Exposure at default

The amount owed at the moment of default, including any drawn commitments. For credit lines it is usually higher than the amount currently drawn.

Where you will meet it

Exposure at default comes up in 30 learning outcome notes across the FRM syllabus. A few of them:

• The Building Blocks of Risk Management
  FRM Part I · Foundations of risk management

  “For credit, the formula is EL = PD × LGD × EAD.”

• External and Internal Credit Ratings
  FRM Part I · Valuation and risk models

  “Expected loss = PD × (1 − R) × EAD.”

• Fundamentals of Credit Risk
  FRM Part II · Credit risk measurement and management

  “Those three combine in the expected loss, shown here as EL = PD × EAD × LGD.”

• Risk Capital Attribution and Risk-Adjusted Performance Measurement
  FRM Part II · Operational risk and resilience

  “With PD the default probability, LGD the loss given default and EAD the exposure, expected loss is EL = PD × LGD × EAD.”

All terms beginning with E · FRM glossary

GARP does not endorse, promote, review, or warrant the accuracy of the products or services offered by Charta Learning, nor does it endorse any pass rates claimed by Charta Learning. Further, GARP is not responsible for any fees or costs paid by the user to Charta Learning. FRM® and GARP® are registered trademarks owned by the Global Association of Risk Professionals, Inc. The questions, explanations and study notes are written for this product and are not GARP curriculum material.