BUISENESS MANAGEMENT
RISK MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Likelihood that a borrower would default over a given time horizon, usually a year
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Amount the borrowers owes to the bank at the time of default
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Loss on a credit facility that takes place when a borrower defaults
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Sanctioned limit
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Detailed explanation-1: -Exposure at default is the predicted amount of loss a lender may incur if a debtor defaults on their loan. It is the realized value of what the bank may lose if one of its borrowers is unable to satisfy their debt obligation.
Detailed explanation-2: -Exposure at default (EAD) is the loss exposure (balance at the time of default) for a bank when a debtor defaults on a loan. For example, the loss reserves are usually estimated as the expected loss (EL), given by the following formula: EL = PD × LGD × EAD.
Detailed explanation-3: -What Is Credit Exposure? Credit exposure is a measurement of the maximum potential loss to a lender if the borrower defaults on payment. It is a calculated risk to doing business as a bank.
Detailed explanation-4: -Exposure at default or (EAD) is a parameter used in the calculation of economic capital or regulatory capital under Basel II for a banking institution. It can be defined as the gross exposure under a facility upon default of an obligor. Outside of Basel II, the concept is sometimes known as Credit Exposure (CE).
Detailed explanation-5: -EAD is the amount of loss that a bank may face due to default. Since default occurs at an unknown future date, this loss is contingent upon the amount to which the bank was exposed to the borrower at the time of default. This is commonly expressed as exposure at default (EAD).