Explanation:
The RWA should be calculated as follows:
RWA = (notional amount × add-on factor + current value) × risk weighted factor
= (500m × 1% + 1) × 100% = EUR 6 million
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Q.2336 Arrenberg bank from Rotterdam, Netherlands, has to calculate its RWA under Basel I for its exposure in an over-the-counter FX swap agreement. The data on the swap exposure is as follows:
Add-on factor - 1%
Notional amount - EUR 500 million
Current value - EUR 1 million
Risk-weighted factor for counterparty - 100%
The RWA is equal to:
A
EUR 501 million
B
EUR 6 million
C
EUR 5.01 million
D
EUR 1 million
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