BUISENESS MANAGEMENT
RISK MANAGEMENT
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
Probability of Default
|
|
|
Exposure at Default (EAD) &Loss Given Default(LGD)
|
|
|
Maturity
|
|
|
All the above
|
Detailed explanation-1: -The internal ratings-based approach to credit risk allows banks to model their own inputs for calculating risk-weighted assets from credit exposures to retail, corporate, financial institution and sovereign borrowers, subject to supervisory approval.
Detailed explanation-2: -This is known as the internal ratings-based (IRB) approach to capital requirements for credit risk. Only banks meeting certain minimum conditions, disclosure requirements and approval from their national supervisor are allowed to use this approach in estimating capital for various exposures.
Detailed explanation-3: -Operational risk capital requirements (ORC) are calculated by multiplying the BIC and the ILM, as shown in the formula below. Risk-weighted assets (RWA) for operational risk are equal to 12.5 times ORC.
Detailed explanation-4: -The capital charge is usually articulated as a capital adequacy ratio (CAR) of equity that must be held as a percentage of risk-weighted assets. The banking regulator of a country tracks a bank’s CAR to ensure that the bank can absorb a reasonable amount of loss and complies with statutory Capital requirements.