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    Lowering Cost of Capital

    One of the advantages for a firm to hedge its risk exposures is 'the possibility of lowering its cost of capital (debt or equity), which could lead to increased economic growth.' Q. How lowering its cost of capital may benefit a firm? Thank you
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    Credit risk scoring model types - Pooled Models

    Hi, I am little bit confused with Crouhy's definition of "Pooled models", i.e. These models are built by outside vendors, such as Fair Isaac, using data collected from a wide range of lenders with similar credit portfolios. For example, a revolving credit pooled model might be developed from...
  3. Nicole Seaman

    P2.T7.607. Adjusted RAROC and RAROC in practice (Crouhy)

    Learning objectives: Explain the impact of changing assumptions used in calculating economic capital, including choosing a time horizon, measuring default probability, and choosing a confidence level. Calculate the hurdle rate and apply this rate in making business decisions using RAROC. Compute...
  4. Nicole Seaman

    P2.T7.606. Economic capital and risk-adjusted return on economic capital (RAROC) (Crouhy)

    Learning objectives: Define, compare, and contrast risk capital, economic capital and regulatory capital, and explain the motivations for using economic capital. Describe the RAROC (risk-adjusted return on capital) methodology and its benefits. Compute and interpret the RAROC for a project...
  5. Nicole Seaman

    P2.T7.605. Mitigation of model risk (Crouhy)

    Learning objectives: Explain methods and procedures risk managers can use to mitigate model risk. Explain the impact of model risk and poor risk governance in the 2012 London Whale trading loss and the 1998 collapse of Long Term Capital Management (LTCM). Questions: 605.1. In response to the...
  6. Nicole Seaman

    P2.T7.604. Model error and model implementation risk (Crouhy, Galai & Mark)

    Learning objectives: Identify and explain errors in modeling assumptions that can introduce model risk. Explain how model risk can arise in the implementation of a model. Questions: 604.1. According to Crouhy, Galai & Mark, JPMorgan's London Whale incident "showed that model risk has no...
  7. Nicole Seaman

    P2.T6.608. Credit Derivatives (1TD CDS, TRS, CLN) Crouhy

    Learning objective: Describe the different types and structures of credit derivatives including ... first-to default put, total return swaps (TRS), asset-backed credit-linked note (CLN), and their applications. Questions: 608.1. Mainway Bancrop has a long cash position in a $500.0 million...
  8. Nicole Seaman

    P2.T6.607. Credit default swaps (Crouhy)

    Learning objectives: Describe the different types and structures of credit derivatives including credit default swap (CDS), first-to-default put, total return swaps (TRS), asset-backed credit-linked note (CLN), and their applications. Questions: 607.1. What did the 2009 Big Bang Protocol...
  9. Nicole Seaman

    P2.T6.606. Flaws in securitization of subprime mortgages prior to the global financial crisis-Crouhy

    Learning objectives: Discuss the flaws in the securitization of subprime mortgages prior to the financial crisis of 2007. Identify and explain the different techniques used to mitigate credit risk, and describe how some of these techniques are changing the bank credit function. Describe the...
  10. Nicole Seaman

    P2.T6.605. Risk-based pricing in financial services (Crouhy)

    Learning objectives: Describe the customer relationship cycle and discuss the trade-off between creditworthiness and profitability. Discuss the benefits of risk-based pricing of financial services. Questions: 605.1. Crouhy describes each of the following as a trend in retail banking EXCEPT...
  11. Nicole Seaman

    P2.T6.604. Retail credit scoring models (Crouhy)

    Learning objectives: Define and describe credit risk scoring model types, key variables, and applications. Discuss the key variables in a mortgage credit assessment and describe the use of cutoff scores, default rates, and loss rates in a credit scoring model. Discuss the measurement and...
  12. Nicole Seaman

    P2.T6.603. Retail banking credit risks (Crouhy)

    Learning objectives: Analyze the credit risks and other risks generated by retail banking. Explain the differences between retail credit risk and corporate credit risk. Discuss the “dark side” of retail credit risk and the measures that attempt to address the problem. Questions: 603.1. Retail...
  13. Nicole Seaman

    P1.T1.505. Mechanisms for transmitting risk governance (Crouhy, Galai & Mark)

    Learning outcomes: Distinguish the different mechanisms for transmitting risk governance throughout an organization. Illustrate the interdependence of functional units within a firm as it relates to risk management. Assess the role and responsibilities of a firm’s audit committee. Questions...
  14. Nicole Seaman

    P1.T1.504. Corporate governance and risk management (Crouhy, Galai & Mark)

    Learning outcomes: Compare and contrast best practices in corporate governance with those of risk management. Assess the role and responsibilities of the board of directors in risk governance. Evaluate the relationship between a firm’s risk appetite and its business strategy. Questions: 504.1...
  15. Nicole Seaman

    P1.T1.503. Corporate risk management, a primer (Crouhy, Galai & Mark)

    Learning outcomes: Evaluate some advantages and disadvantages of hedging risk exposures. Explain how a company can determine whether to hedge specific risk factors, including the role of the board of directors and the process of mapping risks. Apply appropriate methods to hedge operational and...
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