FRM Part II · FRM Exam Part II · Credit Risk
A bank has a corporate loan with exposure at default of 10 million, a risk weight of 100% under the standardized approach, and applies the Basel minimum total capital ratio of 8%. What is the minimum regulatory capital for this loan?
Minimum capital is 0.8 million. Risk-weighted assets equal 10 million times 100%, which is 10 million, and multiplying by the 8% minimum capital ratio gives 0.8 million.
- A0.8 millionCorrect
- B0.1 million
- C1.0 million
- D8.0 million
Explanation
RWA = 10m x 100% = 10m. Capital = 8% x 10m = 0.8m. The 1.0m option wrongly uses 10%, and 0.1m wrongly uses 1%.
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