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Capital adequacy norms are mainly linked with which aspect of risk management?

medium Q5 of 15
Banking Awareness - Banking Acts, Reforms & Risk Management
Capital adequacy norms are mainly linked with which aspect of risk management?
AAbsorbing financial shocks
BIdentifying new risks
CMonitoring employee performance
DFixing lending rates
Step-by-Step Solution

  1. Step 1: Recall the purpose of bank capital

    Capital acts as a safety buffer.

  2. Step 2: Connect with risk management

    Adequate capital absorbs unexpected losses.

  3. Final Answer:

    Absorbing financial shocks → Option A

  4. Quick Check:

    Higher capital = stronger shock absorption ✅
Quick Trick: Capital = cushion against losses.
Common Mistakes:
MISTAKES
  • Linking capital adequacy with interest rate control.
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