[2008]Topic 52: Credit Risk Management and Strategic Capital Allocation 相关习 allocation, following, strategic, industry, business

qingshu

 

AIM 1: Define strategic capital allocation.

1、Which of the following is NOT a consideration in the strategic capital allocation process?

A) The firm’s strategic opportunities in its industry.

B) The risks of a business unit.

C) The risk embedded in the balance sheet of the bank.

D) The growth rate of a business unit. 

qingshu

 

The correct answer is A

Strategic capital allocation involves assigning return objectives to the business units of a bank to determine the optimal economic capital to those individual business units. This would not include examining the firm’s strategic opportunities in its industry.

qingshu

 

2、Strategic capital allocation is defined as:

A) the method for maximizing market value added.

B) the quintessential application of bottom-up analysis.

C) None of the above.

D) the assigning of return objectives to the business units of a bank. 

qingshu

 

The correct answer is D

The assigning of return objectives to the business units of a bank is the general philosophy behind strategic capital allocation.

qingshu

 

 

AIM 2: Discuss the top-down and bottom-up approaches to capital allocation, including the difference between product and business risk.

1、Which of the following would NOT be a step in the top-down approach to capital allocation?

A) Estimate the distributions of losses for an individual portfolio.

B) Set the capital limits for a business unit.

C) Control the economic capital consumption by each business unit in a period.

D) Assess the risk and return for a business unit.

qingshu

 

The correct answer is A

The top-down approach assesses the risk and return of each business unit and allocates the total capital of the bank accordingly. The steps in the top-down approach to capital allocation include setting capital limits for the business units, controlling the economic capital consumption by each business unit in the period, and reassessing these limits for the next period.

qingshu

 

2、The variability of revenues of an online bookseller is best described as:

A) credit risk.

B) business risk.

C) seasonal risk.

D) active risk.

qingshu

 

The correct answer is B

Business risk is the variability of revenues depending on the type of business the firm operates in. Credit risk is the risk of default or widening of spreads. Active risk is the tracking error risk (with respect to a benchmark) for an active portfolio manager. There is no such thing as seasonal risk.

qingshu

 

3、In strategic capital allocation, all of the following steps are part of a bottom-up approach EXCEPT to:

A) estimate the distribution of losses for each portfolio.

B) limit concentration.

C) control the economic capital consumption by each business unit in the period.

D) select the projects based on the hurdle rate.

qingshu

 

The correct answer is C

Controlling the economic capital consumption by each business unit in the period is part of a top-down approach.