Learning objectives: Describe the customer relationship cycle and discuss the trade-off between creditworthiness and profitability. Discuss the benefits of risk-based pricing of financial services.
Questions:
605.1. Crouhy describes each of the following as a trend in retail banking EXCEPT which is not?
a. Banks have progressed from scoring applications at one point in time to periodic behavior scoring
b. Banks are increasingly monitoring the early performance of new product offerings, and testing responses to variations in product offerings
c. Customers are more likely to be described by a several scorecards in addition to traditional default risk metric; e.g., revenue scores, attrition scores
d. Banks are rationalizing credit offerings into fewer products and more one-size-fits-all products in order to minimize the customers' perceived confusion
605.2. Which of the following is TRUE about the Basel regulatory approach to retail exposures?
a. Retail exposures must use the standardized approach to credit risk
b. Retail exposures must use one of the advanced approach to credit risk
c. Under the standardized approach, "regulatory retail" exposures (which includes residential mortgages) are assigned a weight of 25%
d. Under the advanced IRB approach, residential mortgages are assigned a higher asset correlation (exposure to systemic risk) than revolving retail exposures
605.3. According to Crouhy, each of the following is a benefit of risk-based pricing EXCEPT which is not?
a. Gives managers the ability to map pricing strategies to key corporate metrics like profit
b. Avoids an over-reliance on machine learning and mathematical algorithms which cannot capture subjectivity
c. Creates potential for retail bank managers to increase shareholder value while taking into account constraints
d. For the same retail product, enables bank to offer higher interest rates to some customers based on risk factors (as long as they are legal risk factors)
Answers here:
Questions:
605.1. Crouhy describes each of the following as a trend in retail banking EXCEPT which is not?
a. Banks have progressed from scoring applications at one point in time to periodic behavior scoring
b. Banks are increasingly monitoring the early performance of new product offerings, and testing responses to variations in product offerings
c. Customers are more likely to be described by a several scorecards in addition to traditional default risk metric; e.g., revenue scores, attrition scores
d. Banks are rationalizing credit offerings into fewer products and more one-size-fits-all products in order to minimize the customers' perceived confusion
605.2. Which of the following is TRUE about the Basel regulatory approach to retail exposures?
a. Retail exposures must use the standardized approach to credit risk
b. Retail exposures must use one of the advanced approach to credit risk
c. Under the standardized approach, "regulatory retail" exposures (which includes residential mortgages) are assigned a weight of 25%
d. Under the advanced IRB approach, residential mortgages are assigned a higher asset correlation (exposure to systemic risk) than revolving retail exposures
605.3. According to Crouhy, each of the following is a benefit of risk-based pricing EXCEPT which is not?
a. Gives managers the ability to map pricing strategies to key corporate metrics like profit
b. Avoids an over-reliance on machine learning and mathematical algorithms which cannot capture subjectivity
c. Creates potential for retail bank managers to increase shareholder value while taking into account constraints
d. For the same retail product, enables bank to offer higher interest rates to some customers based on risk factors (as long as they are legal risk factors)
Answers here:
