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September 2012 Q7 Paper 1

F

Frances

Member
Hi,

Could someone explain to me for part ii) the answers put under h) and i). The points around expense risk falling under both h) and i) seems to contradict? Also, why would h) and i) reduce expense risk?

Thanks,

Fran
 
Hi
Item (h) is hoping to save the loan from defaulting by offering an extension - but there's not point in doing so unless the customer can meet the minimum payments of the expenses and interest. Item (i) is saying that if a loan is extended (as in item (h)) then additional fees are charged to compensate the lender for the increased risk. Therefore both items are attempts to reduce the risk that losses are made on the loans.
 
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