[2008]Topic 52: Credit Risk Management and Strategic Capital Allocation 相关习 allocation, following, strategic, industry, business

qingshu

 

AIM 1: Define strategic capital allocation.

1、Which of the following is NOT a consideration in the strategic capital allocation process?

A) The firm’s strategic opportunities in its industry.

B) The risks of a business unit.

C) The risk embedded in the balance sheet of the bank.

D) The growth rate of a business unit. 

qingshu

 

The correct answer is A

EVA is a top-down process, and the RAROC process is bottom-up. EVA uses market information, and RAROC relies more on accounting information.

qingshu

 

2、A problem with linking EVA and RAROC in the development of a dynamic capital allocation model is that:

A) a fixed hurdle rate will lead banks to adopt countercyclical behavior.

B) EVA and RAROC are both bottom-up approaches, which lowers diversification.

C) None of the above.

D) a fixed hurdle rate will lead banks to adopt procyclical behavior.

qingshu

 

The correct answer is D

EVA uses market information, and RAROC relies more on accounting information. This can produce problems such as procyclical behavior by banks if they measure RAROC with a fixed hurdle rate.

qingshu

 

The correct answer is D

EVA uses market information, and RAROC relies more on accounting information. This can produce problems such as procyclical behavior by banks if they measure RAROC with a fixed hurdle rate.

qingshu

 

The correct answer is A

The RAROC-based proportional scaling method uses a bottom-up process to calculate economic capital for homogeneous portfolios corresponding to the business units.

qingshu

 

AIM 4: Explain how liquidity and information affect strategic capital allocation.

The selling of liquid positions by banks is:

A) legal but not recommended.

B) legal and recommended.

C) illegal.

D) None of the above.

qingshu

 

The correct answer is B

Having only illiquid assets on the balance sheet allows the bank to focus on those types of assets

qingshu

 

AIM 5: Discuss the strengths and weaknesses of linking RAROC and EVA to develop a dynamic capital allocation model.

1、With respect to the development of a dynamic capital allocation model, which of the following is TRUE?

A) RAROC is a bottom-up approach, and EVA is a top-down approach.

B) RAROC is a top-down approach, and EVA is a bottom-up approach.

C) RAROC and EVA both use top-down approaches.

D) RAROC and EVA both use bottom-up approaches.

qingshu

 

The correct answer is B

The incremental capital allocation rule attempts to assess the economic capital required for a bank and then estimate what the economic capital that would be needed without one of the business units. The ratio of each business unit’s marginal capital divided by the aggregate marginal capital gives an estimate of the fraction of economic capital to assign to the business unit.