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Answer: USD 4,557 million
The correct capital requirement for general market risk for the bank under Basel II.5 is calculated using the formula provided in the explanation. The formula is: \[ \text{Market Risk Capital} = \max(\text{VaR}_{t-1}, m \times \text{VaR}_{60\text{-day Avg}}) + \max(\text{sVaR}_{t-1}, ms \times \text{sVaR}_{60\text{-day Avg}}) \] Where: - \( \text{VaR}_{t-1} \) is the latest available 10-day VaR at a 99.0% confidence level. - \( \text{VaR}_{60\text{-day Avg}} \) is the average 10-day VaR of the previous 60 days at a 99.0% confidence level. - \( m \) is the multiplication factor for VaR. - \( \text{sVaR}_{t-1} \) is the latest available 10-day stressed VaR at a 99.0% confidence level. - \( \text{sVaR}_{60\text{-day Avg}} \) is the average 10-day stressed VaR of the previous 60 days at a 99.0% confidence level. - \( ms \) is the multiplication factor for stressed VaR. Given the multiplication factors \( m = 3 \) and \( ms = 3 \), and the values from the file content: - \( \text{VaR}_{t-1} = 451 \) million USD - \( \text{VaR}_{60\text{-day Avg}} = 413 \) million USD - \( \text{sVaR}_{t-1} = 995 \) million USD - \( \text{sVaR}_{60\text{-day Avg}} = 1,106 \) million USD The calculation is as follows: - For VaR: \( \max(451, 3 \times 413) = \max(451, 1239) = 1239 \) million USD - For stressed VaR: \( \max(995, 3 \times 1106) = \max(995, 3318) = 3318 \) million USD Adding both results gives the total market risk capital requirement: \[ 1239 \text{ million USD} + 3318 \text{ million USD} = 4557 \text{ million USD} \] Therefore, the correct answer is C. USD 4,557 million.
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Under the Basel II.5 regulatory framework, banks are required to assess market risk using Value at Risk (VaR) and stressed VaR. This evaluation includes a component that considers stress scenarios over a distressed period. In this context, supervisory authorities assign multiplication factors of 3 to both VaR and stressed VaR to determine the capital requirements for market risk.
The following table gives the risk measures for the current trading book positions of a bank (values in USD million):
| Confidence Level | Latest 10-day VaR | Average 10-day VaR (previous 60 days) | Latest 10-day Stressed VaR | Average 10-day Stressed VaR (previous 60 days) |
|---|---|---|---|---|
| 95.0% | 238 | 252 | 484 | 546 |
| 99.0% | 451 | 413 | 995 | 1,106 |
| 99.9% | 578 | 528 | 1,281 | 1,372 |
Calculate the accurate capital requirement for general market risk for the bank using these risk measures and the given supervisory multiplication factors.
A
USD 1,248 million
B
USD 1,533 million
C
USD 4,557 million
D
USD 4,799 million