Sample interview questions: How do you assess and manage risks associated with changes in credit ratings?
Sample answer:
Assessment of Credit Risk Changes:
- Monitor credit rating agencies’ (CRAs) ratings and outlooks.
- Analyze financial statements, market data, and economic indicators to identify potential triggers for rating changes.
- Conduct stress tests to simulate the impact of rating downgrades on portfolio performance.
Management of Credit Risk Changes:
- Credit Portfolio Restructuring:
- Diversify portfolio by reducing exposure to entities with lower credit ratings.
- Sell or hedge risky assets to mitigate potential losses.
- Risk Mitigation Strategies:
- Implement credit enhancement mechanisms (e.g., collateral, insurance) to reduce the likelihood of default.
- Enhance monitoring and reporting systems to identify deteriorating credit conditions promptly.
- Contingency Planning:
- Develop contingency plans to manage potential liquidity and capital shortfalls resulting from rating downgrades.
- Establish relationships with lenders and counterparties to access… Read full answer
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