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NEW QUESTION: 1
Concentration risk in a credit portfolio arises due to:
A. Independence of individual default losses for the assets in the portfolio
B. A high degree of correlation between the default probabilities of the credit securities in the portfolio
C. A low degree of correlation between the default probabilities of the credit securities in the portfolio
D. Issuers of the securities in the portfolio being located in the same country
Answer: D
Explanation:
Explanation
Concentration risk in a credit portfolio arises due to a high degree of correlation between the default probabilities of the issuers of securities in the portfolio. For example, the fortunes of the issuers in the same industry may be highly correlated, and an investor exposed to multiple such borrowers may face 'concentration risk'.
A low degree of correlation, or independence of individual defaults in the portfolio actually reduces or even eliminates concentration risk.
The fact that issuers are from the same country may not necessarily give rise to concentration risk - for example, a bank with all US based borrowers in different industries or with different retail exposure types may not face practically any concentration risk. What really matters is the default correlations between the borrowers, for example a lender exposed to cement producers across the globe may face a high degree of concentration risk.
NEW QUESTION: 2
Freestanding and cornerlock access floors consist of panels that are supported solely by pedestals.
A. False
B. True
Answer: B
NEW QUESTION: 3
Drag and Drop Question
Answer:
Explanation:
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