Explanation:
Minimum capital required = 0.08 × (0.80 × $24 million + 1.20 × $12 million + 0.70 × $18 million + 0.30 × $17 million + 0.10 × $3 million)
= 0.08 × $51.6 million
= $4.128 million.
According to the Basel II Accord, the bank is mandated to maintain a capital of at least 8% of total risk-weighted assets.
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Q.3240 Python Commercial Bank uses the standardized approach to arrive at an estimate of total risk-weighted credit risk exposure. An external credit rating agency assigned the following weights to the bank's risk exposures.
| Risk Exposure | Weight |
|---|---|
$24 million | 80% |
$12 million | 120% |
$18 million | 70% |
$17 million | 30% |
$3 million | 10% |
According to the Basel II Accord, as a rough approximation, the bank is mandated to maintain a minimum capital of:
A
$51.6 million.
B
$1.792 million.
C
$4.128 million.
D
$5.920 million.
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