Star Bank has estimated that its average VAR over the last 60 days was £35.5 million. The DEAR of the previous day was £30.2 million. Under the latest BIS standards. a) Determine the amount of capital to be held for market risk. b) The bank has £15 million of Tier 1 capital, £37.5 million of Tier 2 capital and £54 million of Tier 3 capital. Is the capital sufficient? If not, what minimum amount and type of new capital should be raised? (Note that capital can be raised from any type subject to Tier 3 capital is limited to 250% of Tier 1 and Tier 2 can be substituted for Tier 3 up to the same 250% limit.)
Star Bank has estimated that its average VAR over the last 60 days was £35.5 million. The DEAR of the previous day was £30.2 million. Under the latest BIS standards. a) Determine the amount of capital to be held for market risk. b) The bank has £15 million of Tier 1 capital, £37.5 million of Tier 2 capital and £54 million of Tier 3 capital. Is the capital sufficient? If not, what minimum amount and type of new capital should be raised? (Note that capital can be raised from any type subject to Tier 3 capital is limited to 250% of Tier 1 and Tier 2 can be substituted for Tier 3 up to the same 250% limit.)
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:Star Bank has estimated that its average VAR over the last 60 days was £35.5
million. The DEAR of the previous day was £30.2 million. Under the latest BIS
standards.
a) Determine the amount of capital to be held for market risk.
b)
The bank has £15 million of Tier 1 capital, £37.5 million of Tier 2 capital and
£54 million of Tier 3 capital. Is the capital sufficient? If not, what minimum
amount and type of new capital should be raised? (Note that capital can be
raised from any type subject to Tier 3 capital is limited to 250% of Tier 1 and
Tier 2 can be substituted for Tier 3 up to the same 250% limit.)
Solution
a) £106.5m
b) £4.71m
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