Which of the Following Statements Regarding Capital Adequacy Requirements Is

question 26

Multiple Choice

Which of the following statements regarding capital adequacy requirements is incorrect?

• A) Existing credit-risk guidelines are extended to include market risk arising from a bank's trading activities.
• B) Regulators focus on credit risk, market risks, operational risk and type of capital held.
• C) Eligible Tier 1 capital must constitute at least 70% of a bank's capital base.
• D) Tier 2 capital is divided into upper and lower Tier 2 parts.

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Definitions:

Forward Contract

A bespoke arrangement between two parties for acquiring or disposing of an asset at a designated price on an upcoming date.

Hedge

An investment made to reduce the risk of adverse price movements in an asset.

Speculative Forward Contract

A financial derivative used to speculate on the future price of an asset, involving an agreement to buy or sell the asset at a future date for a price determined today.

Fair Value Hedge

A risk management technique that uses financial instruments to mitigate the risk associated with changes in the fair value of an asset or liability.