Under the contingent claims approach to credit risk, risk increases when:
1. Volatility of the firm's assets increases
2. Risk free rate increases
3. Maturity of the debt increases
The point that this question is trying to emphasize is the independence of the risk management function. The risk function should be segregated from the risk taking functions as to maintain independence and objectivity.
Choice 'd', Choice 'c' and Choice 'a' run contrary to this requirement of independence, and are therefore not correct. The risk function should report directly to senior levels, for example directly to the audit committee, and not be a part of the risk taking functions.
Makeda
8 days agoHayley
9 days agoRodrigo
11 days agoRaylene
14 days ago