Assets of Comet Bank have different levels of credit risk. They are classified into 4 categories (Category 1 - 4). Each risk category has a corresponding risk weight as shown below. Risk category 1 2 3 4 Risk weight 0% 20% 50% 100% Key items in the bank's balance sheet and the applicable risk category of each asset are summarised below (all numbers are in millions of dollars). Assets Liabilities and Equity Type Smillion Risk Туре $million Category Cash Inter-bank deposits 70 550 50 1 Deposit 2 Subordinated debt 398 20 Corporate loans to BB- 190 4 rated borrowers Preferred stock (qualifying for Additional Tier 1 Capital) Residential mortgages 150 3 Reserve for Loan Loss (25) Common stock 7 The bank also has the following off-balance-sheet assets: $70 million in performance bonds issued to public corporations $300 million in 10-year FX forward contracts with a replacement cost of negative $12 million. $120 million in FX futures contracts traded through the Australian Securities Exchange. The conversion factor for performance bonds is 50% and for the forward contracts is 7.5%. The risk weight of a public corporations is 100%. Based on Basel III, what is the Total capital ratio of this bank? a. 10.996% O b. None of the options. O c. 17.945% O d. 5.052% O e. 18.425% Clear my choice
Assets of Comet Bank have different levels of credit risk. They are classified into 4 categories (Category 1 - 4). Each risk category has a corresponding risk weight as shown below. Risk category 1 2 3 4 Risk weight 0% 20% 50% 100% Key items in the bank's balance sheet and the applicable risk category of each asset are summarised below (all numbers are in millions of dollars). Assets Liabilities and Equity Type Smillion Risk Туре $million Category Cash Inter-bank deposits 70 550 50 1 Deposit 2 Subordinated debt 398 20 Corporate loans to BB- 190 4 rated borrowers Preferred stock (qualifying for Additional Tier 1 Capital) Residential mortgages 150 3 Reserve for Loan Loss (25) Common stock 7 The bank also has the following off-balance-sheet assets: $70 million in performance bonds issued to public corporations $300 million in 10-year FX forward contracts with a replacement cost of negative $12 million. $120 million in FX futures contracts traded through the Australian Securities Exchange. The conversion factor for performance bonds is 50% and for the forward contracts is 7.5%. The risk weight of a public corporations is 100%. Based on Basel III, what is the Total capital ratio of this bank? a. 10.996% O b. None of the options. O c. 17.945% O d. 5.052% O e. 18.425% Clear my choice
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Assets of Comet Bank have different levels of credit risk. They are classified into 4 categories (Category 1 - 4). Each
risk category has a corresponding risk weight as shown below.
Risk category
1
2
3
4
Risk weight
0%
20%
50%
100%
Key items in the bank's balance sheet and the applicable risk category of each asset are summarised below (all
numbers are in millions of dollars).
Assets
Liabilities and Equity
Type
Smillion Risk
Туре
$million
Category
Cash
Inter-bank deposits
70
550
50
1
Deposit
2
Subordinated debt
398
20
Corporate loans to BB-
190
4
rated borrowers
Preferred stock (qualifying
for Additional Tier 1 Capital)
Residential mortgages 150
3
Reserve for Loan Loss
(25)
Common stock
7
The bank also has the following off-balance-sheet assets:
$70 million in performance bonds issued to public corporations
$300 million in 10-year FX forward contracts with a replacement cost of negative $12 million.
$120 million in FX futures contracts traded through the Australian Securities Exchange.
The conversion factor for performance bonds is 50% and for the forward contracts is 7.5%. The risk weight of
a public corporations is 100%.
Based on Basel III, what is the Total capital ratio of this bank?
a. 10.996%
O b. None of the options.
O c. 17.945%
O d. 5.052%
O e. 18.425%
Clear my choice
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