Pre Exam CICC Day 4

Within credit portfolio risk mitigation, adjustments through market transactions are allowed for which borrowers?

• Adjustments through market transactions allow for credit transfers to take place in the open market only for a select number of private borrowers.

• Adjustments through market transactions allow for credit transfers to take place in the credit market for any borrower.

• Adjustments through market transactions allow for credit transfers to take place in the credit market for borrowers about whom public information is available.

• Adjustments through market transactions allow for credit transfers to take place in the open credit market for borrowers that are considered creditworthy.

What is the purpose of using volume growth targets as a metric of sales growth effectiveness?

• To drive revenue generation.

• To drive growth of loan volume to maintain or increase market share.

• To drive profitability, adjusted for risk.

• To control regulatory capital growth.

What is the purpose of sensitivity stress testing?

• To establish the impact on the portfolio of a change in one or more portfolio risk drivers.

• To evaluate the impact of an actual stressed event on a portfolio.

• To calculate maximum loss in a portfolio.

• To identify the event that causes a change in one or more portfolio risk drivers.

What does scenario testing evaluate?

• It evaluates which scenario is most likely to happen.

• It evaluates which scenario is most unlikely to happen.

• It evaluates the impact of a particular stressed event on a portfolio.

• It evaluates the results of the actual event arising from a given scenario.

What is the buy-and-hold strategy?

• A bank's liabilities are continuously held on the balance sheet.

• A bank holds onto loans (assets) until the borrower defaults.

• A bank holds onto loans (assets) until the borrower pays them back.

• A bank's loans (assets) are continuously re-valued and traded.

Which step is involved in improving the risk-return profile of a credit portfolio?

• Increasing loan loss provision.

• Reducing credit risk.

• Reducing the minimum return target.

• Increasing concentration in the bank's credit portfolio.

Which statement correctly defines economic profitability (EP)?

• EP is defined as a bank's net worth that accounts for the opportunity cost of deploying funds in the next best option.

• EP is defined as a bank's provision that accounts for the opportunity cost of deploying funds in the next best option.

• EP is defined as a bank's profit that accounts for the opportunity cost of deploying funds in the next best option.

• EP is defined as a bank's capital that accounts for the opportunity cost of deploying funds in the next best option.

What is the main difference between accounting profit and economic profit?

• Accounting profit does not account for fees charged nor for interest earnings on a loan.

• Accounting profit accounts for the cost of funds on a loan and the actual risk involved.

• Accounting profit does not account for interest earnings on a loan nor for the direct expenses on a loan.

• Accounting profit does not account for the requirement of setting aside capital for a loan nor for the actual risk involved.

Which statement about economic capital is correct?

• Economic capital is the amount of capital set by the bank to maintain solvency even in the face of expected losses.

• Economic capital is the amount of capital set by the bank to maintain solvency even in the face of unexpected losses.

• Economic capital is the minimum net amount of deposits set by the bank to maintain solvency even in the face of unexpected losses.

• Economic capital is the minimum net amount of loans set by the bank to maintain solvency even in the face of expected losses.

How is the hurdle rate applied during the loan approval process?

• If the anticipated rate of return on a deal is at the hurdle rate, the deal should be rejected.

• If the anticipated rate of return on a deal is below the hurdle rate, the deal is considered sound.

• If the anticipated rate of return on a deal is above the hurdle rate, the deal is considered risky.

• If the anticipated rate of return on a deal is above the hurdle rate, the deal is considered sound.