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NEW QUESTION 40
In estimating credit exposure for a line of credit, it is usual to consider:

  • A. the full value of the credit line to be the exposure at default as the borrower has an informational advantage that will lead them to borrow fully against the credit line at the time of default.
  • B. the present value of the line of credit at the agreed rate of lending.
  • C. only the value of credit exposure currently existing against the credit line as the exposure at default.
  • D. 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.

Answer: D

Explanation:
Explanation
Choice'a' is the correct answer. Exposures such as those to a line of credit of which only a part (or none) may be drawn at the time of assessment present a difficulty when attempting to quantify credit risk. It is not correct to take the entire amount of the line as the exposure at default, and likewise the current exposure is likely to be too aggressively low a number to consider.
While the borrower has an information advantage in that he would be aware of the deterioration in credit standing before the bank and would probably draw cash prior to default, it is unlikely that the entire amount of the line of credit would be drawn in all cases. In some cases, none may be drawn. In other cases, the bank would become aware of the situation and curtail or cancel access to the credit line in a timely fashion.
Therefore a fixed proportion of existing credit lines is considered a reasonable approximation of the exposure at default against credit lines.

 

NEW QUESTION 41
What would be the correct order of steps to addressing data quality problems in an organization?

  • A. Assess the current state, design the future state, determine gaps and the actions required to be implemented to eliminate the gaps
  • B. Design the future state, perform a gap analysis, analyze the current state and implement the future state
  • C. Articulate goals, do a 'strategy-fit' analysis and plan for action
  • D. Call in external consultants

Answer: A

Explanation:
Explanation
The correct answer is choice 'a'
The correct order of steps to addressing data quality problems in an organization would include:
1. Assesing the current state
2. Designing the future state, and
3. Planning and implementation which would include identifying the gaps between the current and the desired future state, and implementation to address the gaps.
Therefore Choice 'a' is the correct answer.
Choice 'c' is incorrect because a gap analysis cannot be performed without understanding the 'as-is' (which results from understanding the current state).
Choice 'b' is non-sensical, and Choice 'd' is a flippant option (though often used in real life situations by management as an easy (and ineffective) way to escape accountability for difficult problems)

 

NEW QUESTION 42
Which of the following belong in a credit risk report?

  • A. All of the above
  • B. Exposures by country
  • C. Exposures by industry
  • D. Largest exposures by counterparty

Answer: A

Explanation:
Explanation
All the listed variables are relevant to management monitoring the credit risk profile of an institution, therefore Choice 'd' is the correct answer.

 

NEW QUESTION 43
The generalized Pareto distribution, when used in the context of operational risk, is used to model:

  • A. Unexpected losses
  • B. Average losses
  • C. Tail events
  • D. Expected losses

Answer: C

Explanation:
Explanation
Some risk experts have suggested the use of extreme value theory to model tail risk or extreme events for operational risk. The generalized Pareto model or the Peaks-over-Threshold (POT) model are often used to model extreme value distributions, and therefore Choice 'a' is the correct answer.

 

NEW QUESTION 44
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