Explanation:
The primary purpose of calculating risk capital is to demonstrate the level of unexpected losses that the bank could absorb. Unexpected losses refer to the losses that exceed what is expected or predicted. These losses are not anticipated and hence, are not included in the regular loss provisions. The risk capital is essentially a buffer to protect the bank against these unexpected losses. It is calculated based on a level of confidence that aligns with the requirements of the bank.
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Q.2213 An Indian bank is in the process of calculating its risk capital. The main purpose of risk capital calculation is:
A
To show the level of expected losses that the bank could absorb.
B
To find differences between regulatory and risk capital.
C
To show the level of unexpected losses the bank could absorb.
D
All of the above.
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