Credit Risk Management Cheat Sheet 2026

The 30 highest-yield Credit Risk Management facts, distilled from real exam questions. Print it, save it as a PDF, or study it here — free, no sign-up.

1. Which of the following best describes 'granularity' in a credit portfolio? → The degree to which exposures are diversified across many small obligors
2. What is the primary purpose of an Initial Margin (IM) in bilateral OTC derivatives? → To cover potential future exposure from the time of default to the close-out of positions
3. In credit risk, what is a 'workout' process? → A negotiated restructuring or repayment plan for a defaulted or distressed loan
4. Professional business analysts for credit risk should be knowledgeable in the following fields, except → Knowledge based
5. Under CECL (Current Expected Credit Loss) accounting in the US, when must lifetime expected losses be recognized? → At loan origination, for the full expected life
6. What is the purpose of a 'stress test' in credit risk modeling? → To evaluate portfolio losses under severe but plausible adverse scenarios
7. What is a true statement about ratios? → Ratios are more useful when compared with previous years
8. Which Basel framework introduced the concept of Operational Risk capital charges? → Basel II
9. Which validation metric measures the area under the Receiver Operating Characteristic (ROC) curve? → AUROC (AUC)
10. What is 'cure rate' in credit risk management? → The proportion of defaulted loans that return to performing status
11. Which model is widely used for portfolio credit risk, treating default as driven by a single common factor? → Vasicek single-factor model
12. Which metric measures portfolio credit risk at a given confidence level over a specified horizon? → Credit VaR (Value at Risk)
13. What is the 'recovery rate paradox' in credit risk? → Recovery rates tend to be lower in downturns precisely when default rates are highest
14. What is the minimum Tier 1 capital ratio required under Basel III? → 6%
15. What is Risk-Adjusted Return on Capital (RAROC) used for in portfolio management? → Comparing risk-adjusted profitability across business lines or deals
16. What could be the causes of a decrease in net working capital? → All of the above
17. How is Net Working Capital (NWC) determined? → Any of the above
18. What is 'counterparty credit risk' in derivatives? → The risk that the counterparty to a derivative contract fails to fulfill its obligations
19. The Expected Positive Exposure (EPE) metric is primarily used for: → Calculating regulatory capital for counterparty credit risk under Basel rules
20. The Business Analyst for the Credit Risk role is designed to evaluate applicants in the following risk management methodologies, except for → Spending
21. Which statistic tracks the percentage of a cohort of bonds that have defaulted within a specific number of years? → Cumulative default rate
22. What is the risk weight for unrated corporate exposures under the Basel II Standardized Approach? → 100%
23. What is the 'absolute priority rule' in bankruptcy? → Senior creditors must be paid in full before junior creditors receive anything
24. In the CreditMetrics framework, what drives changes in portfolio credit value? → Borrower credit rating migrations and defaults over a one-year horizon
25. Which financial statement demonstrates the source and use of funds? → Cash flow
26. A Gini coefficient of 0 in a credit model indicates what? → Random discrimination
27. Which of the following is a key feature of the G-SIB (Global Systemically Important Bank) surcharge? → It requires additional CET1 based on systemic importance scores
28. The Companies (Auditor's Report) Order, 2016 ("the order") contains how many clauses? → 16
29. Credit Value Adjustment (CVA) is best described as: → The market value of counterparty credit risk embedded in a derivatives portfolio
30. Which credit event typically triggers payment under a standard corporate CDS contract in the US? → Bankruptcy, failure to pay, or debt restructuring