Assume That the Maximum Loss as a Percentage of Capital $\times$

question 49

Multiple Choice

Assume that the maximum loss as a percentage of capital is 12 per cent of an FI's capital to a particular sector and that the amount lost per dollar of defaulted loans in this sector is 35 per cent. What is the concentration limit (round to two decimals) ?

• A) 12% \(\times\) (1/0.35) = 34.29%
• B) 35% \(\times\) (1/0.12) = 4.2%
• C) 12% / (1 + 0.35) = 8.89%
• D) 35% / (1 + 0.12) = 31.25%

---

Definitions:

Cash Flows

The total amount of money being transferred into and out of a business, especially affecting the liquidity level.

Free Cash Flow

Free cash flow is the amount of cash a company generates after accounting for capital expenditures, indicating the financial flexibility of the business.

Operating Activities

Operating activities relate to the core business functions of a company, including production, sales, and distribution, and their impact on the company's cash flow.

Capital Expenditures

Funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, or equipment.