Fun question (for $15 prize): find the mistake in FRM reading 41

[David Harper CFA FRM]

Question (a correct answer wins participation weekly trivia prize, see here):

Chapter 1 [The Credit Decision] of The Bank Credit Analysis Handbook is a new addition to the FRM syllabus. It briefly introduces the key credit risk variables EL, PD, LGD, EAD. Follow this link to a brief but literal two-page, 800-word PDF extract (copy of the section's text): http://trtl.bz/1mQomKA

There is a mistake in this reading's text, it is a highly testable FRM concept (e.g., it has appeared in two prior exams). Can you replace the mistaken (at best, highly imprecise) sentence with something accurate?

 

[Mehdi Abouelfath]

Hi David,

Let me try this: "correlation between credit exposures within a credit portfolio, will also
affect expected loss".

I think correlation is not affecting excepted loss but rather affecting extreme tail like credit var or unexpected loss...

thanks,

Mehdi

 

[Nicole Seaman]

@Mehdi Abouelfath,

Congratulations! You are the winner of this week's trivia contest!! Please contact me via email at [email protected], post a reply here or start a conversation with me here in the forums to let me know what you would like for your prize.

Prizes:

• $15 Amazon gift card
• $15 iTunes gift card (US only)
• $15 Starbucks gift card

 

[Mehdi Abouelfath]

Hi Nicole

An amazon gift card would be perfect

many thanks !

Mehdi

 

[Nicole Seaman]

@Mehdi Abouelfath,

Please watch your email for your gift card from Amazon. Please let us know if you did or did not receive it. Congratulations on winning last week's trivia!!

Nicole

 

[Mehdi Abouelfath]

Hi Nicole

I've received the gift card. Many thanks !

Kind Regards,

Mehdi