
Explanation:
Under the Basel I framework, total capital is defined as the sum of Tier 1 (core) capital and Tier 2 (supplementary) capital. Therefore, the expression Tier 1 capital + Tier 2 capital = Total capital is correct.
Because of this definition, the expression Tier 1 capital + Tier 2 capital > Total capital is mathematically incorrect.
Additionally, Basel I requires a minimum Tier 1 capital ratio of 4% of risk-weighted assets (RWA) and a minimum Total capital ratio of 8% of RWA. Therefore, the expressions Tier 1 capital > 4%(RWA) and Total capital > 8%(RWA) correctly represent the minimum capital adequacy requirements established by the Basel I accord.
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Q.4220 Based on the Basel I framework, which of the following expressions is incorrect?
A
Tier 1 capital > 4%(RWA)
B
Total capital > 8%(RWA)
C
Tier 1 capital + Tier 2 capital = Total capital
D
Tier 1 capital + Tier 2 capital > Total capital