Explanation:
Under the Standardized Approach (TSA) of Basel II, operational risk capital is calculated by calculating the sum of the capital charges across all business lines for each year, then taking the 3-year average.
Let's calculate the sum for each year:
$6(0.13) + 8(0.14) + 9(0.19) + 42(0.18) = 0.78 + 1.12 + 1.71 + 7.56 = 11.17$$18(0.13) + 10(0.14) + (-48)(0.19) + 25(0.18) = 2.34 + 1.40 - 9.12 + 4.50 = -0.88$$8(0.13) + 18(0.14) + 28(0.19) + 20(0.18) = 1.04 + 2.52 + 5.32 + 3.60 = 12.48$Note: According to the strict Basel II rules, if the aggregate capital charge for a given year is negative, it should be floored at 0, resulting in an average of . However, since 7.88 is not among the choices, the question calculates the average without flooring the negative year to zero:
Therefore, 7.59 is the intended answer.
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Q.37 A bank majors in four business lines whose corresponding multipliers and gross income (in millions) for three years are given in the table below:
| Business Line | Multiplier | Year 1 | Year 2 | Year 3 |
|---|---|---|---|---|
| Retail Banking | 13% | 6 | 18 | 8 |
| Asset Management | 14% | 8 | 10 | 18 |
| Trading and Sales | 19% | 9 | -48 | 28 |
| Corporate Finance | 18% | 42 | 25 | 20 |
Based on the Basel II accord, what is the value of the required capital for operational risk under standardized approach?
A
11.83
B
11.17
C
12.48
D
7.59