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Credit Risk Measurement and Management
Credit Risk Measurement and Management
Medium
A portfolio of senior secured loans has an average LGD of 32% during economic expansions. During the last two recessions, the average LGD was 51%. This pattern most likely reflects:
A
Countercyclical LGD behavior — recovery rates fall during downturns as collateral values decline and distressed asset markets become flooded
B
Procyclical LGD behavior — banks increase lending standards during recessions, which raises recoveries
C
Random variation in LGD that is unrelated to economic conditions
D
Constant LGD with measurement error during recessions
Select an answer to continue
Tags
#loss-given-default
#countercyclical
#downturn-lgd
#recovery-rates
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FRM Part II — Credit Risk Measurement and Management Practice Question | AcadiFi | AcadiFi