Question 4 (a) Describe the THREE (3) issues that a financial institution will have to consider when assessing credit risk from a single counterparty. (9 marks) (b) Discuss how 'credit quality' can affect the counterparty to perform an obligation. (8 marks) (c) Differentiate between credit ratings used by banks in relation to those used by others. (8 marks) Question 2 Illustrate the FIVE (5) primary methods of managing credit risk for derivatives dealers. (25 marks) Question 3 You are given the following information of two assets: Asset Value of investment Expected return Standard deviation A RM30 million 15% 10% B RM20 million 12% 8% Correlation coefficient between returns on asset A and B is 0.3. Assume 252-days trading a year. (a) You have been asked to compute: (i) portfolio expected return (ii) portfolio standard deviation (iii) one-day and ten-day value at Risk (VaR) (b) Interpret the result of part (a) above. (6 marks) (6 marks) (10 marks)