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

question 4

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.

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