nayizhenfeng

 

3、Which of the following securities is included in Tier 1 capital?

  I. Common equity.

 II. Subordinated debt.

III. Hybrid instruments.

IV. Cumulative perpetual preferred stock.

A) I and II only.   

B) I and IV only.  

C) I, II, III, and IV.   

D) I only. 

nayizhenfeng

 

The correct answer is D

 

Tier 1 capital, also called core capital, is composed of common equity, noncumulative perpetual preferred stock, and minority equity interest in consolidated subsidiaries, less goodwill and other deductions. Tier 2 capital, also called supplementary capital, is composed of hybrid instruments that are structured to be more or less permanent. These include cumulative perpetual shares and qualifying 99-year debt. Subordinated debt is a component of Tier 3 Capital.

nayizhenfeng

 

 4、Tier 3 capital is allowed by the Basel Accord to cover:

  I. legal risks.

 II. credit risks.

III. market risks.

IV. operational risks.

A) I, II, and IV.  

B) III only.  

C) II and III only. 

D) I and II only. 

nayizhenfeng

 

The correct answer is B

 

Tier 3 capital can be used to satisfy only market risks.

nayizhenfeng

 

5、Tier 1 and tier 2 capital requirements differ from tier 3 capital requirements in that tier 1 and tier 2 are associated with:

A) credit-risk charges.

B) exchange-risk charges.

C) interest-rate risk charges.  

D) market-risk charges.

nayizhenfeng

 

The correct answer is A

 

Tier 1 and tier 2 capital must first be applied to credit-risk charge amounts. Tier 1 and tier 2 capital can be used for market-risk charges only above those required by credit-risk charges. Tier 3 capital can only be used for market-risk charges.

nayizhenfeng

 

6、Tier 1 capital is composed of all of the following EXCEPT:

A) common equity.  

B) non-cumulative perpetual shares. 

C) minority equity interest.  

D) cumulative perpetual shares. 

nayizhenfeng

 

The correct answer is D

 

Cumulative perpetual shares is a component of tier 2 capital.

nayizhenfeng

 

AIM 3: Describe the Basel II Accord’s requirements for calculating risk-weights using both the standardized and the internal ratings-based approaches when accounting for credit risk.

1、Which of the following assets requires a 0 percent risk weighting according to the Basel Accord?

A) Cash receivables.  

B) Cash. 

C) Residential mortgages. 

D) Industrial real estate investments.

nayizhenfeng

 

The correct answer is B

 

Cash is the only asset that allows a zero percent risk weighting in the list.