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(i) Which of the following is the correct definition of Exposure at Default (EAD)?

It measures the remaining economic maturity of the exposure. It is the estimated amount outstanding in a loan commitment if default occurs. It measures the proportion of the exposure that will be lost if default occurs. It measures the likelihood that the borrower will default over a given time horizon.

(ii) What is the range of Counter Cyclical Buffer as per BASEL-III framework?

0% - 1% 0% - 1.5% 0% - 2% 0% - 2.5%

(iii) The risk that arises from the possibility of non-payment of loans by the borrowers is known as:

Credit Risk Market Risk Moral Hazard Liquidity Risk

(iv) The risk that arises due to worsening of credit quality is:

Intrinsic Risk Credit Spread Risk Portfolio Risk Counterparty Risk

(v) In which policy, the insurer agrees to pay the assured or his nominees a specified sum of money on his death or on the maturity of the policy, whichever is earlier?

Money Back Plan Endowment Plan Annuity Policy Unit-linked Insurance Plan

(vi) The risk which arises because of change in major economic, social, cultural and political factors is:

Particular Risk Fundamental Risk Speculative Risk Dynamic Risk

(vii) When the amount for which a subject matter is insured is more than its actual value, it is called:

Premium Cover note Reinsurance Double Insurance

(viii) is a voluntary termination of the contract by the policy holders:

Surrender Report Prospectus Claim

(ix) Which of the following method reduces the chance of loss to zero?

Risk Transfer Risk Avoidance Risk Retention Risk Reduction

(x) The insurance company that is formed with four subsidiary companies:

Life Insurance Corporation of India ICICI Prudential Life Insurance Company General Insurance Corporation of India Bajaj Allianz General Insurance Company

Based on the following case study, you are required to answer the question

Description Value

(I) Tier-I Capital 55

(II) Tier-II Capital 50

Total Capital Funds 105

Total Risk Weighted Assets (RWAs) 1140

(I) RWAs for Credit Risk 1000

(II) RWAs for Market Risk 140

Minimum required Capital Adequacy Ratio is 9%.
During the year, the Forex division of bank has lent 1 million euros to X and 5 million euros to Y. Over the next year, the Probability of Default (PD) for X is 0.2 and for Y is 0.3. The PD of joint default is 0.1. The loss given default is 40% for X and 60% for Y.
The bank has an exposure of ₹ 100 lakhs with one of its corporate customer Sun Star Ltd. which is backed by a lien on a fixed deposit of ₹ 30 lakhs. There is no maturity mismatch.
In this respective situation, choose the correct option from the four alternatives given:

Description	Value
(I) Tier-I Capital	55
(II) Tier-II Capital	50
Total Capital Funds	105
Total Risk Weighted Assets (RWAs)	1140
(I) RWAs for Credit Risk	1000
(II) RWAs for Market Risk	140

(xi) Total Capital Adequacy Ratio (CAR)—

4.39% 4.82% 9.21% 10.50%

(xii) Minimum capital required to support credit risk—

105 crores 102.60 crores 90 crores 15 crores

(xiii) Capital available to support Market Risk—

102.60 crores 90 crores 15 crores 12.60 crores

(xiv) The expected loss of default in one year for the bank—

Euro 0.08 million Euro 0.098 million Euro 0.90 million Euro 0.98 million

(xv) The net exposure qualifying for Capital Adequacy in the case of Sun Star Ltd.—

0 lakh 30 lakhs 70 lakhs 100 lakhs

June 24 RMBI Paper