Financial Risk Manager Part 1
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Which of the following statements about economic capital and regulatory capital is incorrect?
A
Firm-wide economic capital is typically equal to the sum of the separately calculated capital amounts for credit risk, market risk, and operational risk.
B
An increase in the probability of default of a loan portfolio increases economic capital, while leaving regulatory capital unchanged.
C
Economic capital is the amount of capital a bank needs to cover its expected losses, while regulatory capital is the amount of capital a bank needs to cover its unexpected losses.
D
Firm-wide economic capital typically considers correlations between credit risk, market risk, and operational risk.