Economic Capital Calculator

✖Earnings at Risk (EaR) is a financial risk management metric that measures the potential impact of adverse events or fluctuations on an organization's earnings.ⓘ Earnings at Risk [EaR]			+10% -10%
✖Required Rate of Return is the minimum return an investor expects for taking on the risk of investing in a particular asset, such as stocks or bonds.ⓘ Required Rate of Return [RR]			+10% -10%

✖Economic Capital refers to the amount of capital that a financial institution needs to hold in order to cover unexpected losses arising from various risks, such as credit risk, market risk,etc.ⓘ Economic Capital [EC]

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Formula

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Economic Capital

Formula

`"EC" = "EaR"/"RR"`

Example

`"7750"="620"/"0.08"`

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Economic Capital Solution

STEP 0: Pre-Calculation Summary

Formula Used

Economic Capital = Earnings at Risk/Required Rate of Return
EC = EaR/RR
This formula uses 3 Variables

Variables Used

Economic Capital - Economic Capital refers to the amount of capital that a financial institution needs to hold in order to cover unexpected losses arising from various risks, such as credit risk, market risk,etc.
Earnings at Risk - Earnings at Risk (EaR) is a financial risk management metric that measures the potential impact of adverse events or fluctuations on an organization's earnings.
Required Rate of Return - Required Rate of Return is the minimum return an investor expects for taking on the risk of investing in a particular asset, such as stocks or bonds.

STEP 1: Convert Input(s) to Base Unit

Earnings at Risk: 620 --> No Conversion Required
Required Rate of Return: 0.08 --> No Conversion Required

STEP 2: Evaluate Formula

Substituting Input Values in Formula

EC = EaR/RR --> 620/0.08

Evaluating ... ...

EC = 7750

STEP 3: Convert Result to Output's Unit

7750 --> No Conversion Required

FINAL ANSWER

7750 <-- Economic Capital

(Calculation completed in 00.004 seconds)

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Created by Kashish Arora

Satyawati College (DU), New Delhi

Kashish Arora has created this Calculator and 50+ more calculators!

Verified by Vishnu K

BMS College of Engineering (BMSCE), Bangalore

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Basis Risk

Go Basis Risk = Future Price of Contract-Spot Price of Hedged Asset

Credit Value at Risk

Go Credit Value at Risk = Worst Credit Loss-Expected Credit Loss

Economic Capital

Go Economic Capital = Earnings at Risk/Required Rate of Return

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Go Calmar Ratio = (Average Rate of Return/Maximum Drawdown)*-1

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Go Upside/Downside Ratio = Advancing Issues/Declining Issues

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Pain Ratio

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Risk Exposure

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Risk Determination

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Loss Given Default

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Economic Capital Formula

Economic Capital = Earnings at Risk/Required Rate of Return
EC = EaR/RR

What is Economic Capital?

Economic Capital refers to the amount of capital that a financial institution or company needs to hold in order to cover unexpected losses arising from various risks, such as credit risk, market risk, operational risk, and liquidity risk. It represents the funds that an organization sets aside as a buffer to absorb potential losses beyond those covered by regulatory capital requirements.

How to Calculate Economic Capital?

Economic Capital calculator uses Economic Capital = Earnings at Risk/Required Rate of Return to calculate the Economic Capital, Economic Capital refers to the amount of capital that a financial institution or company needs to hold in order to cover unexpected losses arising from various risks, such as credit risk, market risk, operational risk, and liquidity risk. Economic Capital is denoted by EC symbol.

How to calculate Economic Capital using this online calculator? To use this online calculator for Economic Capital, enter Earnings at Risk (EaR) & Required Rate of Return (RR) and hit the calculate button. Here is how the Economic Capital calculation can be explained with given input values -> 7750 = 620/0.08.

FAQ

What is Economic Capital?

Economic Capital refers to the amount of capital that a financial institution or company needs to hold in order to cover unexpected losses arising from various risks, such as credit risk, market risk, operational risk, and liquidity risk and is represented as EC = EaR/RR or Economic Capital = Earnings at Risk/Required Rate of Return. Earnings at Risk (EaR) is a financial risk management metric that measures the potential impact of adverse events or fluctuations on an organization's earnings & Required Rate of Return is the minimum return an investor expects for taking on the risk of investing in a particular asset, such as stocks or bonds.

How to calculate Economic Capital?

Economic Capital refers to the amount of capital that a financial institution or company needs to hold in order to cover unexpected losses arising from various risks, such as credit risk, market risk, operational risk, and liquidity risk is calculated using Economic Capital = Earnings at Risk/Required Rate of Return. To calculate Economic Capital, you need Earnings at Risk (EaR) & Required Rate of Return (RR). With our tool, you need to enter the respective value for Earnings at Risk & Required Rate of Return and hit the calculate button. You can also select the units (if any) for Input(s) and the Output as well.

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