[2008]Topic 48: Economic Capital for Counterparty Credit Risk 相关习题 statements, different, following, regarding, default

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AIM 1: Describe the differences between lending risk and counterparty credit risk.

Which of the following statements regarding lending and counterparty risk is TRUE?

A) Counterparty risk is very different from and more complex than lending risk.

B) Counterparty risk is defined as the possibility that an obligator will default on an outstanding loan.

C) Lending risk is defined as the possibility that either party to a derivative transaction will fail to meet its obligations.

D) Counterparty risk and lending risk are the same.

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The correct answer is A

Counterparty risk is very different from and more complex than lending risk. Counterparty risk is defined as the possibility that either party to a derivative transaction will fail to meet its obligations. Lending risk is defined as the possibility that an obligator will default on an outstanding loan.

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AIM 2: Discuss how to assess total current exposure for a counterparty including netting and margins.

Which of the following statements with respect to current exposure for a counterparty is TRUE?

A) Current exposure should not account for netting.

B) Current exposure is the sum of all contracts covered by netting arrangements less any margin requirements.

C) Current exposure represents the cost for a firm to replace contracts with counterparties that default on their obligation.

D) Current exposure is the sum of all contracts not covered by netting arrangements plus any margin requirements.

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The correct answer is C

Current exposure represents the cost for a firm to replace contracts with counterparties that default on their obligation. Current exposure is the sum of all contracts covered and not covered by netting arrangements.

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AIM 3: Describe the simple transaction and portfolio simulation methodologies, and compare the advantages and disadvantages of each.

Which of the following statements regarding the simple transaction method for calculating counter party exposure is FALSE?

A) The simple transaction method does not correctly handle portfolio effects and lacks precision.

B) The simple transaction method cannot correctly calculate portfolio credit risk for complex portfolios with large numbers of transactions.

C) The simple transaction method is easy to implement and provides a quick approximation of potential exposure.

D) The simple transaction method considers the impact of offsetting transactions.

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The correct answer is D

The simple transaction method does not consider the impact of offsetting transactions. The simple transaction method does not correctly handle portfolio effects and lacks precision, and it cannot correctly calculate portfolio credit risk for complex portfolios with large numbers of transactions. However, it is easy to implement and provides a quick approximation of potential exposure.

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AIM 4: Explain the steps necessary to compute economic capital for counterparty risk using default only, full simulation.

1、Which of the following best describes economic capital? Economic capital measures the amount of:

A) cash a firm must maintain to cover a significant credit loss and remain solvent.

B) capital a firm must maintain to cover an average credit loss and remain solvent.

C) cash a firm must maintain to cover a credit loss in the 25 percentile and remain solvent.

D) capital a firm must maintain to cover a significant credit loss and remain solvent.

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The correct answer is D

Economic capital measures the amount of capital a firm must maintain to cover a significant credit loss and remain solvent.

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2、Which of the following statements about economic capital is CORRECT?

A) The shape of the loss distribution is based strictly on the type of risk measured. 

B) Economic capital measures the expected loss of economic value. 

C) To simulate changes in market rates, the only required inputs are market rates and long-term volatility. 

D) A higher estimate of economic capital is associated with a wider potential loss distribution. 

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The correct answer is D

A wider potential loss distribution is associated with a larger economic capital estimate. Simulating changes in market rates is the initial step in simulating economic capital and requires correlations in addition to market rates and long-term volatility. Economic capital measures the potential unexpected loss in economic value over some specified time period. The shape of the loss distribution is based on several factors, including type of risk, definition of loss, time horizon, degree of concentration of risk exposure, and assumptions underlying the simulation of future states.