1. What is the relevance of correlations from a credit portfolio risk management perspective?
2. The following is an extract from the credit portfolio of Hypothetical Bank:
|
CUSTOMER NAME
|
INDUSTRY
|
Currency
|
Exposure - millions
|
Less than 1 year
|
Less than 2 years
|
More than 2 years
|
|
Customer 1
|
Construction
|
USD
|
3,500
|
|
1,167
|
2,333
|
|
Customer 2
|
Building Materials
|
USD
|
1,200
|
300
|
900
|
|
|
Customer 3
|
Construction
|
GBP
|
1,100
|
275
|
825
|
|
|
Customer 4
|
Wholesale and Retail Trade
|
USD
|
790
|
|
263
|
527
|
|
Customer 5
|
Manufacturing - Cement
|
EUR
|
780
|
195
|
585
|
|
|
Customer 6
|
Wholesale and Retail Trade
|
AUD
|
680
|
170
|
510
|
|
|
Customer 7
|
Wholesale and Retail Trade
|
INR
|
612
|
|
204
|
408
|
|
Customer 8
|
Construction
|
USD
|
590
|
|
197
|
393
|
|
Customer 9
|
Manufacturing - Steel
|
USD
|
556
|
139
|
417
|
|
|
Customer 10
|
Transportation
|
EUR
|
800
|
200
|
600
|
|
|
Customer 11
|
Manufacturing - Auto
|
USD
|
520
|
|
173
|
347
|
|
Customer 12
|
Construction
|
USD
|
800
|
|
267
|
533
|
|
Customer 13
|
Construction
|
GBP
|
400
|
|
133
|
267
|
|
Customer 14
|
Construction
|
USD
|
340
|
|
113
|
227
|
|
Customer 15
|
Wholesale and Retail Trade
|
USD
|
312
|
|
104
|
208
|
|
Customer 16
|
Manufacturing - Cement
|
USD
|
280
|
70
|
210
|
|
|
Customer 17
|
Transportation
|
GBP
|
250
|
63
|
188
|
|
|
Customer 18
|
Financial Services
|
USD
|
125
|
31
|
94
|
|
|
Customer 19
|
Construction
|
USD
|
189
|
47
|
142
|
|
|
Customer 20
|
Transportation
|
USD
|
160
|
40
|
120
|
|
|
Customer 21
|
Manufacturing - Paints
|
USD
|
155
|
39
|
116
|
|
|
Customer 22
|
Wholesale and Retail Trade
|
USD
|
210
|
53
|
158
|
|
Identify the portfolio risks inherent in this portfolio. Explain your views and possible solutions to solve or mitigate the portfolio issues identified.