FRM Part II · FRM Exam Part II · Risk Capital Attribution and Risk-Adjusted Performance Measurement
A bank has two business units. Stand-alone economic capital is 60 for Unit A and 40 for Unit B, and the diversified total bank capital is 80. The bank allocates diversification benefit pro rata to stand-alone capital. What capital is allocated to Unit A?
Unit A receives 48. Stand-alone capital totals 100 against diversified capital of 80, so each unit is scaled by 0.8. Unit A's 60 becomes 48, and Unit B's 40 becomes 32, which sums to the bank's total of 80.
- A36
- B48Correct
- C60
- D52
Explanation
Sum of stand-alone capital is 100 and diversified capital is 80, so the scaling factor is 0.8. Unit A gets 60 × 0.8 = 48 and Unit B gets 32, totaling 80. Using 60 ignores diversification; 36 applies the factor twice.
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