Answer (D) is correct . Capital adequacy is a term normally used in connection with financial institutions. A bank must be able to pay those depositors that demand their money on a given day and still be able to make new loans. Capital adequacy can be discussed in terms of solvency (the ability to pay long-term obligations as they mature), liquidity (the ability to pay for day-to-day ongoing operations), reserves (the specific amount a bank must have on hand to pay depositors), or sufficient capital.
Answer (A) is incorrect because Cash flow at risk is a technique that employs the statistical phenomenon known as the normal distribution (bell curve). The potential cash inflow or outflow resulting from a given occurrence can be determined with statistical precision.
Answer (B) is incorrect because Earnings distributions (in total or on a per-share basis) are applications of statistical techniques. Just as in a value-at-risk plot, the potential returns are plotted on the x-axis and the probabilities on the y-axis.
Answer (C) is incorrect because Value at risk (VaR) is a technique that employs the statistical phenomenon known as the normal distribution (bell curve). The potential gain or loss resulting from a given occurrence can be determined with statistical precision.
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