Basel Accords Quiz

What is a significant shortcoming of Basel II?

• It does not address credit risk.

• It lacks a framework for operational risk.

• It relies heavily on external credit ratings.

• It was never implemented globally.

What is one key difference between Basel I and Basel II in terms of risk weight for AAA to AA- credit ratings?

• Basel I assigns a 50% risk weight, while Basel II assigns a 100% risk weight.

• Basel I assigns a 100% risk weight, while Basel II assigns a 20% risk weight.

• Basel I assigns a 20% risk weight, while Basel II assigns a 50% risk weight.

• Both Basel I and Basel II assign a 100% risk weight.

What is one of the ramifications of addressing regulatory arbitrage in Basel I?

• Increase in market competition

• Removal of regulatory arbitrage

• Introduction of new financial products

• Decrease in financial transparency

What is the primary purpose of the Minimum Capital Requirement pillar in Basel II?

• To reduce the risk of insolvency

• To increase market competition

• To enhance customer satisfaction

• To promote international trade

Which pillar of Basel II provides a framework to deal with residual risks such as systemic and liquidity risks?

• Minimum capital requirement

• Supervisory review

• Market disclosure

• Risk management enhancement

What does MCR stand for in the context of capital requirements?

• Maximum Capital Requirement

• Minimum Capital Requirement

• Moderate Capital Requirement

• Mandatory Capital Requirement

Which approach is used for operational risk that involves a more advanced measurement?

• Standardised approach

• Foundation internal rating-based approach (IRB)

• Advanced Measurement Approach (AMA)

• Value at Risk (VaR)

What is one of the main principles behind the Internal Ratings Based approach?

• Use of external data for credit quality

• Use of a bank’s own information about credit quality of assets

• Promotion of outdated practices in risk management

• Increasing capital requirements for all banks

What does PD stand for in credit risk management?

• Probability of Default

• Potential Debt

• Payment Due

• Principal Deficit

For a £100 million in a risky portfolio, how much would the bank expect to see in defaults in a year?

• £1 million

• £250,000

• £100,000

• £500,000