Financial Risk Manager Part 1

Get started today

Ultimate access to all questions.

A newly hired risk analyst at a large commercial bank is studying the methodologies used by banks and external rating agencies to generate and communicate credit ratings of credit instruments, firms, and sovereign issuers. The analyst compares common approaches to producing internal and external ratings, and examines the differences between through-the-cycle and point-in-time ratings. Which of the following statements should the analyst find to be correct?

Real Exam

Community

LLeetQuiz

As the economy moves from a period of high growth to a period of low growth, a rating produced using a point-in-time approach is more likely to change than a rating produced using a through-the-cycle approach.

Comments

Loading comments...

A bank's internal ratings are more likely to be produced using a through-the-cycle approach, while ratings from external agencies are more likely to be produced using a point-in-time approach.

External rating agencies use outlooks to indicate a near-term change in a rating, while using watchlists to indicate a medium-term change in a rating.

Banks typically produce internal ratings based solely on a set of financial ratios related to the borrower's leverage and earnings.