Groundlearn / Glossary / Exposure at default
Exposure at default (EAD)
Also called EAD. A FRM term, defined in plain English with the distinction examiners test.
What it means
The amount outstanding when default occurs.
The exam angle
Higher than current drawings for revolving facilities: distressed borrowers draw their lines before they fail.
Where it appears in the syllabus
- Credit Risk Measurement & ManagementFRM Part II · exam weight 20% · Merton and reduced-form models, credit VaR, counterparty risk, CVA, CDOs.
Related terms
- Adverse selectionThe problem that arises when the party with better information self-selects into a transaction, leaving the…
- CollateralAssets pledged to secure an exposure, reducing loss if the counterparty defaults.
- Counterparty credit riskThe risk that the other side of a derivative defaults before settling, when the contract has positive value to you.
- Credit default swapA contract in which the buyer pays a periodic premium and receives compensation if a specified borrower suffers a…
- Credit spreadThe extra yield a borrower pays over a risk-free benchmark of the same maturity, compensating for default and…
- Credit valuation adjustmentThe reduction in a derivative’s value to reflect the possibility that the counterparty defaults.
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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