Question

    Which of the following methods does Basel II provide

    for measuring credit risk capital charge?
    A VaR-based Approach Correct Answer Incorrect Answer
    B Market Value Adjustment (MVA) Correct Answer Incorrect Answer
    C Standardized Approach and Internal Ratings-Based (IRB) Approach Correct Answer Incorrect Answer
    D Stress Testing Approach Correct Answer Incorrect Answer
    E Counterparty Risk-Based Approach Correct Answer Incorrect Answer

    Solution

    Basel II introduced two main approaches to calculate the credit risk capital charge : the Standardized Approach , where banks use external ratings, and the Internal Ratings-Based (IRB) Approach , where banks use their internal credit ratings to determine capital charges based on the creditworthiness of their assets.

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