Third Bank has the following balance sheet (in millions of dollars) with the risk weights in parentheses.

ASSET

cash (0%) $20

interbank deposit with aa rated banks (20%) $25

Standard residential mortgages non- insured with LVR of 85 % (50%) $70

Business loans to BB rated borrowers (100%) $70

Total $185

Liabilities a equity

Deposit $175

Subordinated debt (5 years) (Tier 2 capital) $3

Cumulative perference shares (Tier 1) $5

Common Equity (Tier 1) $ 2

Total $185

In addition, the bank has $30 million in performance-related standby letters of credit (SLCs), $40 million in two-year forward FX contracts that are currently in the money by $1 million, and $300 million in six-year interest rate swaps that are currently out of the money by $2 million.

1. What are the risk-adjusted on-balance-sheet assets of the bank as defined under the Basel Accord?

   	calculation	risk weighted value
   cash
   interbank deposits
   Mortgage loans
   Business loans
   Total risk-adjusted assets

b. Discuss briefly under which circumstances the two-year forward FX contracts and the interest rate swaps introduce an additional risk for the bank.

3. Presume that the off-balance sheet risk is evaluated at $19.25 million. What is the total amount of risk-adjusted on- and off-balance-sheet asset
4. Calculate the actual capital ratios of Third Bank and identify if it is sufficient to meet the regulatory capital requirements? If not, which type of capital does it need to raise in order to meet the requirement?