1.Tier 3 capital can be used to satisfy capital requirements resulting from:
　　A. Market-risk charges only.
　　B. Credit-risk charges only.
　　C. Market-risk and credit-risk charges.
　　D. Only certain types of credit-risk charges.
　　2.Risk measurement procedures under the Basel II Accord take on an "evolutionary aspect" in that:
　　A. Enhanced supervisory control will lead to more consistent risk assessment and more cornparable bank risk profiles.
　　B. Stricter adherence to standardized risk assessment procedures will allow banks more flexibility to take on non-traditional risks.
　　C. Banks should be able to use their own internal risk assessrnents to improve accuracy in assessing their risk exposure.
　　D. Less conservative risk measures such as downturn loss given default (LGD) wi11 allow banks to take on more risky strategies.
　　3.Ondine Financial Inc. (Ondine) uses a variety oftechniques to manage counterparty risk. It has entered into an interest rate swap with Scarbo Inc.(Scarbo). Currently, Ondine's position in the swap has a -$1 million mark-to-market value. Based on the information provided, which ofthe following credit risk mitigation techniques would be O1ost advantageous to Ondine if Scarbo defaults?
　　A. Close-out.
　　B. Collateralization.
　　C. Netting.
　　D. Walkaway
　　Answer:
　　1.A
　　Tier 3 capital can only be used to satisfy capital requirements resulting from market-risk charges and cannot be applied to credit-risk charges.
　　2.C
　　The evolutionary aspect of PilIar I arises from the desired goal of having banks move away from standardized risk measurement approaches to foundation IRB approaches, and ultimately on to advanced IRB approaches. Under the advanced IRB approach, banks will use intemal risk assessment models to keep pace with changes in the marketplace. Enhanced supervisory controls or stricter adherence to standardized risk assessment would be counter to this goal. Note that downtum LGD is a more conservative risk measure.
　　3.D
　　Since Ondine currently has a negative mark-to-market value and the counterparty is defaulting,Ondine is able to cancel the sansaction while it is "losing". Netting and close-out would require Ondine to make a payment since it would owe a net amount of $1 miIlion. Collateralization is not relevant in this scenario.