In Models That Are Based on Loan Loss Ratios, a β

question 67

Multiple Choice

In models that are based on loan loss ratios, a β that is found to be less than one for a particular loan sector indicates that

• A)the loans in that sector will soon be downgraded soon.
• B)the FI should increase its concentration in that loan sector due to the high rates of return.
• C)the loan losses in that sector are systematically lower relative to total loan losses.
• D)the FI should decrease its exposure to that sector because losses are higher than the rest of the portfolio
• E)the calculation is in error because β is restricted to be greater than one.

---

Definitions:

Belief Hypocrisy

The condition of holding beliefs that one's own behavior does not conform to, often leading to cognitive dissonance when recognized.

Cognitions

The mental processes involved in gaining knowledge and comprehension, including thinking, knowing, remembering, judging, and problem-solving.

Theory of Planned Behavior

An extension of the Theory of Reasoned Action, adding the aspect of perceived behavioral control to predict an individual's intention to engage in a behavior given the opportunity.

Behavioral Control

The regulation of individual behavior through various forms of influence and intervention.