Explanation
Creditreserves are created in respect of expected losses, which are considered the cost of doing business.
Unexpected losses are borne by economic credit capital, which is a part of economic capital. This question is a bit nuanced - and 'economic capital' wouldgenerally be a good answer as well. However, taking a rather beady eyed view of the terminology and distinguishing between 'economic credit capital' which is a subset of
'economic capital', we can say that 'economic credit capital' is a more appropriateChoice 'a's the question relates to credit losses.

Explanation
Collateral, limits to avoid credit exposure concentrations, termination rights based upon credit ratings, third party guarantees and credit derivatives are all tools or instruments that financial institutions use to manage their credit risk. A cumulative accuracy plot measures the accuracy of ratings, and is not a tool for managing credit risk. Therefore Choice 'b' represents the correct answer.

Explanation
Statement I is correct. Economic capital is the capital available to absorbunexpected losses, and credit ratings are also based upon a certain probability of default. Economic capital is often calculated at a level equal to the confidence required for the desired credit rating. For example, if the probability of default for a AArating is
0.02%, then economic capital maintained at a 99.98% would allow for such a rating. Economic capital set at a
99.8% level can be thought of as the level of losses that would not be exceeded with a 99.8% probability.
Loss distributions are the product of the severity and frequency distributions, each of which are estimated separately. The total loss distribution is affected far more by the severity distribution than by the frequency distribution, therefore statement II is correct.
The Loss Distribution Approach (LDA) is one of the ways in which the requirements of the AMA can be satisfied, and not the other way round. Therefore statement III is incorrect.
Statement IV is correct as the total loss distribution is estimated using separate estimatesof loss frequency and distributions.

Explanation
p = k/N. If there are N observations of which K are upto T, then p = k/N allows us to have a continuous unbroken curve which gets increasingly weighted towards the distribution selected for the tail as we move towards the 'right', ie the higher values of losses.
The other choices are incorrect and mostly nonsensical.