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QUESTION

Compare the required credit risk capital under Basel I and Basel II for the following set of arrangements.

Compare the required credit risk capital under Basel I and Basel II for the following set of arrangements.

(a) A 2 year interest rate swap with a principal of $100 million traded with an AA rated company, currently worth 2.5 million

(b) $30 million 3 year Treasury bond with a BBB rated OECD sovereign

(c) $20 million claims secured by residential mortgages

(d) A six month corporate loan of $ 25million to an A+ rated company

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