Question 1:
(i) Clearly explain the following terms used in relation to credit risk analysis:
(a) Expected Loss;
(b) Credit risk drivers;
(c) Affirmative covenants
(ii) Having explained the Three Main Pillars of Basel II, critically describe the significance of Basel II guidelines in reducing banking risks.
Question 2:
(i) Assess in what ways credit risk can migrate to other risks in banking.
(ii) After giving a concise description of Securitization mechanisms, critically consider the costs and benefits of Securitization.
Question 3:
(i) What do you understand by the terms?
(a) Liquidity risk
(b) Liquidity Gaps
(ii) Having explained the meaning of systemic risk, assess whether or not derivative instruments reduce systemic risk.