CMA Final · Risk Management in Banking and Insurance · Sovereign Risk and Insolvency Risk
A bank has a sovereign exposure of ₹400 crore to a foreign government. The country risk provisioning policy of the bank assigns a 5% provision to the 'moderate risk' category. If the exposure is classified as moderate risk, the country risk provision required is:
The provision is 5% of the ₹400 crore exposure, which equals ₹20 crore. The percentage for the moderate risk category is applied directly to the full exposure amount, so the required country risk provision is ₹20 crore.
- A₹2 crore
- B₹20 croreCorrect
- C₹40 crore
- D₹5 crore
Explanation
Provision = 5% x ₹400 crore = ₹20 crore. Dividing by 100 twice gives ₹2 crore which is a decimal-place error; ₹40 crore would use 10%.
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