medium · FRM Part 1 Financial Markets and Products
A bank uses a 'Point-in-Time' (PIT) internal rating system. During a sharp economic boom, what is the most likely observation regarding its portfolio's weighted average rating?
- The average rating will migrate downward due to rising inflation fears.
- The bank will be forced to hold significantly more capital as ratings improve.
- The average rating will remain completely unchanged throughout the entire economic cycle.
- The average rating will migrate upward (improve) as current conditions look stronger.
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