Practice GARP 2016-FRR Exam Questions

Which one of the following four statements correctly defines credit risk?

A credit analyst wants to determine a good pricing strategy to compensate for credit decisions that might have been made incorrectly. When analyzing her credit portfolio, the analyst focuses on the spreads in each loan to determine if they are sufficient to compensate the bank for all of the following costs and risks EXCEPT.

To estimate the interest charges on the loan, an analyst should use one of the following four formulas

Alpha Bank determined that Delta Industrial Machinery Corporation has 2% change of default on a one - year no - payment of USD $1 million, including interest and principal repayment. The bank charges 3% interest rate spread to firms in the machinery industry, and the risk - free interest rate is 6%. Alpha Bank receives both interest and principal payments once at the end the year. Delta can only default at the end of the year. If Delta defaults, the bank expects to lose 50% of its promised payment. Hence, the loss rate in this case will be

Alpha Bank determined that Delta Industrial Machinery Corporation has 2% change of default on a one - year no - payment of USD $1 million, including interest and principal repayment. The bank charges 3% interest rate spread to firms in the machinery industry, and the risk - free interest rate is 6%. Alpha Bank receives both interest and principal payments once at the end the year. Delta can only default at the end of the year. If Delta defaults, the bank expects to lose 50% of its promised payment. What interest rate should Alpha Bank charge on the no - payment loan to Delta Industrial Machinery Corporation?