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:

Process Costing System

A costing method used where similar goods are produced in a continuous process, allocating costs across units produced.

Started into Production

The point at which materials begin their process of being transformed into finished goods within a manufacturing system.

Weighted-Average Method

An inventory costing method that values inventory and the cost of goods sold based on the average cost of all items available.

Process Costing System

An accounting methodology used for homogenous products, allocating costs across units of production, making it easier to determine per-unit costs.