Portfolio Management Q157

157Bank XYZ has invested 80% of its portfolio in real estate in the beginning of 2012. In 2013, real estate prices fall considerably. Given the unpredictable nature of this event, which of the following statements is least likely accurate about the action taken by a good risk manager? A good risk manager:

A
would not have predicted significant defaults on the bank’s real estate securities.
B
would actively help the bank decide on the exposure it should have in real estate securities and quantify the potential losses of such a crisis.
C
is expected to prepare the organization for such a crisis through stress testing and scenario analysis.

Option : A
Explanation : The other two statements are what a good risk manager would do. Even though the real estate crisis was unpredictable, a good risk manager is expected to prepare for such crises. A good risk manager is also expected to continuously report in advance on the potential impact of this sizable risk exposure.

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