Page 145 - PRIAA Glossary
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RISK-ADJUSTED RETURN
A return calculation that is adjusted by a risk (or volatility) measure.
RISK-BASED MARGINING
A method for setting margin requirements that evaluates positions as a group or portfolio and takes into account the potential for losses on some positions to be offset by gains on others. The margin requirement for a portfolio is typically set equal to an estimate of the largest possible decline in the net value of the portfolio that could occur under assumed changes in market conditions. Sometimes referred to as “portfolio margining”.
RISK-WEIGHTED ASSETS (RWA)
The sum of a bank’s assets and off-balance sheet exposures weighted by their corresponding risk. The weights depend on each asset’s probability of default and potential losses and can be calculated using internal ratings formulas.
The measurement was set by The Bank of International Settlements and is used in defining Basel capital adequacy ratios. According to Basel III, a bank must hold at least 7%
of its Risk-Weighted Assets in high quality capital. During market stress, risk ratings can increase, putting pressure on banks to raise capital in order to maintain the same level of capital adequacy.
ROYALTY PAYMENT
Monies paid to the owner of mineral rights.
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