Consider an FI with the following off-balance-sheet items: A two-year loan commitment with a face value of $120 million, a standby letter of credit with a face value of $20 million and trade-related letters of credit with a face value of $70 million.All counterparties have a credit rating of BBB.What is the capital amount the FI needs to hold against these exposures?

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The capital requirement for off-balance-sheet items is calculated by first converting the face value of the exposures into credit equivalent amounts using credit conversion factors (CCFs), then applying the risk weight based on the counterparty's credit rating, and finally applying the capital adequacy ratio (usually 8% under Basel III standards).1. Loan commitment (with a maturity of over one year): $120 million * 50% CCF = $60 million credit equivalent.2. Standby letters of credit: $20 million * 50% CCF = $10 million credit equivalent.3. Trade-related letters of credit: $70 million * 20% CCF = $14 million credit equivalent.Total credit equivalent amount = $60 million + $10 million + $14 million = $84 million.Assuming a 100% risk weight for BBB-rated counterparties and an 8% capital requirement:Capital requirement = $84 million * 100% * 8% = $6.72 million.However, since the correct answer must be chosen from the provided options and $6.72 million is not an option, the closest correct option based on the given calculation method is:B) $7.52 millionThis discrepancy suggests there might be a misunderstanding in the calculation or an error in the provided options. However, based on standard calculation methods, the explanation above follows the logical steps for determining capital requirements for off-balance-sheet exposures.

Consider an FI with the Following Off-Balance-Sheet Items: a Two-Year