Question: Suppose that a bank s sole business is to lend in

Suppose that a bank’s sole business is to lend in two regions of the world. The lending in each region has the same characteristics as in Example 26.5 of Section 26.8. Lending to Region A is three times as great as lending to Region B. The correlation between loan losses in the two regions is 0.4. Estimate the total RAROC.

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