Explanation:
Quantifiable risks are those that can be measured in some way. For instance, we can specify the likelihood of borrower default and even specify the distribution function. On the other hand, nonquantifiable risks are those risks that cannot be measured.
Option A is incorrect: Both interest rate risk and default risk are quantifiable risks.
Option B is incorrect: Civil war is a nonquantifiable risk while liquidity risk is a quantifiable risk.
Option D is incorrect: Civil war is a nonquantifiable risk while settlement risk is a quantifiable risk.
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Q.82 Which of the following combinations correctly matches a quantifiable risk with a nonquantifiable (qualitative) risk?
A
Quantifiable: Interest rate risk; Nonquantifiable: Default risk.
B
Quantifiable: Civil war; Nonquantifiable: Liquidity risk.
C
Quantifiable: Equity price risk; Nonquantifiable: Risk of terrorist attack.
D
Quantifiable: Civil war; Nonquantifiable: Settlement risk.