Question
(a)What is the meaning of Credit risk and describe how credit analysts measure LLD, LGD, EAD and the CCF for a portfolio of loans. [10
(a)What is the meaning of Credit risk and describe how credit analysts measure LLD, LGD, EAD and the CCF for a portfolio of loans. [10 marks]
(b Describe and evaluate the key events that led to operational risk capital regulation under Basel II. Evaluate the model risks that may arise from the various Operational risk quantification approaches. [10 marks]
(c) Calculate the required credit risk capital under Basel I and Basel II for the following set of arrangements.
(i) A 2 year interest rate swap with a principal of $100 million traded with an AA rated company, currently worth 2.5 million
(ii) $30 million 3 year Treasury bond with a BBB rated OECD sovereign
(iii) $20 million claims secured by residential mortgages
(iv) A six month corporate loan of $ 25million to an A+ rated company
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