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Question
In models that are based on loan loss ratios, a β that is found to be less than one for a particular loan sector indicates that
A. the loans in that sector will soon be downgraded soon.
B. the FI should increase its concentration in that loan sector due to the high rates of return.
C. the loan losses in that sector are systematically lower relative to total loan losses.
D. the FI should decrease its exposure to that sector because losses are higher than the rest of the portfolio
E. the calculation is in error because β is restricted to be greater than one.
Answer
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