Assignment:
In response to the recent crisis, rigorous stress testing has been emphasized as an important component of risk measurement and management that has been poorly implemented by many financial institutions in the recent past. Which of the following statements concerning steps banks can take to improve the value of stress testing exercises is/are correct?
I. Regular dialogue with executive management about the results of stress tests and contingency plans to address such scenarios.
II. Regular evaluation of a well-defined, common set of scenarios that include a broad range of possible stresses.
a. I only
b. II only
c. I and II
d. Neither I nor II