Module: | MODULE B: RISK MANAGEMENT
Q309: Calculate the adjusted exposure amount under the Comprehensive Approach for Credit Risk Mitigation (CRM), given the following data:
Current Exposure = ₹ 100
Haircut on Exposure = 10%
Value of Collateral = ₹ 80
Haircut on Collateral = 5%
Haircut for Foreign Exchange mismatch = 0%
Haircut on Exposure = 10%
Value of Collateral = ₹ 80
Haircut on Collateral = 5%
Haircut for Foreign Exchange mismatch = 0%
✅ Correct Answer: B
The correct answer is B (₹ 34). Under the Comprehensive Approach for Credit Risk Mitigation (CRM), banks must apply supervisory haircuts to both the exposure and the collateral to account for future market volatility.
The formula for adjusted exposure ($E^*$) is: $E^* = max(0, [E \times (1 + H_e)
The formula for adjusted exposure ($E^*$) is: $E^* = max(0, [E \times (1 + H_e)