RSK 4804 RSK4804 Assignment 01 memo Comprehensive Questions and Answers 100% Accuracy (Latest 2024).

Credit risk measurement While credit risk assessment relies on borrower provided information, credit risk measurement relies on lender’s analytics and risk measurement tools√ rather than the borrower’s. Credit risk measurement also has three goals. The first goal is to limit the credit risk exposure√ that the lenders accept when extending the debt. By determining the probability of a loss and the loss exposure amount over a period of time, the debt facility can be better structured and managed√. A second goal of credit risk measurement is to ensure that adequate compensation is earned√ for the risk undertaken. It is concerned with the revenues and profit margins earned on the credit products and services that lenders provide. Credit risk measurement tools and techniques are used to ensure that the credit risks on loans are appropriately priced√ and that portfolio returns yield the targeted established financial values√. The third goal of credit risk measurement is to mitigate the credit risk exposure√ by structuring transactions to protect against loss as well as into asset classes that can be marketed to third party investors√. Question 2 A loan approval process comprises of six steps. Identify and explain in detail each of the steps. (10) Suggested Answer Typically, there are six phases to the preliminary credit selection process that credit specialists will undertake when evaluating transactions. Step 1: Borrower’s credit worthiness The first phase of the process is the assessment of the general creditworthiness of the applicant. The essential components to examine the borrower’s creditworthiness should encompass financial and nonfinancial analysis that implicitly and explicitly can assess the risks of a firm. Step 2: Analysing the repayment ability Only cash can repay a loan. In this phase the lender determines the source of cash which will be used to repay the loan. To avoid having a structurally subordinated or weaker repayment position in relation to other lenders in the event of a default, the credit specialist must fully examine the corporate ownership structure of the borrower. Who are the major shareholders? In general, lenders want to extend credit