internal fraud<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33211' \/><div class='watu-question-choice'><input type='radio' name='answer-8557[]' id='answer-id-33211' class='answer answer-17 js-answer-label answerof-8557' value='33211' \/>&nbsp;<label for='answer-id-33211' id='answer-label-33211' class='js-answer-label answer label-17'><span class='answer'>Execution delivery and system failure<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33212' \/><div class='watu-question-choice'><input type='radio' name='answer-8557[]' id='answer-id-33212' class='answer answer-17 php-answer-label answerof-8557' value='33212' \/>&nbsp;<label for='answer-id-33212' id='answer-label-33212' class='php-answer-label answer label-17'><span class='answer'>External fraud<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33213' \/><div class='watu-question-choice'><input type='radio' name='answer-8557[]' id='answer-id-33213' class='answer answer-17 js-answer-label answerof-8557' value='33213' \/>&nbsp;<label for='answer-id-33213' id='answer-label-33213' class='js-answer-label answer label-17'><span class='answer'>Third party fraud<\/span><\/label><\/div>\n<\/div><div class='show-question-feedback' style='display:none;'>Explanation<br\/>Choice &#8216;c&#8217; is the correct answer. Refer to the detailed loss event type classification under Basel II (see Annex 9 of the accord). Youshould know the exact names of all loss event types, and examples of each.<\/div><input type='button' class='showchecked' style='margin: 10px 0;' onclick='showanswer1(17,this)' id='btn-17' value='See Answer'  \/><input type='hidden' id='questionType17' value='radio' class=''><\/div><div class='watu-question' id='question-18'><div class='question-content'><p><strong>Q110.<\/strong> As opposed to traditional accounting based measures, risk adjusted performance measures use which of the following approaches to measure performance:<\/p>\n<\/div><input type='hidden' name='question_id[]' value='8558' \/><div class='watu-questions-wrap '><input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33214' \/><div class='watu-question-choice'><input type='radio' name='answer-8558[]' id='answer-id-33214' class='answer answer-18 js-answer-label answerof-8558' value='33214' \/>&nbsp;<label for='answer-id-33214' id='answer-label-33214' class='js-answer-label answer label-18'><span class='answer'>adjust both return and the capital employed to account for the risk undertaken<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33215' \/><div class='watu-question-choice'><input type='radio' name='answer-8558[]' id='answer-id-33215' class='answer answer-18 js-answer-label answerof-8558' value='33215' \/>&nbsp;<label for='answer-id-33215' id='answer-label-33215' class='js-answer-label answer label-18'><span class='answer'>adjust capital employed to reflect the risk undertaken<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33216' \/><div class='watu-question-choice'><input type='radio' name='answer-8558[]' id='answer-id-33216' class='answer answer-18 js-answer-label answerof-8558' value='33216' \/>&nbsp;<label for='answer-id-33216' id='answer-label-33216' class='js-answer-label answer label-18'><span class='answer'>adjust returns based on the level of risk undertaken to earn that return<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33217' \/><div class='watu-question-choice'><input type='radio' name='answer-8558[]' id='answer-id-33217' class='answer answer-18 php-answer-label answerof-8558' value='33217' \/>&nbsp;<label for='answer-id-33217' id='answer-label-33217' class='php-answer-label answer label-18'><span class='answer'>Any or all of the above<\/span><\/label><\/div>\n<\/div><div class='show-question-feedback' style='display:none;'>Explanation<br\/>Performance measurement at a very basic level involves comparing the return earned to the capital invested to earn that return. Risk adjusted performance measures (RAPMs) come in various varieties &#8211; and the key difference between RAPMs and traditional measures such as return on equity, return on assets etc is that RAPMs account for the risk undertaken. They may do so by either adjusting the return, or the capital, or both.<br\/>They are classified as RAROCs (risk adjusted return on capital), RORACs (return on risk adjusted capital) and RARORACs (risk adjusted return on risk adjusted capital).<\/div><input type='button' class='showchecked' style='margin: 10px 0;' onclick='showanswer1(18,this)' id='btn-18' value='See Answer'  \/><input type='hidden' id='questionType18' value='radio' class=''><\/div><div class='watu-question' id='question-19'><div class='question-content'><p><strong>Q111.<\/strong> Whichof the following statements are true in relation to Historical Simulation VaR?<br \/>I. Historical Simulation VaR assumes returns are normally distributed but have fat tails II. It uses full revaluation, as opposed to delta or delta-gamma approximations III. Acorrelation matrix is constructed using historical scenarios IV. It particularly suits new products that may not have a long time series of historical data available<\/p>\n<\/div><input type='hidden' name='question_id[]' value='8559' \/><div class='watu-questions-wrap '><input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33218' \/><div class='watu-question-choice'><input type='radio' name='answer-8559[]' id='answer-id-33218' class='answer answer-19 js-answer-label answerof-8559' value='33218' \/>&nbsp;<label for='answer-id-33218' id='answer-label-33218' class='js-answer-label answer label-19'><span class='answer'>II<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33219' \/><div class='watu-question-choice'><input type='radio' name='answer-8559[]' id='answer-id-33219' class='answer answer-19 js-answer-label answerof-8559' value='33219' \/>&nbsp;<label for='answer-id-33219' id='answer-label-33219' class='js-answer-label answer label-19'><span class='answer'>II and III<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33220' \/><div class='watu-question-choice'><input type='radio' name='answer-8559[]' id='answer-id-33220' class='answer answer-19 js-answer-label answerof-8559' value='33220' \/>&nbsp;<label for='answer-id-33220' id='answer-label-33220' class='js-answer-label answer label-19'><span class='answer'>I and IV<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33221' \/><div class='watu-question-choice'><input type='radio' name='answer-8559[]' id='answer-id-33221' class='answer answer-19 js-answer-label answerof-8559' value='33221' \/>&nbsp;<label for='answer-id-33221' id='answer-label-33221' class='js-answer-label answer label-19'><span class='answer'>All of the above<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33222' \/><div class='watu-question-choice'><input type='radio' name='answer-8559[]' id='answer-id-33222' class='answer answer-19 php-answer-label answerof-8559' value='33222' \/>&nbsp;<label for='answer-id-33222' id='answer-label-33222' class='php-answer-label answer label-19'><span class='answer'>A<\/span><\/label><\/div>\n<\/div><div class='show-question-feedback' style='display:none;'>Explanation<br\/>Historical Simulation VaR is conceptually very straightforward: actual prices as seen during the observation period (1 year, 2 years, or other) become the &#8216;scenarios&#8217; forming the basis of the valuation of the portfolio. For each scenario, full revaluationis performed, and a P&amp;L data set becomes available from which the desired loss quantile can be extracted.<br\/>Historical simulation is based upon actually seen prices over a selected historical period, therefore no distributional assumptions are required. Thedata is what the data is, and is the distribution. Statement I is therefore not correct.<br\/>It uses full revaluation for each historical scenario, therefore statement II is correct.<br\/>Since the prices are taken from actual historical observations, a correlationmatrix is not required at all.<br\/>Statement III is therefore incorrect (it would be true for Monte Carlo and parametric Var).<br\/>Historical simulation VaR suffers from the limitation that if enough representative data points are no available during the historical observation period from which the scenarios are drawn, the results would be inaccurate.<br\/>This is likely to be the case for new products. Therefore Statement IV is incorrect.<\/div><input type='button' class='showchecked' style='margin: 10px 0;' onclick='showanswer1(19,this)' id='btn-19' value='See Answer'  \/><input type='hidden' id='questionType19' value='radio' class=''><\/div><div class='watu-question' id='question-20'><div class='question-content'><p><strong>Q112.<\/strong> There are two bonds in a portfolio, each with a market value of $50m. The probability of default of the two bonds are 0.03 and 0.08 respectively, over a one year horizon. If the probability of the two bonds defaulting simultaneously is 1.4%, what is the default correlation between the two?<\/p>\n<\/div><input type='hidden' name='question_id[]' value='8560' \/><div class='watu-questions-wrap '><input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33223' \/><div class='watu-question-choice'><input type='radio' name='answer-8560[]' id='answer-id-33223' class='answer answer-20 js-answer-label answerof-8560' value='33223' \/>&nbsp;<label for='answer-id-33223' id='answer-label-33223' class='js-answer-label answer label-20'><span class='answer'>0%<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33224' \/><div class='watu-question-choice'><input type='radio' name='answer-8560[]' id='answer-id-33224' class='answer answer-20 js-answer-label answerof-8560' value='33224' \/>&nbsp;<label for='answer-id-33224' id='answer-label-33224' class='js-answer-label answer label-20'><span class='answer'>100%<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33225' \/><div class='watu-question-choice'><input type='radio' name='answer-8560[]' id='answer-id-33225' class='answer answer-20 js-answer-label answerof-8560' value='33225' \/>&nbsp;<label for='answer-id-33225' id='answer-label-33225' class='js-answer-label answer label-20'><span class='answer'>40%<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33226' \/><div class='watu-question-choice'><input type='radio' name='answer-8560[]' id='answer-id-33226' class='answer answer-20 php-answer-label answerof-8560' value='33226' \/>&nbsp;<label for='answer-id-33226' id='answer-label-33226' class='php-answer-label answer label-20'><span class='answer'>25%<\/span><\/label><\/div>\n<\/div><div class='show-question-feedback' style='display:none;'>Explanation<br\/>Probability of the joint default of both A and B =<br\/><img decoding=\"async\" src=\"https:\/\/exam.real4prep.com\/wp-content\/uploads\/2023\/10\/8010-8b415b01a0dbc8d902a14a454cddbb40.jpg\"\/><br\/>We know all the numbers except default correlation, and we can solve for it.<br\/>DefaultCorrelation*SQRT(0.03*(1 &#8211; 0.03)*0.08*(1 &#8211; 0.08)) + 0.03*0.08 = 0.014.<br\/>Solving, we get default correlation = 25%<\/div><input type='button' class='showchecked' style='margin: 10px 0;' onclick='showanswer1(20,this)' id='btn-20' value='See Answer'  \/><input type='hidden' id='questionType20' value='radio' class=''><\/div><div class='watu-question' id='question-21'><div class='question-content'><p><strong>Q113.<\/strong> Which of the beloware a way to classify risk governance structures:<\/p>\n<\/div><input type='hidden' name='question_id[]' value='8561' \/><div class='watu-questions-wrap '><input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33227' \/><div class='watu-question-choice'><input type='radio' name='answer-8561[]' id='answer-id-33227' class='answer answer-21 php-answer-label answerof-8561' value='33227' \/>&nbsp;<label for='answer-id-33227' id='answer-label-33227' class='php-answer-label answer label-21'><span class='answer'>Reactive, Preventative and Active<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33228' \/><div class='watu-question-choice'><input type='radio' name='answer-8561[]' id='answer-id-33228' class='answer answer-21 js-answer-label answerof-8561' value='33228' \/>&nbsp;<label for='answer-id-33228' id='answer-label-33228' class='js-answer-label answer label-21'><span class='answer'>Committee based, regulation based and board mandated<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33229' \/><div class='watu-question-choice'><input type='radio' name='answer-8561[]' id='answer-id-33229' class='answer answer-21 js-answer-label answerof-8561' value='33229' \/>&nbsp;<label for='answer-id-33229' id='answer-label-33229' class='js-answer-label answer label-21'><span class='answer'>Top-down and Bottom-up<\/span><\/label><\/div>\n<input type='hidden' name='answer_ids[]' class='watu-answer-ids' value='33230' \/><div class='watu-question-choice'><input type='radio' name='answer-8561[]' id='answer-id-33230' class='answer answer-21 js-answer-label answerof-8561' value='33230' \/>&nbsp;<label for='answer-id-33230' id='answer-label-33230' class='js-answer-label answer label-21'><span class='answer'>Active and Passive<\/span><\/label><\/div>\n<\/div><div class='show-question-feedback' style='display:none;'>Explanation<br\/>This is a tricky question in the sense norisk management professional can be expected to know the answer to this one unless they have read Chapter 2 of the PRMIA handbook. So this question appears purely for the sake of something you would need to know purely for the sake of the exam.<br\/>PRMIA&#8217;s handbook classifies governance sructures as reactive, preventative and active. Reactive structures involve monitoring signals after the event leading to corrective actions. Preventative structures are forward looking and anticipate issues before they arise. Active structures include considerations of operational efficiency and not just governance. All other answers are made up phrases and are incorrect.<br\/>In reality, corporations employ all structures together without worrying about the boundary between the three, and these distinctions do not exist except in textbooks.<\/div><input type='button' class='showchecked' style='margin: 10px 0;' onclick='showanswer1(21,this)' id='btn-21' value='See Answer'  \/><input type='hidden' id='questionType21' value='radio' class=''><\/div><div style='display:none' id='question-22'><br \/><div class='question-content'><img decoding=\"async\" src=\"https:\/\/exam.real4prep.com\/wp-content\/plugins\/watu\/loading.gif\" width=\"16\" height=\"16\" alt=\"Loading ...\" title=\"Loading ...\" \/>&nbsp;Loading &#8230;<\/div><\/div><br \/>\n<input type=\"button\" name=\"action\" onclick=\"Watu.submitResult()\" id=\"action-button\" style=\"margin:0 auto 20px auto;\" value=\"View Results\"  class=\"watu-submit-button\" \/>\n<input type=\"hidden\" name=\"no_ajax\" value=\"0\"><input type=\"hidden\" name=\"quiz_id\" value=\"436\" \/>\n<input type=\"hidden\" id=\"watuStartTime\" name=\"start_time\" value=\"2026-09-23 14:39:39\" \/>\n<\/form>\n<\/div>\n<div id=\"watu-loading-result\" style=\"display:none;\">\n\t<p align=\"center\"><img decoding=\"async\" src=\"https:\/\/exam.real4prep.com\/wp-content\/plugins\/watu\/loading.gif\" width=\"16\" height=\"16\" alt=\"Loading\" title=\"Loading\" \/><\/p>\n<\/div>\t\n<script type=\"text\/javascript\">\nvar exam_id=0;\nvar question_ids='';\nvar watuURL='';\njQuery(function($){\nquestion_ids = \"8541,8542,8543,8544,8545,8546,8547,8548,8549,8550,8551,8552,8553,8554,8555,8556,8557,8558,8559,8560,8561\";\nexam_id = 436;\nWatu.exam_id = exam_id;\nWatu.qArr = question_ids.split(',');\nWatu.post_id = 972;\nWatu.singlePage = '1';\nWatu.hAppID = \"0.67404800 1790174379\";\nwatuURL = \"https:\/\/exam.real4prep.com\/wp-admin\/admin-ajax.php\";\nWatu.noAlertUnanswered = 0;\n});\n\nfunction showanswer1(e,q) {\n\tvar check = new Array();\n\tjQuery('.answer-' + e).each(function (i) {\n\t\tcheck.push(this.checked)\n\t})\n\tlet textval = jQuery('.watu-textarea-' + e).val()\n\tif (jQuery.inArray(true, check) >= 0 || textval !== '' && textval !== undefined) {\n\t\tjQuery(q).stop().fadeOut(300)\n\t\tjQuery('.php-answer-label.label-' + e).addClass(\n\t\t\t'correct-answer'\n\t\t)\n\t\tjQuery('.answer-' + e).each(function (i) {\n\t\t\tif (this.checked && this.className.match(\/js\\-answer\/)) {\n\t\t\t\tvar number = this.id.toString().replace(\/\\D\/g, '')\n\t\t\t\tif (number) {\n\t\t\t\t\tjQuery('#answer-label-' + number).addClass('user-answer')\n\t\t\t\t}\n\t\t\t}\n\t\t})\n\t\tjQuery(q).siblings('.show-question-feedback').stop().fadeIn(300)\n\t\ttextval = ''\n\t} else if (textval == '' || textval == undefined){\n\t\t\/\/jQuery(\".hint\").stop().fadeIn(300)\n\t\talert('Please first answer the question');\n\t}\n}\nvar btnisshow = jQuery(\".php-answer-label\").length\nif (btnisshow > 0) {\n\tjQuery('.showchecked').show()\n} else {\n\tjQuery('.showchecked').hide()\n}\n<\/script>\n<p><strong>Download Latest &amp; 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