Explanation:
Under the Basel II Standardized Approach, operational risk capital is calculated as the three-year average of the sum of the regulatory capital charges across all business lines. Within each year, negative gross income in any business line can offset positive gross income in other business lines. If the aggregate capital charge for a year is negative, it is bounded at zero.
Total capital charge = (0 + 7.0324 + 1.5041) / 3 = 8.5365 / 3 = 2.8455 million.
Option A is the correct answer.
Ultimate access to all questions.
No comments yet.
Q.40 Assume that the following information on revenue has been provided by Jacque’s & Josh Bank (in USD million). From the data, how much operational risk capital should be held by the bank under Basel II by applying the Standardized Approach? The multipliers for corporate finance and retail banking are 17.99% and 12.11%, respectively.
| Year one | Year two | Year three | |
|---|---|---|---|
| Corporate finance | 11.9 | 19.3 | 29.7 |
| Retail banking | –26.2 | 29.4 | –31.7 |
A
USD 2.845 million
B
USD 4.268 million
C
USD 3.527 million
D
USD 4.119 million