Skip to content

FRM Part II · FRM Exam Part II · Credit Scoring and Rating

Under the Basel framework, a bank using the foundation internal ratings-based (F-IRB) approach for corporate exposures estimates which of the following itself, with the other parameters supplied by the supervisor?

Under the foundation IRB approach, banks estimate only the probability of default for each rating grade. Supervisors provide the values for loss given default, exposure at default and generally maturity. Only the advanced IRB approach lets banks estimate those other parameters internally.

  1. ALoss given default
  2. BExposure at default
  3. CProbability of defaultCorrect
  4. DEffective maturity and LGD

Explanation

Under F-IRB the bank estimates PD only; supervisory values are used for LGD, EAD and, generally, maturity. Under advanced IRB the bank also estimates LGD, EAD and maturity.

Did you get it right without looking?

One question tells you little. A timed set on Credit Scoring and Rating shows your real accuracy, how long you take and where you lose marks.

Practise Credit Scoring and RatingFree diagnostic mock

More Credit Scoring and Rating questions