Question 1

Banks are generally writers (sellers)of put and call option contracts.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is an advantage of an interest rate swap agreement?

Accepted Answer

A) Little or no basis risk 
B) Low brokerage fees 
C) Increased flexibility as compared to other hedging techniques 
D) Little or no credit risk 
E) All of the options are advantages of interest rate swap agreements. 
A) Little or no basis risk 
B) Low brokerage fees 
C) Increased flexibility as compared to other hedging techniques 
D) Little or no credit risk 
E) All of the options are advantages of interest rate swap agreements.

Question 3

The _________ largest U.S.FDIC-insured banking companies account for more than 90 percent of bank derivatives activity in the U.S.

Accepted Answer

The answer of The _________ largest U.S.FDIC-insured banking companies account...

Question 4

The buyer of a(n)_________________________ option contract believes that the market price of the underlying security will decline in the future.

Accepted Answer

The answer of The buyer of a(n)_________________________ option contract believes...

Question 5

_________ are financial instruments that derive their value from some underlying asset.

Accepted Answer

The answer of _________ are financial instruments that derive their...

Question 6

A futures hedge against interest-rate changes generally requires a bank to take an opposite position in the futures market from its current position in the cash market.

Accepted Answer

A) True 
 B)False

Question 7

The amount that is used to determine the mark-to-market for a futures contract at the end of each day is called the:

Accepted Answer

A) open price. 
B) high price. 
C) settlement price. 
D) low price. 
E) day average. 
A) open price. 
B) high price. 
C) settlement price. 
D) low price. 
E) day average.

Question 8

A(n)_________________________ is an agreement between a buyer and a seller today which calls for the delivery of a particular security in exchange for cash at some future date for a set price.

Accepted Answer

financial

Question 9

Which of the following is one of the risks the OCC requires banks to measure and set limits on?

Accepted Answer

A) Strategic risk 
B) Reputation risk 
C) Price risk 
D) Liquidity risk 
E) All of the options are correct 
A) Strategic risk 
B) Reputation risk 
C) Price risk 
D) Liquidity risk 
E) All of the options are correct

Question 10

Large depository institutions tend to act:

Accepted Answer

A) both as dealers and end users. 
B) only as dealers. 
C) only as end users. 
D) neither as dealers nor end users. 
E) largely as speculators. 
A) both as dealers and end users. 
B) only as dealers. 
C) only as end users. 
D) neither as dealers nor end users. 
E) largely as speculators.

Question 11

The financial futures markets are designed to shift the risk of interest rate fluctuations from risk-averse investors to ________.

Accepted Answer

The answer of The financial futures markets are designed to...

Question 12

Current selling price on a futures contract reflects what investors in the market expect cash prices to be:

Accepted Answer

A) at the end of the day. 
B) at the end of the week. 
C) at the end of the month. 
D) at the end of the year. 
E) at the time of delivery. 
A) at the end of the day. 
B) at the end of the week. 
C) at the end of the month. 
D) at the end of the year. 
E) at the time of delivery.

Question 13

The market value of a futures contract changes daily as the market price of the underlying security price changes.

Accepted Answer

A) True 
 B)False

Question 14

Suppose a bank has an asset duration of 5 years and a liability duration of 2.5 years.The bank has $1,000 million in assets and $750 million in liabilities.It is planning to trade in Treasury bond futures whose underlying's duration is 8.5 years and is currently selling at $99,000 for a $100,000 contract.How many futures contracts does the bank need to fully hedge itself against interest rate risk?

Accepted Answer

A) 3,714 contracts 
B) 3,125 contracts 
C) 2,971 contracts 
D) 371 contracts 
E) None of the options are correct 
A) 3,714 contracts 
B) 3,125 contracts 
C) 2,971 contracts 
D) 371 contracts 
E) None of the options are correct

Question 15

A put option on Eurodollar deposit futures is most likely to be used by a bank to:

Accepted Answer

A) reduce its interest sensitive liabilities. 
B) protect variable-rate loans and securities. 
C) offset a positive interest-sensitive gap. 
D) offset a negative interest-sensitive gap. 
E) None of the options are correct. 
A) reduce its interest sensitive liabilities. 
B) protect variable-rate loans and securities. 
C) offset a positive interest-sensitive gap. 
D) offset a negative interest-sensitive gap. 
E) None of the options are correct.

Question 16

If a financial institution agrees to guarantee a swap agreement negotiated between two of its customers,usually:

Accepted Answer

A) it will mark the transaction as a deferred asset. 
B) it will mark the transaction as a deferred liability. 
C) it will mark the transaction as a contingent asset. 
D) it will mark the transaction as a contingent liability. 
E) it does not record the transaction in its books. 
A) it will mark the transaction as a deferred asset. 
B) it will mark the transaction as a deferred liability. 
C) it will mark the transaction as a contingent asset. 
D) it will mark the transaction as a contingent liability. 
E) it does not record the transaction in its books.

Question 17

A Treasury Bond futures contract is selling in the market for $98,225 and has a duration of 8 years.The same Treasury Bond is selling in the cash market for $98,625 and has a duration of 8.25 years.What is the basis for this futures contract?

Accepted Answer

A) $400 
B) 0.25 years 
C) $28,156.25 
D) $1,600 
E) None of the options are correct 
A) $400 
B) 0.25 years 
C) $28,156.25 
D) $1,600 
E) None of the options are correct

Question 18

A financial institution that uses a long hedge is most likely:

Accepted Answer

A) trying to avoid higher borrowing costs. 
B) trying to avoid declining asset values. 
C) trying to avoid lower than expected yields from loans and securities. 
D) trying to avoid higher borrowing costs or trying to avoid declining asset values. 
E) trying to offset a positive duration gap. 
A) trying to avoid higher borrowing costs. 
B) trying to avoid declining asset values. 
C) trying to avoid lower than expected yields from loans and securities. 
D) trying to avoid higher borrowing costs or trying to avoid declining asset values. 
E) trying to offset a positive duration gap.

Question 19

An investor purchases one September T-bond futures contract at 115-110.The settlement price for the contract on next day is 117-225.What is the marked-to-market gain/loss for the investor?

Accepted Answer

A) $2,359.38 
B) -$2,539.38 
C) $2.36 
D) -$2,115 
E) $2.115 
A) $2,359.38 
B) -$2,539.38 
C) $2.36 
D) -$2,115 
E) $2.115

Question 20

An interest-rate cap will become more valuable as interest rates rise.

Accepted Answer

A) True 
 B)False

Banks are generally writers (sellers)of put and call option contracts.

Which of the following is an advantage of an interest rate swap agreement?

The _________ largest U.S.FDIC-insured banking companies account for more than 90 percent of bank derivatives activity in the U.S.

The buyer of a(n)_________________________ option contract believes that the market price of the underlying security will decline in the future.

_________ are financial instruments that derive their value from some underlying asset.

A futures hedge against interest-rate changes generally requires a bank to take an opposite position in the futures market from its current position in the cash market.

The amount that is used to determine the mark-to-market for a futures contract at the end of each day is called the:

A(n)_________________________ is an agreement between a buyer and a seller today which calls for the delivery of a particular security in exchange for cash at some future date for a set price.

Which of the following is one of the risks the OCC requires banks to measure and set limits on?

Large depository institutions tend to act:

The financial futures markets are designed to shift the risk of interest rate fluctuations from risk-averse investors to ________.

Current selling price on a futures contract reflects what investors in the market expect cash prices to be:

The market value of a futures contract changes daily as the market price of the underlying security price changes.

A put option on Eurodollar deposit futures is most likely to be used by a bank to:

If a financial institution agrees to guarantee a swap agreement negotiated between two of its customers,usually:

A Treasury Bond futures contract is selling in the market for $98,225 and has a duration of 8 years.The same Treasury Bond is selling in the cash market for $98,625 and has a duration of 8.25 years.What is the basis for this futures contract?

A financial institution that uses a long hedge is most likely:

An investor purchases one September T-bond futures contract at 115-110.The settlement price for the contract on next day is 117-225.What is the marked-to-market gain/loss for the investor?

An interest-rate cap will become more valuable as interest rates rise.

An Overview of the Changing Financial-Services Sector

The Impact of Government Policy and Regulation on the Financial-Services Industry

The Organization and Structure of Banking and the Financial-Services Industry

Establishing New Banks, Branches, ATMs, Telephone Services, and Websites

The Financial Statements of Banks and Their Principal Competitors

Measuring and Evaluating the Performance of Banks and Their Principal Competitors

Risk Management for Changing Interest Rates: Asset-Liability Management and Duration Techniques

Risk Management: Asset-Backed Securities, Loan Sales, Credit Standbys, and Credit Derivatives

The Investment Function in Financial-Services Management

Liquidity and Reserves Management: Strategies and Policies

Managing and Pricing Deposit Services

Managing Nondeposit Liabilities

Investment Banking, insurance, and Other Sources of Fee Income

The Management of Capital

Lending Policies and Procedures: Managing Credit Risk

Lending to Business Firms and Pricing Business Loans

Consumer Loans, Credit Cards, and Real Estate Lending

Acquisitions and Mergers in Financial-Services Management

International Banking and the Future of Banking and Financial Services

Filters

Exam 14: Investment Banking,Insurance,and Other Sources of Fee Income

Banks are generally writers (sellers)of put and call option contracts.

Which of the following is an advantage of an interest rate swap agreement?

The _________ largest U.S.FDIC-insured banking companies account for more than 90 percent of bank derivatives activity in the U.S.

The buyer of a(n)_________________________ option contract believes that the market price of the underlying security will decline in the future.

_________ are financial instruments that derive their value from some underlying asset.

A futures hedge against interest-rate changes generally requires a bank to take an opposite position in the futures market from its current position in the cash market.

The amount that is used to determine the mark-to-market for a futures contract at the end of each day is called the:

A(n)_________________________ is an agreement between a buyer and a seller today which calls for the delivery of a particular security in exchange for cash at some future date for a set price.

Which of the following is one of the risks the OCC requires banks to measure and set limits on?

Large depository institutions tend to act:

The financial futures markets are designed to shift the risk of interest rate fluctuations from risk-averse investors to ________.

Current selling price on a futures contract reflects what investors in the market expect cash prices to be:

The market value of a futures contract changes daily as the market price of the underlying security price changes.

A put option on Eurodollar deposit futures is most likely to be used by a bank to:

If a financial institution agrees to guarantee a swap agreement negotiated between two of its customers,usually:

A Treasury Bond futures contract is selling in the market for $98,225 and has a duration of 8 years.The same Treasury Bond is selling in the cash market for $98,625 and has a duration of 8.25 years.What is the basis for this futures contract?

A financial institution that uses a long hedge is most likely:

An investor purchases one September T-bond futures contract at 115-110.The settlement price for the contract on next day is 117-225.What is the marked-to-market gain/loss for the investor?

An interest-rate cap will become more valuable as interest rates rise.

An Overview of the Changing Financial-Services Sector

The Impact of Government Policy and Regulation on the Financial-Services Industry

The Organization and Structure of Banking and the Financial-Services Industry

Establishing New Banks, Branches, ATMs, Telephone Services, and Websites

The Financial Statements of Banks and Their Principal Competitors

Measuring and Evaluating the Performance of Banks and Their Principal Competitors

Risk Management for Changing Interest Rates: Asset-Liability Management and Duration Techniques

Risk Management: Asset-Backed Securities, Loan Sales, Credit Standbys, and Credit Derivatives

The Investment Function in Financial-Services Management

Liquidity and Reserves Management: Strategies and Policies

Managing and Pricing Deposit Services

Managing Nondeposit Liabilities

Investment Banking, insurance, and Other Sources of Fee Income

The Management of Capital

Lending Policies and Procedures: Managing Credit Risk

Lending to Business Firms and Pricing Business Loans

Consumer Loans, Credit Cards, and Real Estate Lending

Acquisitions and Mergers in Financial-Services Management

International Banking and the Future of Banking and Financial Services

Filters