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    Question

    Which of the following statements correctly describe

    credit risk assessment and credit risk management?
    A Credit risk management is a broader concept than credit risk assessment Correct Answer Incorrect Answer
    B Credit risk assessment focuses on evaluating and quantifying risk Correct Answer Incorrect Answer
    C Credit risk management involves controlling and minimizing credit risk throughout the loan’s life cycle Correct Answer Incorrect Answer
    D All of the above are correct Correct Answer Incorrect Answer
    E All of the above are incorrect Correct Answer Incorrect Answer

    Solution

    • Credit Risk Assessment → This is the initial stage, where lenders evaluate the probability of borrower default. It includes: o Reviewing financial statements o Checking repayment history and credit score o Assessing collateral and repayment capacity • Credit Risk Management → A broader and ongoing process that follows assessment. It includes: o Setting exposure limits and risk thresholds o Monitoring borrower performance over time o Taking preventive or corrective measures to reduce losses o Developing recovery strategies for stressed or defaulted loans Thus: • Assessment = Evaluation & Quantification • Management = Continuous control & mitigation Together, these processes ensure sound lending practices and protect banks from undue exposure to default risk.

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