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    Question

    What does the Probability of Default (PD) measure in the

    context of credit risk?
    A The total loss a financial institution will incur in the event of a default. Correct Answer Incorrect Answer
    B The amount of exposure a lender has at the time of default. Correct Answer Incorrect Answer
    C The likelihood that a borrower will fail to meet their credit obligations within a given period, usually one year. Correct Answer Incorrect Answer
    D The value of collateral pledged by the borrower to secure the loan. Correct Answer Incorrect Answer
    E The ability of a borrower to repay the loan over its entire duration. Correct Answer Incorrect Answer

    Solution

    The Probability of Default (PD) is a critical component of credit risk assessment, representing the likelihood that a borrower will default on their obligations within a specified time period, usually one year.

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