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CAIIB-BFM-CASE STUDIES


Given that Tier I capital is Rs. 500 crores and Tier II capital Rs. 800 crores and further given that RWA for credit risk Rs. 5000 crores, capital charge for market risk and operational risk Rs. 200 crores and Rs. 100 respectively, answer the following questions if the regulatory CAR is 8%.

Based on the data given above, answer the following questions.

What are the total risk weighted assets?

a. Rs. 7250 crores
b. Rs. 8750 crores
c. Rs. 9000 crores
d. Rs. 7800 crores

Ans – b

RWA of mkt risk
=200/.08=2500

RWA ops risk
=100/.08=1250

Total RWA = RWA credit risk+ RWA mkt risk+ RWA ops risk
= 5000+2500+1250
= 8750
.............................................

What are the risk weighted assets for market risk?

a. Rs. 1000 crores
b. Rs. 1500 crores
c. Rs. 2000 crores
d. Rs. 2500 crores

Ans –d

200/.08
=2500
.............................................

What are the risk weighted assets for operational risk?

a. Rs 1000 Cr
b. Rs 2000 Cr
c. Rs 1250 Cr
d. Rs 2500 Cr

Ans – c

100/.08
= 1250 Ans
.............................................

What is the Tier-I CRAR?

a. 10.29 %
b. 11.42 %
c. 5.71%
d. 14.85 %

Ans - c

TIER-I CRAR=Eligible tier-1 capital/(Total RWAs)
= 500/8750
= 5.71%
.............................................

What is the total capital adequacy ratio?

0.1486
0.1111
0.1143
0.1282

Ans – c

Total CRAR = Eligible Total capital/(Total RWAs)
= 1000/8750
= 11.42 %

(Remember here tier-II capital does not exceed 100 % of tier-I capital. So, Tier-II of Rs. 500Crore is taken for calculation (500+500=1000).

.............................................

 

Mr. Raj purchases a call option for 500 shares of A with strike price of Rs. 140 having maturity after 03 months at a premium of Rs. 40. On maturity, shares of A were priced at Rs. 180. Taking interest cost @ 12% p.a. What is the profit/lost for the individual on the transaction?

Explanation.

This is call option, so it is assumed that,
He will purchase 500 shares of A at a price of 140
Total value of shares is = 70000

Then he will sell the total shares in the market at a price of 180.
500 × 180 = 90000
So profit of 20000 in the transaction.

But he has to pay the premium for call options.
Which is 40 × 500 = 20000

And the fund interest cost will be, 12% p.a. So for 03 months 12/4=3%)
= 20000 × 3/100 = 600

Total premium + premium cost
= 20000 + 600
= 20600

In total,
= 20000 - 20600
= - 600

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