Nienge Bank has the following balance sheet (in millions) with the risk weights in parentheses.AssetsCashOECD Interbank depositsK3Mortgage loansConsumer loansTotal Assets(0%) K20(20%) K25liabilities and EquityDepositsSubordinated debt (2.5 years)K175(50%) K70(100% K70K185Cumulative preferred stockEquityTotal Liabilities & EquityK5K2K185In addition, the bank has K30 million in performance-related standby letters of credit(SLCs), and K300 million in six-year interest rate swaps. Credit conversion factors follow:Performance-related standby LCs50%1-5 year foreign exchange contracts5%1-5 year interest rate swaps0.5%5-10 year interest rate swaps1.5%d.Discuss the major shortcomings of the Basle I accord. 3:22ullFinancial Risk Management ECF520 Assignment One (1)...[ECF 520-FINANCIALRISKMANAGEMENT]Que stion OneNienge Bank has the following balance sheet (in millions) with the risk weights in parentheses.Liabilities and EquityDepositsSubordinated debt (2.5 years)Assets(0%) K20OECD Interbank deposits (20%) K25CashK175K3Mortgage loansConsumer loans(50%) K70(100%) K70K185Cumulative pre ferred stockEquityTotal Liabilities & EquityK5K2Total AssetsK185In addition, the bank has K30 million in performance-related standby letters of credit(SLCS), and K300 million in six-year interest rate swaps. Credit conversion factors follow:Performance-related standby LCs1-5 year foreign exchange contracts1-5 year interest rate swaps5-10 year interest rate swaps50%5%0.5%1.5%Requireda. What are the risk-adjusted on-balance-sheet assets of the bank as de fined under theBasle Accord?b.What is the total capital required for both off- and on-balance-sheet assets?1c. Does the bank have enough capital to meet the Basle requirements? If not, whatminimum Tier 1 or total capital does it need to meet the requirement?d. Discuss the major shortcomings of the Basle I accord.Question TwoRisk in the widest sense is not new to business. All companies are exposed to traditional businessrisks: earnings go up and down as a result of such things as changes in the business environment,in the nature of competition, in production technologies, and in factors affecting suppliers. Theissue of risk has captured considerable attention from corporate management in recent years, asfinancial risk management has hecome a critical cornorate activity. Regulators have also

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FINANCIAL ACCOUNTING

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ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Nienge Bank has the following balance sheet (in millions) with the risk weights in parentheses.
Assets
Cash
OECD Interbank deposits
K3
Mortgage loans
Consumer loans
Total Assets
(0%) K20
(20%) K25
liabilities and Equity
Deposits
Subordinated debt (2.5 years)
K175
(50%) K70
(100% K70
K185
Cumulative preferred stock
Equity
Total Liabilities & Equity
K5
K2
K185
In addition, the bank has K30 million in performance-related standby letters of credit
(SLCs), and K300 million in six-year interest rate swaps. Credit conversion factors follow:
Performance-related standby LCs
50%
1-5 year foreign exchange contracts
5%
1-5 year interest rate swaps
0.5%
5-10 year interest rate swaps
1.5%
d.
Discuss the major shortcomings of the Basle I accord.

3:22
ull
Financial Risk Management ECF520 Assignment One (1)
...
[ECF 520-FINANCIALRISKMANAGEMENT]
Que stion One
Nienge Bank has the following balance sheet (in millions) with the risk weights in parentheses.
Liabilities and Equity
Deposits
Subordinated debt (2.5 years)
Assets
(0%) K20
OECD Interbank deposits (20%) K25
Cash
K175
K3
Mortgage loans
Consumer loans
(50%) K70
(100%) K70
K185
Cumulative pre ferred stock
Equity
Total Liabilities & Equity
K5
K2
Total Assets
K185
In addition, the bank has K30 million in performance-related standby letters of credit
(SLCS), and K300 million in six-year interest rate swaps. Credit conversion factors follow:
Performance-related standby LCs
1-5 year foreign exchange contracts
1-5 year interest rate swaps
5-10 year interest rate swaps
50%
5%
0.5%
1.5%
Required
a. What are the risk-adjusted on-balance-sheet assets of the bank as de fined under the
Basle Accord?
b.
What is the total capital required for both off- and on-balance-sheet assets?
1
c. Does the bank have enough capital to meet the Basle requirements? If not, what
minimum Tier 1 or total capital does it need to meet the requirement?
d. Discuss the major shortcomings of the Basle I accord.
Question Two
Risk in the widest sense is not new to business. All companies are exposed to traditional business
risks: earnings go up and down as a result of such things as changes in the business environment,
in the nature of competition, in production technologies, and in factors affecting suppliers. The
issue of risk has captured considerable attention from corporate management in recent years, as
financial risk management has hecome a critical cornorate activity. Regulators have also

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