Essay About Basel Ii And Borrower’S Failure

Bank Risks Management
FNCE627 BANK RISKS MANAGEMENT
Quiz 1
Instructions
1 Circle the most relevant answer.
2 Each question carries 2 marks.
3 This is a closed-book quiz.
4 Unless otherwise specified, interest rates are in annual percentages and bonds pay
semiannual coupons
5 The following formulas may be useful to you:
Matric no. Name
1 Under Basel II, a bank is free to choose its own
A Capital adequacy level
B Credit exposure risk level
C Definitions of risk components PD, EAD, LGD and M
D Range of risk components
2 LGD is dependent on many factors except
A How much the bank can recover from a defaulted exposure
B The discount rate of cash flows received in recovery
C The quantum of exposure at the time of default
D The costs involved in recovery
3 Under Basel II, provision for loan losses
A Is dependent on the bank’s own estimates
B Is dependent on how loans are classified
C Cannot be certain as it is dependent on PD
D Will no longer be an issue
4 Under Basel II, the concept of credit risk is about
A A borrower’s failure to repay
B A borrower not performing according to the loan contract
C How to derive the correct PD
D Assign a credit rating to every exposure
5 Unexpected Loss UL is not about
A Losses that cannot