Which of the Following Statements About Recently Adopted Guidelines Covering

question 19

Multiple Choice

Which of the following statements about recently adopted guidelines covering capital requirements for market risk that banks are required to perform is false?

• A) Banks use a risk measurement model based on a VaR approach.
• B) Banks estimate the sensitivity of portfolio components to small changes in prices.
• C) Banks must hold capital against risk of loss from changes in interest rates.
• D) Banks hold a fixed allocation of funds between various balance sheet assets and off-balance-sheet business.

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Definitions:

Fixed Costs

Rent, salaries, and insurance charges are examples of expenses that are unaffected by changes in production or sales volumes.

EBIT-EPS Analysis

A tool used to study the effect of financing alternatives on a company's earnings per share and taxes.

Leverage

The strategic use of financial instruments or borrowed capital, such as debt, to increase an investment's potential return.

Profitability

A measure of how efficient a company is at generating profits from its resources, often expressed in terms of margins or ratios.