Explanation:
The highest point on a Potential Future Exposure (PFE) curve against time represents the Maximum Potential Future Exposure (Max PFE) or Peak Exposure. This corresponds to the worst-case credit exposure over the life of the derivative contract at the given confidence level. Therefore, point X, representing the peak of the curve, indicates the worst-case exposure over the entire period.
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Q.1938 The graph below plots potential future exposure against time (in months):
Graph of Potential Future Exposure against Time
PFE X Y Z Time
The worst case exposure over the entire period would be represented by point:
A
X
B
Y
C
Z
D
X - Z
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