Question 1

Which of the following statements is true?

Accepted Answer

A)  The Tier 1 capital ratio is the ratio of supplementary capital to the risk-adjusted assets of an FI. 
B)  The Tier 1 capital ratio is the ratio of core capital to the risk-adjusted assets of an FI. 
C)  The Tier 1 capital ratio is the ratio of supplementary capital to the assets of an FI. 
D)  The Tier 1 capital ratio is the ratio of core capital to the assets of an FI. 
A)  The Tier 1 capital ratio is the ratio of supplementary capital to the risk-adjusted assets of an FI. 
B)  The Tier 1 capital ratio is the ratio of core capital to the risk-adjusted assets of an FI. 
C)  The Tier 1 capital ratio is the ratio of supplementary capital to the assets of an FI. 
D)  The Tier 1 capital ratio is the ratio of core capital to the assets of an FI.

Question 2

Market risk is made up of:

Accepted Answer

A)  risk of companies on the stock exchange and political risk. 
B)  general market risk and specific market risk. 
C)  pure risk and speculative risk. 
D)  inflation risk and interest rate risk. 
A)  risk of companies on the stock exchange and political risk. 
B)  general market risk and specific market risk. 
C)  pure risk and speculative risk. 
D)  inflation risk and interest rate risk.

Question 3

Basel III has introduced the first set of global liquidity regulations.

Accepted Answer

A) True 
 B)False

Question 4

Choose the correct statement:

Accepted Answer

A)  The countercyclical capital buffer has a microeconomic focus and aims to ensure that financial system capital requirements are sufficient given the political environment in which DIs operate. 
B)  The countercyclical capital buffer has a political focus and aims to ensure that financial system capital requirements are sufficient given the economic environment in which DIs operate. 
C)  The countercyclical capital buffer has a macroeconomic focus and aims to ensure that financial system capital requirements are sufficient given the macro-financial environment in which DIs operate. 
D)  None of the listed options are correct. 
A)  The countercyclical capital buffer has a microeconomic focus and aims to ensure that financial system capital requirements are sufficient given the political environment in which DIs operate. 
B)  The countercyclical capital buffer has a political focus and aims to ensure that financial system capital requirements are sufficient given the economic environment in which DIs operate. 
C)  The countercyclical capital buffer has a macroeconomic focus and aims to ensure that financial system capital requirements are sufficient given the macro-financial environment in which DIs operate. 
D)  None of the listed options are correct.

Question 5

Choose the correct statement:

Accepted Answer

A)  APRA's APS 112 Capital adequacy: standardised approach to credit risk (APS 112), sets out the methods to be used to calculate credit-risk-adjusted assets using the standardised approach. 
B)  APRA's APS 112 Capital adequacy: standardised approach to credit risk (APS 112), sets out the methods to be used to calculate credit-risk-adjusted assets using the advanced approach. 
C)  APRA's APS 112 Capital adequacy: standardised approach to credit risk (APS 112), sets out the methods to be used to calculate credit-risk-adjusted assets using the combination approach. 
D)  APRA's APS 112 Capital adequacy: standardised approach to credit risk (APS 112), sets out the methods to be used to calculate credit-risk-adjusted assets using the IRB approach. 
A)  APRA's APS 112 Capital adequacy: standardised approach to credit risk (APS 112), sets out the methods to be used to calculate credit-risk-adjusted assets using the standardised approach. 
B)  APRA's APS 112 Capital adequacy: standardised approach to credit risk (APS 112), sets out the methods to be used to calculate credit-risk-adjusted assets using the advanced approach. 
C)  APRA's APS 112 Capital adequacy: standardised approach to credit risk (APS 112), sets out the methods to be used to calculate credit-risk-adjusted assets using the combination approach. 
D)  APRA's APS 112 Capital adequacy: standardised approach to credit risk (APS 112), sets out the methods to be used to calculate credit-risk-adjusted assets using the IRB approach.

Question 6

Consider an FI with the following off-balance-sheet items: A two-year loan commitment with a face value of $120 million, a standby letter of credit with a face value of $20m and trade-related letters of credit with a face value of $70 million. What is the total credit equivalent amount?

Accepted Answer

A)  $63 million 
B)  $94 million 
C)  $105 million 
D)  $310 million 
A)  $63 million 
B)  $94 million 
C)  $105 million 
D)  $310 million

Question 7

Loan loss reserve is:

Accepted Answer

A)  the accumulated value of past profits not yet paid out in dividends to shareholders. 
B)  the face value of the ordinary shares issued by the FI. 
C)  a special reserve set aside out of retained earnings to meet expected and actual losses on the portfolio. 
D)  the difference between the price the public paid for common stock or shares when originally offered and their par values times the number of shares outstanding. 
A)  the accumulated value of past profits not yet paid out in dividends to shareholders. 
B)  the face value of the ordinary shares issued by the FI. 
C)  a special reserve set aside out of retained earnings to meet expected and actual losses on the portfolio. 
D)  the difference between the price the public paid for common stock or shares when originally offered and their par values times the number of shares outstanding.

Question 8

Assume you are presented with the following data regarding an FI's asset and liability values:    Which of the following statements is true?

Accepted Answer

A)  The net worth of the FI is $2000. 
B)  The net worth of the FI is -$3000. 
C)  The net worth of the FI is $3000. 
D)  The net worth of the FI is -$1000. 
A)  The net worth of the FI is $2000. 
B)  The net worth of the FI is -$3000. 
C)  The net worth of the FI is $3000. 
D)  The net worth of the FI is -$1000.

Question 9

Which of the following statements is true?

Accepted Answer

A)  The book value of a liability is the reported liability value reported according to its historical costs. 
B)  The market value concept is also referred to as marking to market. 
C)  Marking to market allows balance sheet values to reflect current rather than historical prices. 
D)  All of the listed options are correct. 
A)  The book value of a liability is the reported liability value reported according to its historical costs. 
B)  The market value concept is also referred to as marking to market. 
C)  Marking to market allows balance sheet values to reflect current rather than historical prices. 
D)  All of the listed options are correct.

Question 10

Which of the following is true?

Accepted Answer

A)  Total capital is the sum of Tier I and Tier II capital less deductions. 
B)  Total capital must equal or exceed 8 per cent of risk-weighted assets. 
C)  The total of Tier II capital is limited to 100 per cent of Tier I capital. 
D)  All of the listed options are correct. 
A)  Total capital is the sum of Tier I and Tier II capital less deductions. 
B)  Total capital must equal or exceed 8 per cent of risk-weighted assets. 
C)  The total of Tier II capital is limited to 100 per cent of Tier I capital. 
D)  All of the listed options are correct.

Question 11

Which of the following are problems in using the leverage ratio as a measure of capital adequacy?

Accepted Answer

A)  Even with a low leverage ratio, an FI could have a negative market value net worth. 
B)  The different types of risks, such as credit or interest rate risk are not captured. 
C)  Off-balance-sheet activities are not captured. 
D)  Even with a low leverage ratio, an FI could have a negative market value net worth, the different types of risks, such as credit or interest rate risk are not captured and off-balance-sheet activities are not captured. 
A)  Even with a low leverage ratio, an FI could have a negative market value net worth. 
B)  The different types of risks, such as credit or interest rate risk are not captured. 
C)  Off-balance-sheet activities are not captured. 
D)  Even with a low leverage ratio, an FI could have a negative market value net worth, the different types of risks, such as credit or interest rate risk are not captured and off-balance-sheet activities are not captured.

Question 12

Which pillar of the Basel Accord requires quantitative disclosures for capital structure, capital adequacy and risk exposure so market participants are able to undertake a meaningful comparison of DIs and their risk-based performance?

Accepted Answer

A)  Pillar 1 
B)  Pillar 2 
C)  Pillar 3 
D)  all pillars 
A)  Pillar 1 
B)  Pillar 2 
C)  Pillar 3 
D)  all pillars

Question 13

Basel III introduced significant capital reforms including measures to raise the quality and minimum required levels of capital and establish a back-up leverage ratio.

Accepted Answer

A) True 
 B)False

Question 14

Under Basel II, all standard residential mortgages attract a risk weight of 35 per cent.

Accepted Answer

A) True 
 B)False

Question 15

Choose the correct statement:

Accepted Answer

A)  Basel II provides a better alignment of risks to borrowers than Basel I and remains the basis of the current measurement of credit-risk-adjusted assets. 
B)  Basel I provides a better alignment of risks to borrowers than Basel II and remains the basis of the current measurement of credit-risk-adjusted assets. 
C)  Basel III provides a better alignment of risks to borrowers than Basel II and remains the basis of the current measurement of credit-risk-adjusted assets. 
D)  None of the listed options are correct. 
A)  Basel II provides a better alignment of risks to borrowers than Basel I and remains the basis of the current measurement of credit-risk-adjusted assets. 
B)  Basel I provides a better alignment of risks to borrowers than Basel II and remains the basis of the current measurement of credit-risk-adjusted assets. 
C)  Basel III provides a better alignment of risks to borrowers than Basel II and remains the basis of the current measurement of credit-risk-adjusted assets. 
D)  None of the listed options are correct.

Question 16

Which of the following statements is true in the context of Basel II?

Accepted Answer

A)  The standardised approach is the most basic approach to calculating operational risk capital. 
B)  FI's can choose whether or not to hold operational risk capital. 
C)  In the basic indicator approach, operational risk capital is calculated as a fixed percentage of an FI's gross income figure, whereby gross income is defined as gross interest income plus gross non-interest income. 
D)  None of the listed options are correct. 
A)  The standardised approach is the most basic approach to calculating operational risk capital. 
B)  FI's can choose whether or not to hold operational risk capital. 
C)  In the basic indicator approach, operational risk capital is calculated as a fixed percentage of an FI's gross income figure, whereby gross income is defined as gross interest income plus gross non-interest income. 
D)  None of the listed options are correct.

Question 17

Which of the following statements is true?

Accepted Answer

A)  The market to book ratio shows the degree of discrepancy between the stock market value of an FI's equity and the book value of its equity. 
B)  The market to book ratio shows the degree of discrepancy between the stock market value of an FI's assets and the book value of its assets. 
C)  The market to book ratio shows the degree of discrepancy between the stock market value of an FI's liabilities and the book value of its liabilities. 
D)  None of the listed options are correct. 
A)  The market to book ratio shows the degree of discrepancy between the stock market value of an FI's equity and the book value of its equity. 
B)  The market to book ratio shows the degree of discrepancy between the stock market value of an FI's assets and the book value of its assets. 
C)  The market to book ratio shows the degree of discrepancy between the stock market value of an FI's liabilities and the book value of its liabilities. 
D)  None of the listed options are correct.

Question 18

Which of the following statements is true?

Accepted Answer

A)  The Basel Accord imposes minimum earnings ratios on banks in major industrialised countries. 
B)  The Basel Accord imposes maximum asset values on banks in major industrialised countries. 
C)  The Basel Accord imposes minimum liability values on banks in major industrialised countries. 
D)  The Basel Accord imposes risk-based capital ratios on banks in major industrialised countries. 
A)  The Basel Accord imposes minimum earnings ratios on banks in major industrialised countries. 
B)  The Basel Accord imposes maximum asset values on banks in major industrialised countries. 
C)  The Basel Accord imposes minimum liability values on banks in major industrialised countries. 
D)  The Basel Accord imposes risk-based capital ratios on banks in major industrialised countries.

Question 19

Book value is:

Accepted Answer

A)  the asset and liability values of an FI reported according to their historical costs. 
B)  the amount of capital that the DI's shareholders are prepared to contribute so that the business remains as a going concern. 
C)  a measure of an FI's capital that is equal to the difference between the market value of its assets and the market value of its liabilities. 
D)  allows balance sheet values to reflect current rather than historical prices. 
A)  the asset and liability values of an FI reported according to their historical costs. 
B)  the amount of capital that the DI's shareholders are prepared to contribute so that the business remains as a going concern. 
C)  a measure of an FI's capital that is equal to the difference between the market value of its assets and the market value of its liabilities. 
D)  allows balance sheet values to reflect current rather than historical prices.

Question 20

Credit derivatives were included in the banking book with the introduction of:

Accepted Answer

A)  Basel I. 
B)  Basel II. 
C)  Basel 2.5. 
D)  Basel III. 
A)  Basel I. 
B)  Basel II. 
C)  Basel 2.5. 
D)  Basel III.

Which of the following statements is true?

Market risk is made up of:

Basel III has introduced the first set of global liquidity regulations.

Choose the correct statement:

Choose the correct statement:

Consider an FI with the following off-balance-sheet items: A two-year loan commitment with a face value of $120 million, a standby letter of credit with a face value of $20m and trade-related letters of credit with a face value of $70 million. What is the total credit equivalent amount?

Loan loss reserve is:

Assume you are presented with the following data regarding an FI's asset and liability values: Which of the following statements is true?

Which of the following statements is true?

Which of the following is true?

Which of the following are problems in using the leverage ratio as a measure of capital adequacy?

Which pillar of the Basel Accord requires quantitative disclosures for capital structure, capital adequacy and risk exposure so market participants are able to undertake a meaningful comparison of DIs and their risk-based performance?

Basel III introduced significant capital reforms including measures to raise the quality and minimum required levels of capital and establish a back-up leverage ratio.

Under Basel II, all standard residential mortgages attract a risk weight of 35 per cent.

Choose the correct statement:

Which of the following statements is true in the context of Basel II?

Which of the following statements is true?

Which of the following statements is true?

Book value is:

Credit derivatives were included in the banking book with the introduction of:

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: the Duration Model

Managing Interest Rate Risk Using Off Balance Sheet Instruments

Credit Risk I: Individual Loan Risk

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Technology and Other Operational Risk

Filters

Exam 18: Capital Management and Adequacy

Which of the following statements is true?

Market risk is made up of:

Basel III has introduced the first set of global liquidity regulations.

Choose the correct statement:

Choose the correct statement:

Consider an FI with the following off-balance-sheet items: A two-year loan commitment with a face value of $120 million, a standby letter of credit with a face value of $20m and trade-related letters of credit with a face value of $70 million. What is the total credit equivalent amount?

Loan loss reserve is:

Assume you are presented with the following data regarding an FI's asset and liability values: Which of the following statements is true?

Which of the following statements is true?

Which of the following is true?

Which of the following are problems in using the leverage ratio as a measure of capital adequacy?

Which pillar of the Basel Accord requires quantitative disclosures for capital structure, capital adequacy and risk exposure so market participants are able to undertake a meaningful comparison of DIs and their risk-based performance?

Basel III introduced significant capital reforms including measures to raise the quality and minimum required levels of capital and establish a back-up leverage ratio.

Under Basel II, all standard residential mortgages attract a risk weight of 35 per cent.

Choose the correct statement:

Which of the following statements is true in the context of Basel II?

Which of the following statements is true?

Which of the following statements is true?

Book value is:

Credit derivatives were included in the banking book with the introduction of:

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: the Duration Model

Managing Interest Rate Risk Using Off Balance Sheet Instruments

Credit Risk I: Individual Loan Risk

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Technology and Other Operational Risk

Filters