- 05/27/2019 at 5:10 pm #1005536EduGorillaKeymasterSelect Question Language :
Direction: Read the following information carefully and answer the questions that follow.
In the process of financial intermediation, banks mobilize deposits and deploy them in loans and investments in tune with the Central Bank guidelines to create assets. Apart from assets in balance sheet, there are contractual obligations forming part of off-balance sheet items which also carry risk. But all types of loans and forms of investments does not carry same risk. They carry different risks and are prone to seek diversified mitigation techniques. Some are less risky while others are riskier. Therefore, it is very difficult to precisely identify types of risks and their weightage in the asset portfolio. Accordingly, Central Banks guide banks to assign risk weights to assets according to the risk that it perceives. Thus, assignment of risk weight is an effort to determine the riskiness of assets and take them into account in maintaining Capital Adequacy Ratio. Higher risk has higher weightage. Both on funded assets and non-funded, off-balance sheet exposures that carry different risk weights. In order to institutionalize process of assessment of risks and accordingly facilitating assigning of risk weights, banks should have an Internal Capital Adequacy Assessment Process (ICAAP) Policy to enable banks to maintain capital on the basis of Risk Weighted Assets (RWAs) and not on numerical value of assets in the balance sheet.
Considering the information given below :-
Which of the following is the Leverage Ratio?
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