easy · FRM Part 2 Credit Risk
Formula-and-meaning check before application in Credit Risk.
Within Credit Risk — Fundamentals (EL/UL & Economic Capital), which statement correctly describes Economic capital?
- excessive exposure to a common borrower, sector, region, or factor
- average credit loss equal to PD times LGD times EAD
- credit loss above expected loss, reflecting uncertainty around the average loss estimate
- internal capital held to absorb unexpected losses over a target horizon and solvency standard
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