BFM B – Unit 27 – set 1 – Motivational Banker

1. Tier-II capital is restricted to __ of Tier-I capital.

125%

100%

50%

Question 1 of 26

2. How is any capital requirement arising out of credit and counterparty risk to be met?

By Tier I and Tier II capital

By Tier I capital only

By Tier II capital only

By Tier III capital alone

Question 2 of 26

3. What is the recommended principle for ICAAP formulation?

ICAAP should follow a bottoms up approach

ICAAP should never be discussed with or disclosed to public

ICAAP should encompass firm-wide risk profile

ICAAP should be monitored and managed in silos

Question 3 of 26

4. What is the scope of disclosures under Pillar III?

Disclosures must be granular and must be made at unit level

Pillar 3 applies at the top on consolidated level of the banking group to which the capital adequacy Framework applies

Individual units should declare and no consolidation required

Disclosure is meant for entities identified by market or Regulator

Question 4 of 26

5. Disclosure of capital requirements for credit risk falls under which category?

Qualitative disclosures

Analytical disclosures

Principal disclosures

Quantitative disclosures

Question 5 of 26

6. What was the purpose of the Basel-I accord?

To establish global standards for bank mergers

To provide guidelines for bank capital requirements

To regulate interest rates for bank loans

To mandate the use of electronic banking systems

Question 6 of 26

7. When was the revision exercise for the Basel accord initiated?

1988

1999

2004

2006

Question 7 of 26

8. What are the three pillars of the Basel-II accord?

Minimum capital requirement, supervisory review process, and market segmentation

Maximum loan limits, capital allocation, and risk management

Minimum capital requirement, capital adequacy ratio, and risk management

Minimum capital requirement, supervisory review process, and market discipline

Question 8 of 26

9. How is the capital adequacy ratio calculated?

Total assets divided by regulatory capital

Regulatory capital divided by total risk weighted assets

Total risk weighted assets divided by regulatory capital

Total risk weighted assets divided by total assets

Question 9 of 26

10. What is the purpose of the supervisory review process?

To enforce compliance with tax regulations

To ensure integrity of risk management processes

To determine interest rates for bank loans

To facilitate bank mergers and acquisitions

Question 10 of 26

11. What are the options available for computing capital requirement for credit risk under Pillar 1 of the Revised Basel Framework?

Basic Indicator Approach, Standardised Approach, and Advanced Measurement Approach

Standardised Approach, Advanced Internal Rating Based Approach, and Advanced Measurement Approach

Standardised Approach, Foundation Internal Rating Based Approach, and Advanced Internal Rating Based Approach

Standardised Approach, Standardised Method, and Standardised Risk Approach

Question 11 of 26

12. What is the objective of Pillar 2, also known as the Supervisory Review Process (SR), under the Revised Basel Framework?

To ensure that banks have adequate capital to support all their risks

To enforce regulatory compliance on bank mergers and acquisitions

To mandate the use of standardized risk assessment models

To encourage market discipline by developing disclosure requirements

Question 12 of 26

13. What is the purpose of Pillar 3, Market Discipline, in the Revised Basel Framework?

To establish minimum capital requirements for banks

To supervise and review banks' capital adequacy

To complement minimum capital requirements and the supervisory review process

To regulate interest rates for bank loans

Question 13 of 26

14. What comprises Tier-I or core capital according to the Basel norms?

Subordinated debt of more than five years maturity, loan loss reserves, revaluation reserves

Paid-up capital, free reserves, unallocated surpluses

Investment fluctuation reserves, limited life preference shares

Market risk reserves, operational risk reserves

Question 14 of 26

15. What has happened to Tier-III capital according to the Basel III guidelines?

It has been expanded to include more types of reserves

It has been completely phased out

It has been merged with Tier-II capital

It has been classified as core capital

Question 15 of 26

16. What is the total minimum capital ratio required according to the Basel norms?

10%

12%

Question 16 of 26

17. What is the scope of risk-weighted assets expanded to include in the Basel III guidelines?

Only credit risk

Market risk and operational risk

Only operational risk

Credit risk and market risk

Question 17 of 26

18. According to Basel III, what are the incentives for banks with better risk management capabilities?

Higher capital requirements

Lower capital requirements

No change in capital requirements

Exemption from capital requirements

Question 18 of 26

19. What is the primary focus of Pillar 2 in the Basel Capital Adequacy Framework?

Minimum capital requirements

Market discipline

Supervisory review process

Risk sensitivity calculation

Question 19 of 26

20. According to Principle 1 of the SRP(Supervisory Review Process), what should banks have in place?

A process for assessing their overall capital adequacy

A strategy for maintaining their capital levels

Both a and b

None of the above

Question 20 of 26

21. What is the responsibility of supervisors according to Principle 4 of the SRP (Supervisory Review Process)?

To review and evaluate a bank's ICAAP (Internal Capital Adequacy Assessment Process)

To seek to intervene at an early stage to prevent capital from falling below the minimum levels

To take appropriate action if they are not satisfied with the results of the ICAAP

All of the above

Question 21 of 26

22. What does the ICAAP (Internal Capital Adequacy Assessment Process )of banks comprise?

Procedures and measures designed to ensure appropriate identification and measurement of risks

Application and further development of suitable risk management systems

Both a and b

None of the above

Question 22 of 26

23. What does the Supervisory Review Process (SRP) consist of?

Review and evaluation of the bank's ICAAP

Independent assessment of the bank's risk profile

Taking appropriate prudential measures and other supervisory actions

All of the above

Question 23 of 26

24. What is the primary purpose of the description of the bank's risk appetite in quantitative terms?

To meet minimum regulatory needs

To define the bank's business plans

To determine the amount of capital required

All of the above

Question 24 of 26

25. What information should be clearly spelled out in the document regarding capital requirements?

Bank's view of the amount of capital required

Regulatory requirements only

Business plans without considering regulatory needs

Internal policies unrelated to capital adequacy

Question 25 of 26

26. What is the primary purpose of banks' disclosures to the market under Pillar 1 of Basel Norms?

To meet regulatory requirements only

To exercise control over market operations

To ensure market participants have critical information about the bank

To influence market trends

Question 26 of 26

BFM B – Unit 27 – set 1

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