Suppose Comprehensive Approach and Substitution Approach are applicable to Bank of Kowloon. Determine (1) the risk-adjusted assets and (2) the capital required if the bank has to maintain a CAR of 10%.

Attempt all questions Question 1 (a) A corporate borrower of Bank of Kowloon has total outstanding loans of HK\$260million. The applicable adjustment to allow for a possible future increase in the exposure is +15%. The following are the details of the collateral and guarantee available: Assume the risk weight for this corporate borrower is 55%; risk weight applicable to guarantor is 30%; and applicable haircut ratios are as follows: Required: (i) Suppose Comprehensive Approach and Substitution Approach are applicable to Bank of Kowloon. Determine (1) the risk-adjusted assets and (2) the capital required if the bank has to maintain a CAR of 10%. (ii) Explain why "haircut" is required in Comprehensive Approach for standardised banks. Attempt all questions Question 1 (a) A corporate borrower of Bank of Kowloon has total outstanding loans of HK\$260million. The applicable adjustment to allow for a possible future increase in the exposure is +15%. The following are the details of the collateral and guarantee available: Assume the risk weight for this corporate borrower is 55%; risk weight applicable to guarantor is 30%; and applicable haircut ratios are as follows: Required: (i) Suppose Comprehensive Approach and Substitution Approach are applicable to Bank of Kowloon. Determine (1) the risk-adjusted assets and (2) the capital required if the bank has to maintain a CAR of 10%. (ii) Explain why "haircut" is required in Comprehensive Approach for standardised banks