nayizhenfeng

 

The correct answer is D

 

Tier 1 capital, also called core capital, is composed of common equity, noncumulative perpetual preferred stock, and minority equity interest in consolidated subsidiaries, less goodwill and other deductions. Tier 2 capital, also called supplementary capital, is composed of hybrid instruments that are structured to be more or less permanent. These include cumulative perpetual shares and qualifying 99-year debt. Subordinated debt is a component of Tier 3 Capital.

nayizhenfeng

 

 4、Tier 3 capital is allowed by the Basel Accord to cover:

  I. legal risks.

 II. credit risks.

III. market risks.

IV. operational risks.

A) I, II, and IV.  

B) III only.  

C) II and III only. 

D) I and II only. 

nayizhenfeng

 

The correct answer is B

 

Tier 3 capital can be used to satisfy only market risks.

nayizhenfeng

 

5、Tier 1 and tier 2 capital requirements differ from tier 3 capital requirements in that tier 1 and tier 2 are associated with:

A) credit-risk charges.

B) exchange-risk charges.

C) interest-rate risk charges.  

D) market-risk charges.

nayizhenfeng

 

The correct answer is A

 

Tier 1 and tier 2 capital must first be applied to credit-risk charge amounts. Tier 1 and tier 2 capital can be used for market-risk charges only above those required by credit-risk charges. Tier 3 capital can only be used for market-risk charges.

nayizhenfeng

 

2、The balance sheet for James Bankholdings as of December 31, 2004 included the following items ($000):

Preferred Stock (noncumulative)                                  $800,000 

CommonStock                                                $1,200,000 

RetainedEarnings                                              $3,000,000 

Unrealized gains on long term Equity holdings                       $750,000

Based only on this information, estimate the Tier 1 and Tier 2 capital of James Bankholdings as of 12/31/04 (use $000):

      Tier 1                                  Tier 2

A) $5,000,000                                 $750,000

B) $4,200,000                               $800,000

C) $4,200,000                              $1,550,000

D) $5,000,000                                  $0

nayizhenfeng

 

The correct answer is A

 

Tier 1 capital includes common stock, retained earnings and noncumulative preferred stock. Tier 2 capital would include the unrealized gains on long term investments.

nayizhenfeng

 

3、Which of the following securities is included in Tier 1 capital?

  I. Common equity.

 II. Subordinated debt.

III. Hybrid instruments.

IV. Cumulative perpetual preferred stock.

A) I and II only.   

B) I and IV only.  

C) I, II, III, and IV.   

D) I only. 

nayizhenfeng

 

The correct answer is A

 

All of the bank holding company’s related business operations should be consolidated, and the risk of those subsidiaries should be reflected in adjustments to capital requirements.

nayizhenfeng

 

AIM 2: Define the types of capital, and discuss how each type is used to meet capital requirements under Basel II.

1、Tier 3 capital can be used to satisfy capital requirements resulting from:

A) market-risk charges only. 

B) credit-risk charges only. 

C) market-risk and credit-risk charges. 

D) only certain types of credit-risk charges.