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Which of the following is the best description of the spread premium puzzle:
Which of the following is the best description of the spread premium puzzle:A . 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 probabilitiesB . The spread premium puzzle...
Loss provisioning is intended to cover:
Loss provisioning is intended to cover:A . Unexpected lossesB . Losses in excessof unexpected lossesC . Both expected and unexpected lossesD . Expected lossesView AnswerAnswer: D Explanation: Loss provisioning is intended to cover expected losses. Economic capital is expected to cover unexpected losses. No capital or provisions are set aside...
Which of the following credit risk models relies upon theanalysis of credit rating migrations to assess credit risk?
Which of the following credit risk models relies upon theanalysis of credit rating migrations to assess credit risk?A . KMV's EDF based approachB . The CreditMetrics approachC . The actuarial approachD . The contingent claims approachView AnswerAnswer: B Explanation: The correct answer is Choice 'b'. The following is a brief...
Under the standardized approach to calculating operational risk capital under Basel II, negative regulatory capital charges for any of the business units:
Under the standardized approach to calculating operational risk capital under Basel II, negative regulatory capital charges for any of the business units:A . Should be ignored completelyB . Should be offset against positive capital charges from other business unitsC . Should be included after ignoring the negative signD . Should...
What is the probability that it would not have defaulted at theend of four years from now?
The probability of default of a security over a 1 year period is 3% . What is the probability that it would not have defaulted at theend of four years from now?A . 11.47%B . 88.53%C . 12.00%D . 88.00%View AnswerAnswer: B Explanation: The probability that the security would not...
If the probability of the two bonds defaulting simultaneously is 1.4%, what is the default correlation between the two?
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...
Which of these would have a greater credit exposure halfway through their life?
A bullet bond and an amortizing loan are issued at the same time with the same maturity and with the same principal . Which of these would have a greater credit exposure halfway through their life?A . Indeterminate with the given informationB . They would have identical exposure half way...
Which of the following belong to the family of generalized extreme value distributions:
Which of the following belong to the family of generalized extreme value distributions: I. Frechet II. Gumbel III. Weibull IV. ExponentialA . IVB . I, II and IIIC . II and IIID . All of the aboveView AnswerAnswer: B Explanation: Extreme value theory focuses on the extreme and rare events,...
In estimating credit exposure for a line of credit, it is usual to consider:
In estimating credit exposure for a line of credit, it is usual to consider:A . a fixed fraction of the line of credit to be the exposure at default even though the currently drawn amount is quite different from such a fraction.B . the full value of the credit line...
Which of the following should be included when calculating the Gross Income indicator used to calculate operational risk capital under the basic indicator and standardized approaches under Basel II?
Which of the following should be included when calculating the Gross Income indicator used to calculate operational risk capital under the basic indicator and standardized approaches under Basel II?A . Insurance incomeB . Operating expensesC . Fees paid to outsourcing service proviersD . Net non-interest incomeView AnswerAnswer: D Explanation: Gross...
