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FRM Part II · FRM Exam Part II · The Global Drivers of Private Credit

A bank has a 1,000 total commitment to a private credit fund, of which 400 is drawn. In stress, the fund draws the remaining undrawn line in full, and expects a loss given default of 60% on total exposure if the fund fails. Ignoring other factors, what is the loss on the exposure after the full draw if the fund defaults?

The loss is 600. If the fund draws the entire line before defaulting, exposure at default is the full 1,000 commitment, and a 60% loss given default gives 600. Using only the drawn 400 would understate the loss at 240.

  1. A600Correct
  2. B240
  3. C360
  4. D1,000

Explanation

After the full draw, exposure at default equals the 1,000 commitment. Loss = 60% x 1,000 = 600. Using only the drawn 400 gives 240, a missed-adjustment error. 360 is 60% of the 600 undrawn amount, a wrong base. 1,000 ignores recovery.

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