FIN625 - Credit & Risk Management

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SEMESTER FALL 2019 CREDIT & RISK MANAGEMENT (FIN625) Assignment – 1 Total Marks: 10 Due Date: January 24, 2020 Topic: The Internal Ratings ABC bank is a newly established bank that provides loans to individuals and corporates. To fully understand the credit risk bank applies two types of ratings that are: Internal Ratings External Ratings The first rating that is internal ratings is assigned by the lenders undertaking the credit risk. On the other side, external ratings are conducted by external agencies such as Fitch, Standard and Poor’s and Moody’s for the obligor to help in selecting the debt capital market. From the last several years, Standard and Poor’s and Moody’s are the most prominent external agencies that have rated a large number of companies. Most of the external rating agencies hold expertise in providing credit ratings and treated as unbiased raters which make their ratings widely acceptable among regulators. However, the bankruptcy cases such as Enron in 2001, and losses in Collateralized Debt Obligations in the year 2008 and 2009, making the ratings provided by external rating agencies doubtful. Therefore, banks and financial institutions apply internal rating system to organizations to capture the whole spectrum of credit risk. Further, the various approaches of BASEL accord to measure credit risk also advocate the use of internal and external credit ratings. While external 1 ratings are given a prominent place in the standardized approach, the internal ratings are related to the advanced approaches. Required: Keeping in view the above scenario you are required to enlist, and discuss the requirements that have to be fulfilled by ABC bank in adopting the Internal Rating Based Approach. IMPORTANT 24 hours extra / grace period after the due date is usually available to overcome uploading difficulties. This extra time should only be used to meet the emergencies and above mentioned due dates should always be treated as final to avoid any inconvenience. OTHER INSTRUCTIONS DEADLINE • Make sure to upload the solution file before the due date on VULMS. • Any submission made via email after the due date will not be accepted. FORMATTING GUIDELINES • Use the font style “Times New Roman” or “Arial” and font size “12”. • It is advised to compose your document in MS-Word format. • You may also compose your assignment in Open Office format. • Use black and blue font colors only. REFERENCING GUIDELINES • Use APA style for referencing and citation. For guidance search “APA reference style” in Google and read various website containing information for better understanding or visit: http://linguistics.byu.edu/faculty/henrichsenl/apa/APA01.html 2 RULES FOR MARKING Please note that your assignment will not be accepted, if: • It is submitted after the due date. • The file you uploaded does not open or is corrupt. • It is in any format other than MS-Word or Open Office; e.g. Excel, PowerPoint, PDF etc. • It is cheated or copied from other students, internet, books, journals etc. Note related to load shedding: Please be proactive Dear Students! As you know that post Mid-Term semester activities have been started and load shedding problem is also prevailing in our country now a days. Keeping in view the fact, you all are advised to post your activities as early as possible without waiting for the due date. For your convenience; activity schedule has already been uploaded on VULMS for the current semester, therefore no excuse will be entertained after due date of assignments, quizzes or GDBs. 3