Hi, The question relates how to reduce the credit risk of an investment firm investing in corporate bonds. The solution focuses on the things that individual analysts can do to reduce the credit risk. There's little focus on what the management of the fund can do e.g. Peer reviewing decisions of analysts, limiting exposure to certain markets or sectors, focussing investment in low rated bonds, limiting single countrrparty exposure, regularly assessing the distribution of credit ratings and credit spreads throughout the portfolio. The solution focuses on the canons of lending that could be applied yo assessing the credit risk of an individual bond, which I don't think is asked by the question. Am I wrong here or is there something that I am missing?
Dear Jimmy, I'm not sure why you think this. Have a look at the Examiners Report. You can see that there are marks available for many of the ideas you mention, eg: • set an appropriate investment strategy • consider the investment expertise available • continuous monitoring • choice of investment sector • maximum exposure to a single counterparty • consider credit rating • credit default swaps Or perhaps you are looking at the ASET? The ASET certainly structures its solution around the canons of lending, but it arrives at the same ideas. Remember the ASET is only one possible way of developing a solution, there are many possible ways to tackle any one question. Kind regards, Katherine.
