The Following Is NOT a Valid Step in Scenario Analysis

question 5

Multiple Choice

The following is NOT a valid step in scenario analysis (popularly known as stress testing) :

• A) select a particular set of "scenarios" that the firm wants to protect against
• B) scenarios can correspond to various states of the economy represented by paths of the state variables (which may be a collection of macroeconomic variables such as inflation,gross domestic product,unemployment,and interest rates)
• C) the set of scenarios can be generated by changing the state variables by some known amounts (such as raising interest rates by 1 percent or decreasing unemployment by 2 percent)
• D) for these scenarios,the firm computes the losses realized on its assets and liabilities
• E) the firm computes VAR based on the scenarios selected

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Definitions:

Ediacaran Period

The last (most recent) period of the Proterozoic eon, from 635 million to 541 million years ago; named for early animal fossils found in the Ediacara Hills in South Australia.

Gymnosperms

A group of seed-producing plants that include conifers and cycads, characterized by having seeds that are not enclosed in an ovary (fruit).

Large Dinosaurs

Large dinosaurs were prehistoric reptiles, including species like the Tyrannosaurus rex and Brachiosaurus, known for their massive size and diversity during the Mesozoic era.

Amino Acids

Organic compounds that serve as the building blocks of proteins, containing both amine and carboxyl functional groups.