credit risk Flashcards
1
Q
credit risk
A
risk of loss due to default
2
Q
Expected exposure (EE)
A
principal +accured interest
3
Q
Recovery rate (RR)
A
percentage of loss recovered in defualt
4
Q
loss given default (LGD
A
EE*(1-RR) account of a loss when default
5
Q
probabiity of default (POD)
A
probability when borrower default
6
Q
Expectd loss (EE)
A
EE = POD*LGD
it is approx. a spread
7
Q
rating issuers
A
moodys
standard and poors
Fitch
8
Q
credit migration risk
A
when a bond slips from a rating down to ex. aaa+=>BBB
the risk is higher
9
Q
credit spread risk
A
the risk of greater loss due to changes in credit conditions
10
Q
A
