monsieuruzairo3
Member
Hi @David Harper CFA FRM CIPM
Came across the following question from Scheweser
The standardized approach to estimating the risk arising from asset securitization:
A) requires a reduction of capital for unrated positions.
B) is more commonly known as the external Ratings-Based Approach (RBA).
C) treats securitized assets consistently regardless of credit rating until a default occurs.
D) has stricter requirements than the IRB approach for transferring of risk through securitization.
The Answer is A
Explanation: Under the standardized approach, unrated positions entail a deduction of capital, so that issuers have no incentive
to avoid ratings of high risk tranches. Note that the standardized approach gives riskier assets higher risk rates.
I am not able to make much sense out of it, unrated positions are risky so why should there be a deduction. Would you kindly help me decipher the meaning?
KR
Uzi
Came across the following question from Scheweser
The standardized approach to estimating the risk arising from asset securitization:
A) requires a reduction of capital for unrated positions.
B) is more commonly known as the external Ratings-Based Approach (RBA).
C) treats securitized assets consistently regardless of credit rating until a default occurs.
D) has stricter requirements than the IRB approach for transferring of risk through securitization.
The Answer is A
Explanation: Under the standardized approach, unrated positions entail a deduction of capital, so that issuers have no incentive
to avoid ratings of high risk tranches. Note that the standardized approach gives riskier assets higher risk rates.
I am not able to make much sense out of it, unrated positions are risky so why should there be a deduction. Would you kindly help me decipher the meaning?
KR
Uzi