How do you calculate risk weighted assets?

Risk-weighted assets (RWA) are calculated by multiplying each asset’s exposure by its risk weight and summing the results. The formula is:

$$\text{RWA}=\sum (\text{Exposure}\times \text{Risk Weight})$$

Steps to Calculate RWA:

1. Identify Exposures: List all assets (loans, securities, etc.) with their gross exposure amounts.
2. Assign Risk Weights: Use the Basel III framework to assign weights (e.g., 0% for cash, 20% for high-quality corporate bonds, 100% for unsecured loans).
3. Compute Weighted Exposures: Multiply each exposure by its risk weight.
4. Sum the Results: Add all weighted exposures to get the total RWA.

Example Calculation:

Final RWA = ₹200,000 (for this simplified example). Adjust weights based on asset class and regulatory guidelines.