Assume That the Maximum Loss as a Percentage of Capital

question 12

Multiple Choice

Assume that the maximum loss as a percentage of capital is 9% of an FI's capital to a particular sector and that the amount recovered per dollar of defaulted loans in this sector is 70%.What is the concentration limit (round to two decimals) ?

• A)9% * (1/0.7) = 12.86%
• B)9% * [1/(1-0.7)] = 30.00%
• C)70% / (1/0.09) = 6.30%
• D)(100% - 70%) / (1/0.09) = 2.70%

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Definitions:

Optimal Ratio

The most efficient or favorable balance or proportion among elements or variables in a given context or system.

Wage Rate

The amount of compensation paid for labor services per unit of time (e.g., hour, day, or month).

Rental Rate

The price paid for the temporary use of a good, service, or property expressed typically as a daily, monthly, or yearly rate.

Minimum Cost

The lowest possible expense incurred in the production of a good or the provision of a service.