Accredited ACH Professional (AAP) Practice Exam

What strategy allows an ODFI to establish a total Exposure Limit for multiple non-public rated Originators?

1. Individual Limits

2. Aggregate Exposure

3. Risk Pooling

4. Credit Consolidation

The correct answer is: Risk Pooling

The strategy that allows an ODFI (Originating Depository Financial Institution) to establish a total Exposure Limit for multiple non-public rated Originators is known as Risk Pooling. This approach enables the ODFI to assess and manage the overall risk exposure associated with multiple originators collectively, rather than having to evaluate each one separately. By pooling the risk, the ODFI can determine a comprehensive limit that reflects the aggregate risk profile of all the originators involved. This is particularly beneficial for non-public rated entities, where individual creditworthiness may be less transparent. Risk Pooling effectively allows for a collaborative approach to risk management, whereby the collective exposure from multiple originators can be monitored and controlled under a unified framework, ensuring that the ODFI does not exceed acceptable risk thresholds. Other strategies, like individual limits, focus on setting specific exposure limits for single originators, which does not leverage the benefits of collective risk management. Aggregate exposure is closely related but may not necessarily provide the structured approach to limit establishment that Risk Pooling offers. Credit consolidation typically pertains to combining debts or credit accounts rather than managing exposure limits in a risk framework.