Module: | Priority Sector, Consumer Protection & Digital Lending
Q68: When valuing Gold for the purpose of Statutory Liquidity Ratio (SLR) compliance, which pricing methodology must banks strictly follow?
✅ Correct Answer: C
The correct answer is C. For the purpose of SLR compliance, gold must be valued at a price "not exceeding the current market price." This regulatory requirement strictly enforces the fundamental accounting principle of Prudence (or Conservatism). It mandates the "Lower of Cost or Market Value" methodology.
If the market price of gold falls below its acquisition cost, the bank must mark it down to reflect the true, lower liquid value.
Conversely, if the market price rises significantly, the bank cannot mark up the value to artificially inflate its SLR portfolio with unrealized gains.
This ensures that the bank's solvency buffer is never overstated, protecting depositors during a crisis.
If the market price of gold falls below its acquisition cost, the bank must mark it down to reflect the true, lower liquid value.
Conversely, if the market price rises significantly, the bank cannot mark up the value to artificially inflate its SLR portfolio with unrealized gains.
This ensures that the bank's solvency buffer is never overstated, protecting depositors during a crisis.