CRA CRA Credit Risk & Counterparty Exposure 2

Question 1

The Z-score model developed by Edward Altman is used to predict:

Accepted Answer

Corporate bankruptcy probability

Answer

Altman's Z-score combines five financial ratios to produce a score that predicts the probability of corporate bankruptcy within two years.

Question 2

In a credit portfolio, concentration risk refers to:

Accepted Answer

Excessive exposure to a single borrower, sector, or region

Answer

Concentration risk arises from large exposures to a single obligor, industry, or geography, making the portfolio vulnerable to correlated defaults.

Question 3

Which document outlines the terms under which collateral is exchanged between two parties in an OTC derivatives transaction?

Accepted Answer

Credit Support Annex (CSA)

Answer

The Credit Support Annex (CSA) is a legal document that governs the posting and management of collateral in OTC derivative transactions under the ISDA framework.

Question 4

Expected Credit Loss (ECL) under IFRS 9 requires that loan loss provisions be recognized:

Accepted Answer

At loan origination and updated throughout the life of the loan

Answer

IFRS 9 mandates a forward-looking ECL model where provisions are recognized at origination and revised based on changes in credit risk over the loan's life.

Question 5

A netting agreement in counterparty credit risk allows institutions to:

Accepted Answer

Offset positive and negative mark-to-market values across trades with the same counterparty

Answer

Netting agreements allow firms to net positive and negative exposures with a counterparty, reducing the overall credit exposure in the event of default.

(CRA) Certified Risk Analyst Practice Test

(CRA) Certified Risk Analyst Practice Test

CRA CRA Credit Risk & Counterparty Exposure 2