RSK4804
Assignment 1 2025
Detailed Solutions, References & Explanations
Unique number: 865733
Due Date: 30 May 2025
QUESTION 1
a.
The two most important drivers of credit risk are:
1. Creditworthiness of the Borrower
This refers to the borrower’s ability and willingness to meet debt obligations based on
their financial health. Key indicators include credit history, income, cash flow, and
existing debt levels. A weaker financial profile increases the likelihood of missed
payments, thereby increasing the Probability of Default (PD).
2. Macroeconomic and Market Conditions
Broader economic factors like interest rates, inflation, GDP growth, and industry-specific
trends impact the borrower’s ability to repay. For instance, a recession may increase PD
across many borrowers due to reduced income and profitability. Thus, external
Terms of use
By making use
conditions can significantly elevate PD even for previously reliable borrowers. of this document you agree to:
Use this document as a guide for learning, comparison and reference purpose,
Terms of use
Not to duplicate, reproduce and/or misrepresent the contents of this document as your own work,
By making use of this document you agree to:
Use this document
Fully accept the consequences
solely as a guide forshould you plagiarise
learning, reference,or and
misuse this document.
comparison purposes,
Ensure originality of your own work, and fully accept the consequences should you plagiarise or misuse this document.
Comply with all relevant standards, guidelines, regulations, and legislation governing academic and written work.
Disclaimer
Great care has been taken in the preparation of this document; however, the contents are provided "as is" without any express or
implied representations or warranties. The author accepts no responsibility or liability for any actions taken based on the
information contained within this document. This document is intended solely for comparison, research, and reference purposes.
Reproduction, resale, or transmission of any part of this document, in any form or by any means, is strictly prohibited.
Assignment 1 2025
Detailed Solutions, References & Explanations
Unique number: 865733
Due Date: 30 May 2025
QUESTION 1
a.
The two most important drivers of credit risk are:
1. Creditworthiness of the Borrower
This refers to the borrower’s ability and willingness to meet debt obligations based on
their financial health. Key indicators include credit history, income, cash flow, and
existing debt levels. A weaker financial profile increases the likelihood of missed
payments, thereby increasing the Probability of Default (PD).
2. Macroeconomic and Market Conditions
Broader economic factors like interest rates, inflation, GDP growth, and industry-specific
trends impact the borrower’s ability to repay. For instance, a recession may increase PD
across many borrowers due to reduced income and profitability. Thus, external
Terms of use
By making use
conditions can significantly elevate PD even for previously reliable borrowers. of this document you agree to:
Use this document as a guide for learning, comparison and reference purpose,
Terms of use
Not to duplicate, reproduce and/or misrepresent the contents of this document as your own work,
By making use of this document you agree to:
Use this document
Fully accept the consequences
solely as a guide forshould you plagiarise
learning, reference,or and
misuse this document.
comparison purposes,
Ensure originality of your own work, and fully accept the consequences should you plagiarise or misuse this document.
Comply with all relevant standards, guidelines, regulations, and legislation governing academic and written work.
Disclaimer
Great care has been taken in the preparation of this document; however, the contents are provided "as is" without any express or
implied representations or warranties. The author accepts no responsibility or liability for any actions taken based on the
information contained within this document. This document is intended solely for comparison, research, and reference purposes.
Reproduction, resale, or transmission of any part of this document, in any form or by any means, is strictly prohibited.
