Using the formula parameters (as appropriate) E* = max {0, [E x (1 + He)...
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Finance
- 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 | ? | ? |
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