Practice Question Set: External and Internal Ratings

Chapter 4. External and Internal Credit Ratings Practice Question set contains 11 pages covering the following learning objectives:

* Describe external rating scales, the rating process, and the link between ratings and default.

* Describe the impact of time horizon, economic cycle, industry, and geography on external ratings.

* Define and use the hazard rate to calculate unconditional default probability of a credit asset.*

* Define recovery rate and calculate the expected loss from a loan.*

* Explain and compare the through-the-cycle and at-the-point internal ratings approaches

* Describe alternative methods to credit ratings produced by rating agencies.*

* Compare external and internal ratings approaches.

* Describe and interpret a ratings transition matrix and explain its uses.

* Explain the potential impact of ratings changes on bond and stock prices.

* Explain historical failures and potential challenges to the use of credit ratings in making investment decisions.*

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