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Explanation:
RWA should be calculated as follows:
RWA = (notional amount × add-on factor + max (current value; 0)) × risk weighted factor
= (1b × 1.5% + 0) × 100% = EUR 15 million
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Q.2337 Calc Bank from Frankfurt, Germany, had to calculate its risk-weighted assets (RWA) under Basel I for its exposure in over-the-counter interest rate swap agreement. The data on the swap exposure is as follows:
Add-on factor: 1.5%
Notional amount: EUR 1 billion
Current value: EUR -2 million
Risk-weighted factor for counterparty: 100%
The RWA is equal to:
A
EUR 13 million
B
EUR 0
C
EUR 15 million
D
EUR 1 billion