Which of the following about the ratios between various Tiers of capital is not a requirement of the Basel
Committee?

• A.Tier 2 capital cannot exceed 50% of the bank's total regulatory capital.
• B.Lower Tier 2 capital may only equal 50% of core capital.
• C.Innovative instruments in Tier 1 are limited to a maximum of 15% of Tier 1 capital.
• D.Upper Tier 2 capital may only equal 30% of core capital.

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According to Basel II what constitutes Tier 2 capital?

• A.Debt that is subordinate to equity.
• B.Equity capital and debt together.
• C.Debt that is not subordinated to equity and innovative capital products that would count as Tier 1 capital
  and excluding perpetual non-cumulative preference shares.
• D.Core capital excluding undisclosed reserves and general reserves that the bank may make against its
  expected loan losses.

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Which of the following statements about endogenous and external types of liquidity are accurate?
I. Endogenous liquidity is the liquidity inherent in the bank's assets themselves.
II. External liquidity is the liquidity provided by the bank's liquidity structure to fund its assets and maturing
liabilities.
III. External liquidity is the non-contractual and contingent capital supplied by investors to support the bank in
times of liquidity stress.
IV. Endogenous liquidity is the same as funding liquidity.

• A.II, III
• B.I, II
• C.I, II, IV
• D.I, III

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Which one of the following four formulas correctly identifies the expected loss for all credit instruments?

• A.Expected Loss = Probability of Default x Loss Given Default x Exposure at Default
• B.Expected Loss = Probability of Default x Loss Given Default + Exposure at Default
• C.Expected Loss = Probability of Default x Loss Given Default - Exposure at Default
• D.Expected Loss = Probability of Default x Loss Given Default / Exposure at Default

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For which one of the following four reasons do corporate customers use foreign exchange derivatives?
I. To lock in the current value of foreign-denominated receivables
II. To lock in the current value of foreign-denominated payables
III. To lock in the value of expected future foreign-denominated receivables
IV. To lock in the value of expected future foreign-denominated payables

• A.I, II, III, IV
• B.I and IV
• C.II
• D.II and III

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