Under the adverse scenario, losses of credit exposure to the manufacturing sector accounted for about 25% of credit losses in 2025.

Question

BlackTom AI · Accepted Answer

The question presents a statement about the adverse scenario and the share of credit losses attributed to the manufacturing sector in 2025, with two options: TRUE or FALSE.
Option 1: TRUE. In evaluating this, we consider what an adverse scenario typically implies in credit risk models: macroeconomic stress would shift losses toward more credit-intensive sectors. If manufacturing is a relatively large sector with exposure to cyclicality, it could plausibly account for about a quarter (25%) of total credit losses in a stressed year such as 2025. Support for this interpretation would come from data showing manufacturing’s exposure at default, loss given default, and probability of default under stress conditions, aggregated to approximately 25% of total losses. When the adverse scenario includes sector-specific shocks (e.g., demand decline, supply chain disruptions), it is reasonable to expect a non-trivial share of losses in manufacturing, which would align with the statement.
Option 2: FALSE. If we scrutinize the claim, several reasons could undermine it. The 25% share could be inconsistent with the model’s sectoral loss distribution if manufacturing is less exposed than other sectors, or if policy buffers and diversification reduce its relative weight. Additionally, if the data shows that other sectors—such as services or energy—bear a larger portion of losses under the adverse scenario, the manufacturing share would be lower or higher than 25% depending on sector dynamics; either way, the claim would be inaccurate if the actual proportion deviates significantly from 25%. Further, rounding or reporting conventions in the data could misstate the exact percentage, leading to a mismatch with the stated figure.
In summary, evaluating TRUE requires aligning the claim with the reported sectoral loss distribution under the adverse scenario, including exposure, vulnerability, and the severity of shocks to manufacturing. Evaluating FALSE would require evidence that the manufacturing sector’s share is clearly not about 25%, whether noticeably higher or lower, or that the data are inconsistent with the stated figure. The reasoning hinges on examining the underlying loss distribution data for 2025 under the adverse scenario, sectoral weights, and the methodology used to allocate losses across sectors.

BU.232.715.81.SP25 HW6

Under the adverse scenario, losses of credit exposure to the manufacturing sector accounted for about 25% of credit losses in 2025.

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