nayizhenfeng

 

The correct answer is D

 

Larger firm size only applies to corporates, not banks and sovereigns. This statement is only partly true, therefore false. Retail loans and higher PD assets, generally have lower correlations.

nayizhenfeng

 

6、Which of the following suggest higher capital based on the IRB credit risk weight function:

      I. Higher systematic risk factor.

     II. Higher EL.

    III. Higher LGD.

    IV. Higher M.

A) II and IV.  

B) II, III, and IV.

C) I, III, and IV.

D) I, II, III, and IV.

nayizhenfeng

 

The correct answer is C

 

EL is covered by revenues or reserves. It does not raise required capital.

nayizhenfeng

 

AIM 7: Define name and sector concentration and the related violation of the conditions for the IRB risk weight function.

 

1、Sector concentration represents a violation of which condition necessary for the ASRF IRB model?

A) Assumption that all borrowers in the same region and industry have a correlation of 0.5.

B) Systematic risk is defined by a single factor.  

C) Risk weights for each obligor depend upon the systematic risk specific to the portfolio. 

D) Portfolios are composed of granular assets.

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4、The IRB asset correlations for the credit risk weight function are:

      I. 12% to 24% for corporates, sovereigns, and banks.

     II. 3% to 16% for retail exposures.

    III. 15% for mortgages.

    IV. 8% for revolving retail exposures.

A) One of the above is false.  

B) I and III are false. 

C) II and IV are false. 

D) All of the above are true. 

nayizhenfeng

 

The correct answer is A

 

The asset correlation for revolving retail exposures is 4%.

nayizhenfeng

 

The correct answer is A

 

Maturity effects are more dramatic for low PD assets, as they have more opportunity to deteriorate in quality. LGD estimates are downturn estimates; PD are estimates of a normal economy.

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3、The maturity adjustment in the IRB credit risk weight function is:

      I. Based on a standard maturity of 2.5 years.

     II. Equal to zero for a maturity of one year.

    III. Higher for long-term credits.

    IV. Higher for high PD’s.

A) I and III.  

B) II and III. 

C) I and IV.  

D) II and IV.

nayizhenfeng

 

The correct answer is A

 

Equal to one for a maturity of one year. Higher for low PD’s.

nayizhenfeng

 

2、The portfolio invariance assumption of the IRB credit risk model does NOT include:

A) correlation with other assets in the portfolio. 

B) diversification indirectly by calibrating the risk weight equation for a well diversified bank.

C) calculation of risk independent of the specific portfolio.  

D) correlation with a systematic risk factor.