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QUESTION: 31 Exam Topic: 1 Volume A

Which of the following attributes are typical for early models of statistical credit analysis?

These models assumed the default of any obligor was independent of the default of any other.
The underlying default assumptions were analytically inconvenient.
The underlying default assumptions failed to develop relatively simple formulas for the determination of portfolio credit risk.
These models effectively incorporated herd behavior.

Answer(s): A

QUESTION: 32 Exam Topic: 1 Volume A

A credit analyst wants to determine if her bank is taking too much credit risk.
Which one of the following four strategies will typically provide the most convenient approach to quantify the credit risk exposure for the bank?

Assessing aggregate exposure at default at various time points and at various confidence levels
Simplifying individual credit exposures so that they can be combined into a simplified expression of portfolio risk for the bank
Using stress testing techniques to forecast underlying macroeconomic factors and bank's idiosyncratic risks
Analyzing distribution of bank's credit losses and mapping credit risks at various statistical levels

Answer(s): A

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QUESTION: 33 Exam Topic: 1 Volume A

When looking at the distribution of portfolio credit losses, the shape of the loss distribution is ___ , as the likelihood of total losses, the sum of expected and unexpected credit losses, is ___ than the likelihood of no credit losses.

Symmetric; less
Symmetric; greater
Asymmetric; less
Asymmetric; greater

Answer(s): D

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QUESTION: 34 Exam Topic: 1 Volume A

Which one of the following four statements regarding bank's exposure to credit and default risk is INCORRECT?

The more the bank diversifies its credit portfolio, the better spread its credit risks become.
In debt management, the value of any loan exposure will change typically in a fashion similar the same way that an equity investment can.
In debt management, the goal is to minimize the effect of any defaults.
Default risk cannot be hedged away fully, and it will always exist for the holder of the credit or for the person insuring against the credit or default event.

Answer(s): B

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