Module: | MODULE B: RISK MANAGEMENT
Q337: A bank's treasury department holds a long position in the equity shares of a major corporate entity in its trading book, with a current market value of ₹ 50 Crore. As per RBI's capital adequacy guidelines under the standardized approach, both specific risk and general market risk attract a capital charge of 9% each.
Calculate the total capital charge for market risk applicable for this equity position.
✅ Correct Answer: B
The correct answer is B (₹ 9.00 Crore). Under RBI's capital adequacy framework for market risk (standardized approach), equity positions in the trading book are subject to two separate capital charges.
The specific risk capital charge is 9%, and the general market risk capital charge is also 9%. Therefore, the total capital charge requirement for an equity position is 18% of the gross/net market value.
Given the market value of the equity position is ₹ 50 Crore, the total capital charge is calculated as: 18% of ₹ 50 Crore = ₹ 9.00 Crore.
Option A (₹ 4.50 Crore) incorrectly represents only one component (9%). Option C (₹ 18.00 Crore) is mathematically incorrect for a ₹ 50 Crore base.
Option D is an arbitrary distractor.
The specific risk capital charge is 9%, and the general market risk capital charge is also 9%. Therefore, the total capital charge requirement for an equity position is 18% of the gross/net market value.
Given the market value of the equity position is ₹ 50 Crore, the total capital charge is calculated as: 18% of ₹ 50 Crore = ₹ 9.00 Crore.
Option A (₹ 4.50 Crore) incorrectly represents only one component (9%). Option C (₹ 18.00 Crore) is mathematically incorrect for a ₹ 50 Crore base.
Option D is an arbitrary distractor.