Assume that the maximum loss as a percentage of capital is 12 per cent of an FI's capital to a particular sector. The FI's concentration limit on this sector 35 per cent. What is the sector's loss rate (round to two decimals)?

Question

Quizplus · Accepted Answer

To calculate the sector's loss rate, we need to use the concentration limit and the maximum loss as a percentage of capital.

Let X be the sector's loss rate.

We know that the maximum loss as a percentage of capital is 12%, which means:

0.12 x Capital = X x Exposure

We also know that the concentration limit is 35%, which means:

Exposure <= 0.35 x Capital

Combining both equations, we get:

0.12 x Capital <= X x 0.35 x Capital

0.12/0.35 <= X

X >= 0.3429

Rounding to two decimals, we get X = 34.29%.

Therefore, the best answer is C.

Assume That the Maximum Loss as a Percentage of Capital