Explanation:
The risk measure that indicates the portion of the exposure that will be lost if a default occurs is known as Loss Given Default (LGD), which is often expressed and referred to as the loss rate. It reflects the severity of the loss.
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Q.38 A Canadian lender intends to forecast the expected loss on a loan to a prospective mid-size corporate borrower. As per the current estimates, the bank will suffer a 60% loss if the borrower does not perform the financial obligation. This risk measure is:
A
the loss rate
B
the probability of default
C
the exposure at default
D
the expected loss