Assume That the Maximum Loss as a Percentage of Capital $\times$

Multiple Choice

Assume that the maximum loss as a percentage of capital is 12 per cent of an FI's capital to a particular sector and that the amount lost per dollar of defaulted loans in this sector is 35 per cent. What is the concentration limit (round to two decimals) ?

A) 12% $\times$ (1/0.35) = 34.29%
B) 35% $\times$ (1/0.12) = 4.2%
C) 12% / (1 + 0.35) = 8.89%
D) 35% / (1 + 0.12) = 31.25%