Bank for International Settlements (BIS) has a list of ten recommendations that supervisors should consider to make effective use of risk measures not designed for regulatory purposes. Which of the following statements pertain to the BIS recommendations for supervisors?
- The board should have a basic understanding of the difference between gross (stand alone) and net (diversified) enterprise-wide risk in assessing the bank’s net risk tolerance. (Use of economic capital models in assessing capital adequacy)
- A bank must understand the strengths and weaknesses of the chosen risk measures. (Risk measures)
- There are trade-offs to be considered in deciding between the available methods of measuring counter party credit risk. (Counterparty credit risk)
- Financial instruments with embedded options need to be examined closely in order to control risk levels. (Interest rate risk in banking book)
A. I, II and IV.
B. II, III and IV.
C. I, II and III.
D. I, II, III and IV.
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