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A junior analyst at a bank is asked to provide suggestions on potential metrics the bank can use in its capital management program. The analyst prepares a presentation discussing the advantages and disadvantages of the RAROC metric. Which of the following statements is most appropriate for the analyst to include in the presentation?
A
RAROC will make it easier to compare the profitability of business divisions that require different levels of capital.
B
RAROC allows the firm to benchmark its performance against operating targets set by industry peers.
C
RAROC is an effective forward-looking tool to model potential extreme losses during stress scenarios.
D
An activity is adding value to the bank's shareholders if its cost of equity capital is higher than its RAROC.