Question 1

Which of the following is true?

Accepted Answer

A)  Total capital is the sum of Tier I and Tier II capital less deductions.
B)  Total capital must equal or exceed 8% of risk-weighted assets.
C)  The total of Tier II capital is limited to 100% of Tier I capital.
D)  All of the listed options are correct.E) A) and B)
F) A) and C)

Question 2

Which of the following statements is true?

Accepted Answer

A)  Credit-risk adjusted assets are on-balance-sheet assets only whose values are adjusted for approximate credit risk.
B)  Credit-risk adjusted assets are off-balance-sheet assets only whose values are adjusted for approximate credit risk.
C)  Credit-risk adjusted assets are on- and off-balance-sheet assets whose values are adjusted for approximate credit risk.
D)  Credit-risk adjusted assets are on- and off-balance-sheet assets whose values are adjusted for approximate credit risk of the FI.E) A) and D)
F) None of the above

Question 3

The capital conservation buffer is _______ of risk-weighted assets, comprised of _______ only:

Accepted Answer

A)  2.5%, common equity Tier 1 only
B)  2.5%, Tier 1 only
C)  7.5%, common equity Tier 1 only
D)  7.5%, Tier 1 onlyE) B) and D)
F) B) and C)

Question 4

The net worth is a measure of an FI's capital that is equal to the difference between the:

Accepted Answer

A)  book value of its assets and the market value of its liabilities
B)  market value of its assets and the book value of its liabilities
C)  market value of its assets and the market value of its liabilities
D)  book value of its liabilities and the book value of its assetsE) None of the above
F) C) and D)

Question 5

Which of the following are problems in using the leverage ratio as a measure of capital adequacy?

Accepted Answer

A)  Even with a low leverage ratio, an FI could have a negative market value net worth.
B)  The different types of risks, such as credit or interest rate risk are not captured.
C)  Off-balance-sheet activities are not captured.
D)  Even with a low leverage ratio, an FI could have a negative market value net worth, the different types of risks, such as credit or interest rate risk are not captured and off-balance-sheet activities are not captured.E) B) and C)
F) All of the above

Question 6

Basel III introduced significant capital reforms including measures to raise the quality and minimum required levels of capital and establish a back-up leverage ratio.

Accepted Answer

A) True 
 B)False

Question 7

Which pillar of the Basel Accord requires quantitative disclosures for capital structure, capital adequacy and risk exposure so market participants are able to undertake a meaningful comparison of DIs and their risk-based performance?

Accepted Answer

A)  Pillar 1
B)  Pillar 2
C)  Pillar 3
D)  all pillarsE) B) and C)
F) C) and D)

Question 8

Which of the following statements is true?

Accepted Answer

A)  The par value of shares is the current market price of the common stock shares issued by the FI times the number of shares outstanding.
B)  Retained earnings is the accumulated value of past profits not yet paid out in dividends to shareholders.
C)  Loan loss reserve is a special reserve set aside out of retained earnings to meet unexpected losses on the portfolio.
D)  All of the listed options are correct.E) B) and C)
F) A) and C)

Question 9

Which of the following statements is true?

Accepted Answer

A)  Banks get a tax-shelter against the cost of write-offs.
B)  The cost of a write-off is increased by a tax shelter.
C)  If losses exceed a bank's loan loss reserves, the bank is likely to use its liquidity holdings as its next line of defence.
D)  All of the listed options are correct.E) A) and B)
F) C) and D)

Question 10

Which of the following statements is true in the context of Basel II?

Accepted Answer

A)  The standardised approach is the most basic approach to calculating operational risk capital.
B)  FIs can choose whether or not to hold operational risk capital.
C)  In the basic indicator approach, operational risk capital is calculated as a fixed percentage of an FI's gross income figure, whereby gross income is defined as gross interest income plus gross non-interest income.
D)  None of the listed options are correct.E) C) and D)
F) All of the above

Question 11

To calculate the operational risk capital charge, the DI's activities are first divided into:

Accepted Answer

A)  investment banking, commercial banking and 'all other activity'
B)  commercial lending, retail lending and 'all other activity'
C)  derivative trading, foreign exchange trading and 'all other activity'
D)  retail banking, commercial banking and 'all other activity'E) C) and D)
F) A) and B)

Question 12

Which of the following statements is true for Basel II agreement?

Accepted Answer

A)  The Basel capital framework consists of three mutually reinforcing pillars.
B)  Pillar I deals with the calculation of regulatory capital against FIs' credit risk only.
C)  Pillar II deals with market discipline.
D)  Pillar III deals with the supervisory review process.E) A) and B)
F) C) and D)

Question 13

Credit derivatives were included in the banking book with the introduction of:

Accepted Answer

A)  Basel I
B)  Basel II
C)  Basel 2.5
D)  Basel IIIE) A) and B)
F) A) and C)

Question 14

Market risk is made up of:

Accepted Answer

A)  risk of companies on the stock exchange and political risk
B)  general market risk and specific risk
C)  pure risk and speculative risk
D)  inflation risk and interest rate riskE) A) and C)
F) B) and D)

Question 15

Credit-risk-adjusted assets are on- and off-balance-sheet assets whose values are adjusted for approximate credit risk.

Accepted Answer

A) True 
 B)False

Question 16

Identify the main functions of an FI's capital and differentiate between Tier 1 and Tier 2 capital.

Accepted Answer

FI's capital provides five main function...

Question 17

The risk that the value of a security will change due to issuer-specific factors and applies to interest rate and equity positions related to a specific issuer is:

Accepted Answer

A)  specific risk
B)  general market risk
C)  beta
D)  total riskE) A) and B)
F) All of the above

Question 18

Which of the following elements is usually not included in the book value of capital?

Accepted Answer

A)  the par value of shares
B)  the FI's earnings
C)  loan loss reserve
D)  the surplus value of sharesE) C) and D)
F) None of the above

Question 19

Which of the following statements is true?

Accepted Answer

A)  The book value of a liability is the reported liability value reported according to its historical costs.
B)  The market value concept is also referred to as marking to market.
C)  Marking to market allows balance sheet values to reflect current rather than historical prices.
D)  All of the listed options are correct.E) A) and B)
F) B) and C)

Question 20

Consider an FI with the following off-balance-sheet items: A two-year loan commitment with a face value of $120 million, a standby letter of credit with a face value of $20 million and trade-related letters of credit with a face value of $70 million.All counterparties have a credit rating of BBB.What is the capital amount the FI needs to hold against these exposures?

Accepted Answer

A)  $5.04 million
B)  $7.52 million
C)  $8.4 million
D)  $24.8 millionE) B) and C)
F) All of the above

Exam 18: Capital Management and Adequacy

Credit derivatives were included in the banking book with the introduction of:

Correct Answer
verified

Which of the following statements is true in the context of Basel II?

Correct Answer
verified

Identify the main functions of an FI's capital and differentiate between Tier 1 and Tier 2 capital.

Correct Answer
verified
FI's capital provides five main function...
View Answer

Which of the following statements is true?

Correct Answer
verified

Which of the following statements is true?

Correct Answer
verified

Credit-risk-adjusted assets are on- and off-balance-sheet assets whose values are adjusted for approximate credit risk.

Correct Answer
verified

The risk that the value of a security will change due to issuer-specific factors and applies to interest rate and equity positions related to a specific issuer is:

Correct Answer
verified

Which of the following statements is true?

Correct Answer
verified

The capital conservation buffer is _ of risk-weighted assets, comprised of _ only:

Correct Answer
verified

Which of the following is true?

Correct Answer
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Which of the following statements is true for Basel II agreement?

Correct Answer
verified

Which of the following statements is true?

Correct Answer
verified

Which of the following elements is usually not included in the book value of capital?

Correct Answer
verified

Basel III introduced significant capital reforms including measures to raise the quality and minimum required levels of capital and establish a back-up leverage ratio.

Correct Answer
verified

Which of the following are problems in using the leverage ratio as a measure of capital adequacy?

Correct Answer
verified

To calculate the operational risk capital charge, the DI's activities are first divided into:

Correct Answer
verified

Market risk is made up of:

Correct Answer
verified

Correct Answer
verified

The net worth is a measure of an FI's capital that is equal to the difference between the:

Correct Answer
verified

Which pillar of the Basel Accord requires quantitative disclosures for capital structure, capital adequacy and risk exposure so market participants are able to undertake a meaningful comparison of DIs and their risk-based performance?

Correct Answer
verified

Exam 18: Capital Management and Adequacy

Credit derivatives were included in the banking book with the introduction of:

Correct AnswerverifiedShow Answer

Which of the following statements is true in the context of Basel II?

Correct AnswerverifiedShow Answer

Identify the main functions of an FI's capital and differentiate between Tier 1 and Tier 2 capital.

Correct AnswerverifiedFI's capital provides five main function...View AnswerShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Credit-risk-adjusted assets are on- and off-balance-sheet assets whose values are adjusted for approximate credit risk.

Correct AnswerverifiedShow Answer

The risk that the value of a security will change due to issuer-specific factors and applies to interest rate and equity positions related to a specific issuer is:

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

The capital conservation buffer is _______ of risk-weighted assets, comprised of _______ only:

Correct AnswerverifiedShow Answer

Which of the following is true?

Correct AnswerverifiedShow Answer

Which of the following statements is true for Basel II agreement?

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Which of the following elements is usually not included in the book value of capital?

Correct AnswerverifiedShow Answer

Basel III introduced significant capital reforms including measures to raise the quality and minimum required levels of capital and establish a back-up leverage ratio.

Correct AnswerverifiedShow Answer

Which of the following are problems in using the leverage ratio as a measure of capital adequacy?

Correct AnswerverifiedShow Answer

To calculate the operational risk capital charge, the DI's activities are first divided into:

Correct AnswerverifiedShow Answer

Market risk is made up of:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The net worth is a measure of an FI's capital that is equal to the difference between the:

Correct AnswerverifiedShow Answer

Which pillar of the Basel Accord requires quantitative disclosures for capital structure, capital adequacy and risk exposure so market participants are able to undertake a meaningful comparison of DIs and their risk-based performance?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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FI's capital provides five main function...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

The capital conservation buffer is _ of risk-weighted assets, comprised of _ only:

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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