FRM Part I · FRM Exam Part I · Banks
A bank has a corporate loan exposure of $200 million with a risk weight of 100% and a mortgage exposure of $300 million with a risk weight of 35%. Under a minimum total capital requirement of 8% of RWA, how much capital must it hold against these two exposures?
Risk-weighted assets equal 200 million at 100% plus 300 million at 35%, which is 305 million. Multiplying by the 8% minimum gives required capital of $24.4 million. Using unweighted exposures would overstate it at $40 million.
- A$40.0 million
- B$24.4 millionCorrect
- C$16.0 million
- D$8.4 million
Explanation
RWA = 200×1.00 + 300×0.35 = 200 + 105 = 305. Capital = 8% × 305 = $24.4 million. $40.0 million applies 8% to nothing weighted incorrectly (500×8%); $16.0 million ignores the mortgage.
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