Cornbelt Bank's trading portfolio has the following equity positions: long 1,250 shares of Rio Tinto, a London mining and basic materials company, at a price of $40.00; long 2,500 shares of Intel at a price of $32.50; long 3,500 shares of Exxon/Mobile at a price of $65.00; short 1,000 shares of Credit Suisse at a price of $35.75; and short of 500 shares of Intel.What is the amount of capital that Cornbelt is required to keep against this portfolio according to the Basel Standardized approach?

Question

Quizplus · Accepted Answer

The Basel Standardized approach requires banks to hold capital against market risk in their trading portfolios. The calculation involves determining the market value of the positions and applying risk weights based on the type of asset. For equities, a typical risk weight is 8%. The calculation for each position would be: (number of shares * price per share) * 8% for long positions, and the same calculation for short positions but subtracting from the total because they represent potential liabilities rather than assets. The correct calculation involves summing these values for all positions to find the total capital requirement.

Cornbelt Bank's Trading Portfolio Has the Following Equity Positions: Long