1. Using the formula parameters (as appropriate) E* = max {0, [E x (1 + He) – C x (1 – Hc – Hfx)]}

Calculate the RWA for both the cases from the data given below ? Where

• E* = Exposure Value after Risk Mitigation
• E = Current Value of the Exposure
• C = The current value of the collateral received (Financial Collateral)
• Hc = Volatility haircut appropriate to the collateral
• Hfx = Forex haircut appropriate for currency mismatch.
• RWA is calculated as RW ( of the Asset Class) x E*

Exposure	Case 1	Case 2
Amount	100	100
Base Maturity	2	3
Collateral maturity	2	3
Currency	INR	INR
Rating	BB	A
Haircut for Exposure	0.15	0.06
Instrument	Sovereign	Bank Bonds
Instrument rating	A	Unrated
Haircut for collateral	0.03	0.06
Exposure after haircut	115	106
Collateral after haircut	?	?
Net Exposure	?	?
Risk weight	150	50
Risk Weighted Asset	?	?

Answer rating: 100% (QA)

E max 0 E x 1 He C x 1 Hc Hfx For case 1 E max 0 100 x 1 015 C x 1 003 006 E max 0 115 C x 091 ... View the full answer