Rsk 4804 - Study guides, Class notes & Summaries

1 INTRODUCTION The purpose of this tutorial letter is to provide you with suggested answers to assignments, and give you guidelines for the examination. 2 SUGGESTED ANSWERS TO ASSIGNMENTS Question 1 Distinguish between credit risk assessment and credit risk measurement. (10) Suggested Answer Credit risk assessment Is a credit management process that seeks to identify and control risks by determining the borrower’s probability of repaying the debt√. Through credit analysis, an asses...

Department of Finance, Risk Management and Banking

Dear Student, The following solutions are for Assignment 01 only. Solutions for Assignment 02 will be released shortly after the due date for Assignment 02 as Tutorial Letter 201 incorporating examination information. We hope you find this information value adding. Best wishes. Dr. J. Chisasa Senior Lecturer Question 1 Explain Probability of default and briefly discuss its uses. (10) Suggested solution It is a statistical percentage probability of a borrower defaulting√ and it is dir...

Expected Loss EL = PD x EAD x LGD Portfolio return (assuming a portfolio with two assets) E(Rp) = W1(R1) + W2(R2) Portfolio standard deviation (assuming a portfolio with two assets) σp= √x2A σ2A + x2Bσ2 + 2xAxBCovA,B Covariance = ρ σ1 σ2 Correlation (ρ) = covariance1,2 / σ1 σ2 Altman Z-score Z =1.2 X1 + 1.4 X2 + 3.3 X3 + 0.6 X4 + 0.1 X5 Financial Ratios Key Ratios Profitability Gross margin = gross profit net sales × 100

2 SUGGESTED ANSWERS TO ASSIGNMENTS Question 1 Distinguish between credit risk assessment and credit risk measurement. (10) Suggested Answer Credit risk assessment Is a credit management process that seeks to identify and control risks by determining the borrower’s probability of repaying the debt√. Through credit analysis, an assessment is made of the borrower’s income, balance sheet, and cash flow statements, along with character, capacity, and capital adequacy, all of which are ...

List four ways in which a risk manager could effectively and efficiently monitor their organisation's business and risk environment. - correct answer Newsfeeds, the media, industry or sector journals, and reputable websites, consulting company research and analysis reports, global surveys (etc.). Describe how a professional internal audit service should add value to its organisation - correct answer The IIA's Defi...

CONTENTS 1 INTRODUCTION 2 SUGGESTED SOLUTIONS TO ASSIGNMENTS 3 EXAMINATION GUIDELINES 4 CONCLUDING REMARKS 1 INTRODUCTION The purpose of this tutorial letter is to provide you with suggested answers to assignments, and give you guidelines for the examination. 2 SUGGESTED ANSWERS TO ASSIGNMENTS Question 1 Distinguish between credit risk assessment and credit risk measurement. (10) Suggested Answer Credit risk assessment Is a credit management process that seeks to identify and contro...

What is risk management? - correct answer The process of understanding and managing the risks that the organisation is inevitably subject to in attempting to achieve its corporate objectives What needs to be balanced with risk management? - correct answer Conformance - Controlling threats or hazards, bad things do happen Performance - Maximising return or opportunity, goods things might not happen What is enterpri...

5.6. *Measuring Credit Risk* - correct answer Credit risk is present when there is a *positive probability that one party owing money to another will not pay on the obligation* (i.e., the *counterparty could default*) Credit losses have *TWO DIMENSIONS*: 1. *LIKELIHOOD OF LOSS* 2. *THE ASSOCIATED AMOUNT OF LOSS* (*amount of credit* outstanding & the associated *recovery rate*) *Current Credit Risk* vs *Potential Credit Risk* - correct answer ...

Question 1 Explain Probability of default and briefly discuss its uses. (10) Suggested solution It is a statistical percentage probability of a borrower defaulting√ and it is directly linked to credit grades √ Uses • Quantification of credit risk √ PD facilitates distinguishing the credit risk of different asset classes in a portfolio and judging the credit worthiness of the obligor. √ • Allocation of capital√ if the probability of default is high capital allocation is als...