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PRMIA 8010 Exam - Topic 1 Question 44 Discussion

Actual exam question for PRMIA's 8010 exam
Question #: 44
Topic #: 1
[All 8010 Questions]

In estimating credit exposure for a line of credit, it is usual to consider:

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Suggested Answer: B

Volatility clustering leads to levels of current volatility that can be significantly different from long run averages. When volatility is running high, institutions need to shed risk, and when it is running low, they can afford to increase returns by taking on more risk for a given amount of capital. An institution's response to changes in volatility can be either to adjust risk, or capital, or both. Accounting for volatility clustering helps institutions manage their risk and capital and therefore statements I and II are correct.

Regulatory requirements do not require volatility clustering to be taken into account (at least not yet). Therefore statement III is not correct, and neither is IV which is completely unrelated to volatility clustering.


by Maryann at Apr 09, 2024, 11:08 PM

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Nilsa
6 days ago
I disagree, B makes more sense since borrowers often max out.
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Gertude
12 days ago
A is usually the way to go for estimating exposure.
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Rima
18 days ago
I vaguely remember something about the present value of the line of credit being relevant, but I can't quite connect it to exposure at default. Was that in the context of option D?
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Angelica
23 days ago
I feel like option C sounds right because it seems logical to only consider the current exposure, but I can't recall if that's always the case.
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Lovetta
29 days ago
I remember a practice question where we had to decide if the full value of the credit line should be considered. It makes sense since borrowers might take the full amount when they default.
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Leatha
1 month ago
I think we discussed that the exposure at default often considers a fixed fraction of the line, but I'm not entirely sure how that applies if the drawn amount is different.
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Portia
1 month ago
This is a tricky one. I'm not totally sure what the "usual" approach is, and the options seem to present different perspectives. I'll need to draw on my knowledge of credit risk management to reason through this systematically.
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Nicolette
1 month ago
Okay, let me see here. The key is to figure out the "usual" way to consider credit exposure for a line of credit. I think I need to focus on understanding the differences between the options and which one best matches standard industry practice.
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Twanna
1 month ago
This seems like a straightforward question about credit exposure. I'll need to think through the different options carefully, but I'm feeling confident I can get the right answer.
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Malissa
1 month ago
Hmm, I'm a bit unsure about this one. The options seem to be getting at different ways of calculating credit exposure, but I'm not sure which one is the usual approach. I'll have to re-read the question and think it through step-by-step.
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Marion
1 month ago
I'm a bit confused by the wording here. Does the "or" mean you only need one of the criteria (65+ with disabilities OR ESRD), or do you need both? I'll have to think this through carefully.
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Johnson
1 month ago
Hmm, I'm not too familiar with the VTL6900 and its import parameters. I'll need to think this through carefully and try to eliminate any options that don't seem quite right.
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Lamar
2 months ago
Wait, I thought brittle fracture was caused by thermal stresses? Or was that a different type of fracture? I'm a little confused on the specifics here.
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Irving
6 months ago
Wait, did they mention anything about a magic 8-ball in the question? Cause that's the only way I'm picking an answer here.
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Dick
6 months ago
Option A is the way to go. It's a standard industry practice. Why reinvent the wheel?
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Emmanuel
5 months ago
Agreed, no need to complicate things when there's a proven method.
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Kami
5 months ago
It's important to stick to industry standards for consistency.
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Dalene
5 months ago
It simplifies the calculation and is widely accepted.
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Luz
5 months ago
I agree, using a fixed fraction is a common approach.
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Paris
6 months ago
Option D? Really? Calculating the present value of the entire credit line? That's overkill. This isn't a college finance exam, you know.
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Dana
5 months ago
Option D is definitely overkill. Stick with A or C for a more practical approach.
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Nada
5 months ago
C) only the value of credit exposure currently existing against the credit line as the exposure at default.
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Adelaide
6 months ago
A) a fixed fraction of the line of credit to be the exposure at default even though the currently drawn amount is quite different from such a fraction.
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Roosevelt
7 months ago
I'd go with option C. It's the most straightforward and realistic approach. Why overcomplicate things?
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Chau
5 months ago
I see your point, but I still think option D could be a more accurate way to estimate credit exposure.
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Cathern
5 months ago
I think option A could also be a valid approach, considering a fixed fraction of the line of credit.
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Ashleigh
6 months ago
I agree, option C seems like the simplest way to estimate credit exposure.
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Jordan
7 months ago
Option B seems a bit too extreme. I don't think we can assume the borrower will always max out the credit line at default. That's a bit of a stretch.
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Azzie
5 months ago
I see your point, but I still think option A is the most reasonable approach.
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Leontine
5 months ago
But what about option C, only considering the current credit exposure as the exposure at default?
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Zona
5 months ago
I think option A makes more sense, considering a fixed fraction of the line of credit as the exposure at default.
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Martin
6 months ago
I agree, option B does seem a bit extreme.
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Carole
7 months ago
I see both points, but I think the answer is D. We should consider the present value of the line of credit at the agreed rate of lending for a more accurate estimation.
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Janae
7 months ago
I disagree, I believe the answer is C. We should only consider the current value of credit exposure against the credit line.
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Eleonora
7 months ago
I think the answer is A, because it makes sense to consider a fixed fraction of the line of credit as the exposure at default.
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