Explanation:
The impact of stress tests is usually evaluated against one or more measures. Typically used measures not only include economic profit and loss, but also asset values, accounting, and regulatory and economic capital, and liquidity and funding gaps.
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Q.33 Which of the following statements regarding stress testing methodologies is incorrect?
A
The impact of stress tests is evaluated against the economic profit and loss only.
B
An appropriate stress testing framework should comprise a broad range of scenarios covering risks at different levels of granularity
C
The stress testing program should explicitly cover complex and bespoke products such as securitized exposures
D
A bank should enhance its stress testing methodologies to capture the effect of reputational risk
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