［2008］Topic 65: Risk Measurement, Risk Management and Capital Adequacy in F different, regulated, capital, across

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AIM 1: Describe the silo approach used to regulate capital requirements in different financial conglomerates, and critically assess its limitations.

 

1、The silo approach to capital regulation for financial conglomerates:

aggregates risk across diverse regulated subsidiaries.
sums the capital requirements across diverse regulated subsidiaries.
considers the capital requirements of non-licensed financial operations engaged in lending or leasing.
A) I and II only.
 
B) II only.
 
C) II and III only.
 
D) I, II, and III.

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The correct answer is B

The supervisory-based approach focuses on internal risk and capital management. The rules-based approach implements current standards for capital adequacy. The market-based approach provides greater transparency of risk and financial structure. The legal-based approach focuses on contagion risk.

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3、Which of the following policy recommendations for the implementation of the new Basel Accord required non-financial or unregulated divisions to be independently capitalized?

A) Market-based approach.
 
B) Legal-based approach.
 
C) Supervisory-based approach.
 
D) Rules-based approach.

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The correct answer is B

Legal-based approach may require a non-financial firm to be independently capitalized.

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8、Which of the following factors determine the benefits from risk aggregation at any level within a financial conglomerate?

Size of positions
Number of positions
Correlations among risk factors
A) II and III only.
 
B) I and III only.
 
C) I and II only.
 
D) I, II, and III.

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The correct answer is D

Low correlations, a large number of positions, and low weightings of individual portfolio positions combine to maximize the benefits of diversification.

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AIM 6: Discuss, in accordance with the New Basel Accord, the 3+1 pillars approach for capital regulation of financial conglomerates.

 

1、The proposed 3+1 framework for capital regulation of financial conglomerates proposes policy modifications to the new Basel Accord (Basel II) to better address the unique needs of conglomerates. The suggested modification that focuses on preventing the contagion risk of financial conglomerates is the:

A) legal-based approach.
 
B) supervisory-based approach.
 
C) market-based approach.
 
D) rules-based approach.

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The correct answer is A

The legal-based approach develops legal firewalls to prevent potential contagion risk from imploding the financial conglomerate.

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2、The policy recommendation that focuses on internal risk and capital management is the:

A) market-based approach.
 
B) supervisory-based approach. 
 
C) legal-based approach. 
 
D) rules-based approach. 

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6、Which of the following factors determines the diversification benefits of any specific level within a financial conglomerate?

A) Capital adequacy.
 
B) Number of risk factors.
 
C) Double leverage.
 
D) Market forces.