Which of the following statements is true?
A)Under BIS, the capital charge is calculated as DEAR multiplied by the square root of 10 multiplied by 3.
B)The idea of a minimum multiplication factor of 3 is to create a scheme that is 'incentive compatible'.
C)Regulators can punish FIs that underestimate their capital charges by raising the multiplication factor to as high as 5.
D)Under BIS, the capital charge is calculated as DEAR multiplied by the square root of 10 multiplied by 3 and the idea of a minimum multiplication factor of 3 is to create a scheme that is 'incentive compatible'.

Question

Quizplus · Accepted Answer

Option D is the only statement that is completely true. Option A is partially correct but misses out on the fact that the multiplication factor of 3 is also included, while option B is incorrect as it does not explain the incentive compatibility of the scheme. Option C is incorrect as regulators cannot arbitrarily increase the multiplication factor, and it is always calculated based on the standard formula.

Which of the Following Statements Is True