[2008] Topic 44: Loan Portfolios and Expected Loss 相关习题 individual, instrument, following, interpret, default

aianjie

 

AIM 1: Define, calculate and interpret the measure of expected credit loss for an individual credit and loan-line instrument.

Which of the following formulas defines Expected Loss?

A) Exposure × Recovery rate × Probability of default.

B) Exposure × Loss given default × (1 ? Probability of default).

C) Exposure × (1 ? Recovery rate) × Probability of default.

D) Exposure × (1 ? Loss given default) × (1 ? Probability of default).

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aianjie

 

The correct answer is C

Statement I is incorrect because private borrowers cannot cross check with public rating agencies. Statement II is a disadvantage to parameterizing credit risk models since any one bank only views its own loss history and not the population of loan losses. Statement III is correct and so the observable nature of commitments outstandings is a straightforward factor to parameterize.

aianjie

 

The correct answer is A

Increasing the recovery rate and decreasing the probability of default will decrease expected loss. Decreasing/increasing the recovery rate and decreasing/increasing the probability of default are ambiguous. Decreasing recovery rates AND increasing the probability of default will definitely increase expected loss.

aianjie

 

7、For a given loan portfolio, which of the following will NOT increase expected loss?

A) Decrease recovery rate and decrease probability of default.

B) Increase recovery rate and increase probability of default.

C) Decrease recovery rate and increase probability of default.

D) Increase recovery rate and decrease probability of default.

aianjie

 

The correct answer is D

Decreasing the recovery rate and increasing the probability of default will increase expected loss. Decreasing/increasing the recovery rate and decreasing/increasing the probability of default may increase or decrease expected loss depending on the relative change in the factors. Finally, increasing the recovery rate and decreasing the probability of default will unambiguously DECREASE expected loss.

 

aianjie

 

AIM 12: Describe how to parameterize credit risk models.

Which of the following is (are) NOT a disadvantage to parameterizing a credit risk model?

I.           Private borrowers can cross-check with public credit rating agencies.

II.         Internal loss estimates are biased estimators of external loan losses.

III.        Outstandings and commitments are typically observable.

A) I only.

B) I and II only.

C) III only.

D) II and III only.

aianjie

 

4、Given the following information, compute the loss given default and recovery rate.

§       Expected loss = $200,000.

§       Exposure = $5,000,000.

§       Probability of loss = 5%.

Loss given default             Recovery rate

 

A)        0.20                                0.80

B)        0.02                                0.08

C)        0.80                                0.20

D)        0.08                                0.02

aianjie

 

The correct answer is C

$200,000 = $5,000,000 × (1 ? RR) × (0.05). Therefore, the recovery rate = 20% and loss given default = 80%.

aianjie

 

5、Bank A has extended a commitment of $10,000,000 and assessed a probability of default of 5%. The loss given default based on historical data is estimated to be 30%. Bank B has extended a $5,000,000 commitment to a company with a lower credit quality. A default rate of 10% and loss given default of 20% is estimated. For Bank A to have a lower expected loss than Bank B, which of the following is TRUE? The recovery rate of:

A) Bank B’s loan will decrease to 90%.

B) Bank B’s loan will increase to 80%.

C) Bank A’s loan will increase to 90%.

D) Bank A’s loan will decrease to 80%.