Q. 12 of 2012 GARP practice exam Part 2

Discussion in 'P2.T7. Basel II & Regulatory' started by crablegs, May 9, 2012.

  1. crablegs

    crablegs Member


    Was wondering if anyone already went through Q.#12 of the 2012 GARP practice exam (Part II)? When calculating total risk-weighted assets, why is the sum of CRm & CRo multiplied by a factor of 12.5?

    Thank you,
  2. sl

    sl Active Member

    It is done to make the MRC+ORC credit equivalent. When you multiply it by 8% to find the Total capital, it cancels out.
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  3. crablegs

    crablegs Member

    Makes sense! Thank you!
  4. David Harper CFA FRM

    David Harper CFA FRM David Harper CFA FRM (test) Staff Member

    exactly, to spell out laxmsun's reply: the total charge takes 8% of RWA, so it's taking 8%*[MRC*12.5] = (12.5%*8%) * MRC = 1.0* MRC; i.e., 12.5 is the reciprocal of 8%
  5. crablegs

    crablegs Member

    Thank you. And I actually now found this section in the readings. Must have skipped that part......
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