PRMIA PRM Practice Test

The PRMIA Professional Risk Manager (PRM) designation sits in the financial risk-management lane: market, credit, operational, liquidity, model, governance, quantitative, and derivatives risk topics.

These 12 original questions are a public preview, not official PRMIA questions.

What these questions test

• financial risk concepts across market, credit, liquidity, operational, and model risk
• quantitative and derivatives reasoning without turning every item into a calculation
• governance, reporting, controls, and risk appetite judgment

Official-source check

Verify current designation requirements, syllabus, and exam logistics with the PRMIA PRM designation page .

Sample Exam Questions

Question 1

Topic: market risk

Which risk is most directly captured by market risk?

• A. Loss from adverse movements in rates, spreads, equity prices, FX, or commodity prices
• B. Loss from an employee entering a trade incorrectly only
• C. Loss from a borrower defaulting only
• D. Loss from a broken printer

Best answer: A

Explanation: Market risk concerns changes in market prices and risk factors. Credit and operational risk are related but distinct categories.

Question 2

Topic: credit risk

What is counterparty credit risk?

• A. Risk that a counterparty fails to meet obligations before final settlement
• B. Risk that interest rates move lower
• C. Risk that a dashboard has too many colors
• D. Risk that a report title is short

Best answer: A

Explanation: Counterparty credit risk arises when the other party to a transaction may fail to perform.

Question 3

Topic: liquidity risk

Which situation best illustrates market liquidity risk?

• A. A position cannot be sold quickly without a material price concession
• B. A loan covenant is updated
• C. A password expires
• D. A spreadsheet has a typo

Best answer: A

Explanation: Market liquidity risk concerns the ability to exit or hedge positions without unacceptable price impact.

Question 4

Topic: value at risk

What does a value-at-risk estimate usually communicate?

• A. A guaranteed maximum loss
• B. A statistical loss threshold over a time horizon at a confidence level
• C. A promise that losses cannot exceed zero
• D. A measure unrelated to markets

Best answer: B

Explanation: VaR is a statistical risk measure. It does not guarantee losses cannot exceed the estimate.

Question 5

Topic: stress testing

Why use stress testing alongside VaR?

• A. To explore severe but plausible scenarios that may not be captured well by normal assumptions
• B. To prove risk is zero
• C. To remove scenario analysis
• D. To avoid governance

Best answer: A

Explanation: Stress testing helps assess tail events, concentration, and scenario vulnerability beyond routine statistical measures.

Question 6

Topic: operational risk

Which event is operational risk?

• A. A failed control allows unauthorized payment processing
• B. Bond yields rise after a rate announcement
• C. A borrower becomes insolvent only because of credit deterioration
• D. Equity volatility increases

Best answer: A

Explanation: Operational risk includes failures of process, people, systems, or external events.

Question 7

Topic: model risk

What is a good model-risk control?

• A. Independent validation, documentation, assumptions review, performance monitoring, and limitations disclosure
• B. No model inventory
• C. No challenger review
• D. No documentation

Best answer: A

Explanation: Model risk is managed through governance, validation, documentation, monitoring, and limitation awareness.

Question 8

Topic: derivatives

Why can derivatives create leverage?

• A. They can create exposure to an underlying risk factor with less initial cash than buying the underlying asset outright
• B. They eliminate all risk
• C. They never require margin
• D. They cannot change value

Best answer: A

Explanation: Derivatives can create large notional exposure relative to initial investment, which can magnify gains and losses.

Question 9

Topic: risk appetite

What is the purpose of a risk appetite statement?

• A. It defines the amount and types of risk the organization is willing to accept in pursuit of objectives
• B. It replaces all controls
• C. It removes board oversight
• D. It guarantees profit

Best answer: A

Explanation: Risk appetite guides limits, decisions, escalation, and governance.

Question 10

Topic: concentration risk

Which portfolio has higher concentration risk?

• A. A portfolio heavily exposed to one sector and one counterparty
• B. A diversified portfolio across sectors and counterparties
• C. A portfolio with transparent limits
• D. A portfolio reviewed daily

Best answer: A

Explanation: Concentration increases vulnerability to one borrower, sector, region, factor, or counterparty.

Question 11

Topic: risk reporting

What makes a risk report more useful?

• A. Exposure, limit usage, trends, breaches, stress results, assumptions, and action items
• B. Only a logo
• C. No trend information
• D. No escalation notes

Best answer: A

Explanation: Risk reporting should support decision making, oversight, and escalation.

Question 12

Topic: common trap

Which statement is weakest?

• A. Risk measures have assumptions and limitations.
• B. Stress testing can complement statistical measures.
• C. A single risk metric eliminates the need for governance.
• D. Counterparty risk should be monitored.

Best answer: C

Explanation: No single metric replaces governance, judgment, controls, stress testing, and risk communication.