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    Question

    What is the alpha factor set by Basel Committee relating

    to the industry wide level of required capital for operational risk, under the Basic Indicator Approach?
    A 10% Correct Answer Incorrect Answer
    B 15% Correct Answer Incorrect Answer
    C 20% Correct Answer Incorrect Answer
    D 25% Correct Answer Incorrect Answer
    E 30% Correct Answer Incorrect Answer

    Solution

    Basic Indicator approach (BIA): Banks using this approach, bank must hold capital for operational risk equal to the average over the previous three years of a fixed percentage of positive annual gross income. Formula:  KBIA= (Sigma (GI...n * alpha)/n ·         KBIA - capital charge under BIA, ·         GI annual gross income, ·         n - number of previous years ( Eg:3) ·         Alpha factor =15% is set by Basel Committee relating to the industry wide level of required capital

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