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To quantify the aggregate average loss for the credit portfolio and its possible constituent subportfolios, a credit portfolio manager should use the following metric:
To quantify the aggregate average loss for the credit portfolio and its possible constituent subportfolios, a credit portfolio manager should use the following metric:A . Credit VaRB . Expected lossC . Unexpected lossD . Factor sensitivityView AnswerAnswer: B
All of the following performance statistics typically benefit country's creditworthiness EXCEPT:
All of the following performance statistics typically benefit country's creditworthiness EXCEPT:A . Low unemploymentB . Low inflationC . High degrees of investmentD . Low degrees of savingsView AnswerAnswer: D
A credit associate extending a loan to an obligor suspects that the obligor may change his behavior after the loan has been originated. The obligor in this case may use the loan proceeds for purposes not sanctioned by the lender, thereby increasing the risk of default.
A credit associate extending a loan to an obligor suspects that the obligor may change his behavior after the loan has been originated. The obligor in this case may use the loan proceeds for purposes not sanctioned by the lender, thereby increasing the risk of default. Hence, the credit associate...
Which of the following factors would most likely affect foreign exchange option values?
In analyzing market option pricing dynamics, a risk manager evaluates option value changes throughout the entire trading day. Which of the following factors would most likely affect foreign exchange option values? I. Change in the value of the underlying II. Change in the perception of future volatility III. Change in...
When a credit risk manager analyzes default patterns in a specific neighborhood, she finds that defaults are increasing as the stigma of default evaporates, and more borrowers default.
When a credit risk manager analyzes default patterns in a specific neighborhood, she finds that defaults are increasing as the stigma of default evaporates, and more borrowers default. This phenomenon constitutesA . Moral hazardB . Speculative biasC . Herd behaviorD . Adverse selectionView AnswerAnswer: C
Which one of the following four statements regarding bank's exposure to credit and default risk is INCORRECT?
Which one of the following four statements regarding bank's exposure to credit and default risk is INCORRECT?A . The more the bank diversifies its credit portfolio, the better spread its credit risks become.B . In debt management, the value of any loan exposure will change typically in a fashion similar...
If the default risk of these mortgage companies were modeled as independent risks, what would be the probability of a cumulative $40 million loss from these two mortgage borrowers?
ThetaBank has extended substantial financing to two mortgage companies, which these mortgage lenders use to finance their own lending. Individually, each of the mortgage companies has an exposure at default (EAD) of $20 million, with a loss given default (LGD) of 100%, and a probability of default of 10%. ThetaBank's...
Which one of the four following statements regarding foreign exchange (FX) swap transactions is INCORRECT?
Which one of the four following statements regarding foreign exchange (FX) swap transactions is INCORRECT?A . FX swap is a common short-term transaction.B . FX swap is normally used for hedging various currency positions.C . FX swap generates more exchange rate risk than simple forward transactions.D . FX swap is...
A bank customer chooses a mortgage with low initial payments and payments that increase over time because the customer knows that she will have trouble making payments in the early years of the loan.
A bank customer chooses a mortgage with low initial payments and payments that increase over time because the customer knows that she will have trouble making payments in the early years of the loan. The bank makes this type of mortgage with the same default assumptions uses for ordinary mortgages,...
In the United States, which one of the following four options represents the largest component of securitized debt?
In the United States, which one of the following four options represents the largest component of securitized debt?A . Education loansB . Credit card loansC . Real estate loansD . Lines of creditView AnswerAnswer: C
