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    Question

    Which of the following approach is not used for assessment of Operational Risk in Basel II? 

    i.              Internal Rating Based (IRB) Approach

    ii.             Basic Indicator Approach (BIA)

    iii.            Advanced Measurement Approach (AMA)

    iv             Value at Risk (VaR)

    A Only i Correct Answer Incorrect Answer
    B Only i and ii Correct Answer Incorrect Answer
    C Only ii and iv Correct Answer Incorrect Answer
    D Only i and iv Correct Answer Incorrect Answer
    E Only ii Correct Answer Incorrect Answer

    Solution

    The first pillar deals with maintenance of regulatory capital calculated for three major components of risk that a bank faces: credit risk, operational risk, and market risk.  •The credit risk component can be calculated in three different ways of varying degree of sophistication, namely standardized approach, Foundation IRB, Advanced IRB and General IB2 Restriction. IRB stands for "Internal Rating-Based Approach". •For operational risk, there are three different approaches – basic indicator approach or BIA, standardized approach or TSA, and the internal measurement approach (an advanced form of which is the advanced measurement approach or AMA). •For market risk the preferred approach is VaR (value at risk).

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