Pre Exam CICC Day 8

Why is the Standardised Approach viewed as overly punitive in terms of capital allocation?

• It takes account of both the present and future value of asset classes.

• It does not take into account specific facility risk ratings or the security on a loan.

• It contains more risk components than the other approaches.

• It takes account of the future value of asset classes only.

Which of the following can be classified as a subordinated term debt?

• Limited life redeemable preference shares.

• Hybrid capital instruments.

• Loan-loss reserves.

• Long-term holdings of equity securities.

What is the advantage of calculating the minimum regulatory capital requirement?

• It allows the bank to accurately assess the net liquidation value of its total loan portfolio.

• It allows a bank to convert credit risk to a tangible capital figure to allow comparison either with other banks or on a deal basis.

• It allows the bank to accurately assess the value of its non-performing loans portfolio.

• It allows relationship managers to accurately assess their pipelines of new loans to support growing their portfolio.

If the minimum CAR requirement is 10% and the total capital is $5,000,000, what is the maximum allowed amount for risk-weighted assets?

• $15,000,000

• $25,500,000

• $50,000,000

• $18,000,000

What can you infer from loss-given default?

• The proportion of an asset that is lost when a borrower defaults.

• The number of years remaining until the contractual maturity on a facility.

• The amount to which a bank will be exposed at the time of a borrower default.

• The likelihood that the borrower will not meet its debt obligations, usually measured over a one year period.

Which statement correctly describes the risk profile of a bank's lending assets?

• All lending assets carry the same risk profile.

• All lending assets carry significant risk.

• Some lending assets carry higher risk than others.

• All lending assets carry moderate risk.

How are risk-weighted assets used in banks?

• They are used to calculate a bank's leverage position.

• They are used to calculate a bank's capital requirements.

• They are used to calculate a bank's security value.

• They are used to calculate a bank's portfolio value.

What is estimated using effective maturity?

• The number of years remaining until the effective maturity of an investment.

• The number of years remaining until the contractual maturity on a facility.

• The number of years remaining until the contractual maturity of an investment.

• The average life of a loan.

Given the values below, what is the capital adequacy ratio?

Tier 1 Capital = $500,000

Tier 2 Capital = $250,000

RWA = $4,000,000

• 18.75%

• 17.25%

• 15.75%

• 12.50%

Under Basel II, which three methods are allowed to be used in weighting the risk of lending assets?

• Standardised Approach, Basic Indicator Approach, and Internal Rating Approach.

• Non-Standardised Approach, Internal Rating-based Approach, and Advanced Measurement Approach.

• Basic Indicator Approach, Standardised Approach, and Advanced Measurement Approach.

• Standardised Approach, Internal Rating-based Approach, and Advanced Internal-based Approach.