#1
Which of the following is a measure of credit risk?
Credit score
ExplanationA numerical representation of an individual's creditworthiness.
#2
What does the term 'credit risk' refer to?
The risk of default on a debt
ExplanationThe likelihood of a borrower failing to repay a loan or debt.
#3
Which of the following is NOT a way to mitigate credit risk?
Providing unsecured loans only
ExplanationA method that increases credit risk by not requiring collateral.
#4
What is meant by 'collateral' in credit risk management?
An asset used to secure a loan
ExplanationProperty or assets pledged as security for a loan.
#5
What is the purpose of credit scoring models in assessing credit risk?
To predict the likelihood of default
ExplanationUsing historical data to forecast the probability of borrower default.
#6
Which of the following is a type of credit risk mitigation technique?
Loan securitization
ExplanationPooling loans and selling them as securities to spread risk.
#7
What does the term 'credit risk exposure' refer to?
The maximum loss a lender could face due to borrower default
ExplanationPotential financial loss due to borrower's failure to repay.
#8
Which of the following is an example of qualitative credit risk assessment?
Evaluating management quality of a borrower
ExplanationSubjective evaluation of non-financial factors.
#9
Which of the following is a characteristic of high credit risk?
Low credit score
ExplanationIndicates a higher likelihood of default.
#10
What is a common measure of credit risk for corporate bonds?
Credit rating
ExplanationEvaluation of a company's creditworthiness by rating agencies.
#11
What role do credit default swaps (CDS) play in managing credit risk?
They transfer credit risk from one party to another
ExplanationFinancial instruments used to shift the risk of default.
#12
Which of the following is a characteristic of a borrower with low credit risk?
Stable employment history
ExplanationIndicates reliability in meeting financial obligations.
#13
What is the role of stress testing in credit risk management?
To simulate the impact of adverse economic scenarios
ExplanationAssessing resilience under adverse conditions.
#14
Which of the following is a limitation of credit ratings in assessing credit risk?
They are subjective assessments
ExplanationReliance on opinions rather than objective data.