7-62 If the Loans in the Bank's Portfolio Are All

question 49

Multiple Choice

7-62 If the loans in the bank's portfolio are all negatively correlated,what will be the impact on the bank's credit risk exposure?

• A)The loans' negative correlations will decrease the bank's credit risk exposure because lower than expected returns on some loans will be offset by higher than expected returns on other loans.
• B)The loans' negative correlations will increase the bank's credit risk exposure because lower than expected returns on some loans will be offset by higher than expected returns on other loans.
• C)The loans' negative correlations will increase the bank's credit risk exposure because higher returns on less risky loans will be offset by lower returns on riskier loans.
• D)The loans' negative correlations will decrease the bank's credit risk exposure because higher returns on less risky loans will be offset by lower returns on riskier loans.
• E)There is no impact on the bank's credit risk exposure.

---

Definitions:

Individual Psychology

A psychological doctrine introduced by Alfred Adler, focusing on the uniqueness of each person and their drive to fulfill their potential.

Cognitive Approach

A psychological perspective that emphasizes internal mental processes such as perception, memory, and problem-solving as central to understanding behavior.

Personal Constructs

A theory focusing on how individuals perceive, interpret, and predict events in the world through personal mental models.

Humanistic Theory

A psychological perspective emphasizing individual potential, self-growth, and self-actualization, often associated with psychologists such as Abraham Maslow and Carl Rogers.