Question 1

Which of the following statements is true?

Accepted Answer

A)  Credit-risk adjusted assets are on-balance-sheet assets only whose values are adjusted for approximate credit risk. 
B)  Credit-risk adjusted assets are off-balance-sheet assets only whose values are adjusted for approximate credit risk. 
C)  Credit-risk adjusted assets are on- and off-balance-sheet assets whose values are adjusted for approximate credit risk. 
D)  Credit-risk adjusted assets are on- and off-balance-sheet assets whose values are adjusted for approximate credit risk of the FI. 
A)  Credit-risk adjusted assets are on-balance-sheet assets only whose values are adjusted for approximate credit risk. 
B)  Credit-risk adjusted assets are off-balance-sheet assets only whose values are adjusted for approximate credit risk. 
C)  Credit-risk adjusted assets are on- and off-balance-sheet assets whose values are adjusted for approximate credit risk. 
D)  Credit-risk adjusted assets are on- and off-balance-sheet assets whose values are adjusted for approximate credit risk of the FI.

Question 2

Counterparty credit risk is the risk that the other side of a contract will default on payment obligation, whereby 'the other side' is always the FI.

Accepted Answer

A) True 
 B)False

Question 3

In the standardised approach to operational risk capital, FI's are required to map their overall gross income into eight business lines that are pre-determined by the bank regulator.

Accepted Answer

A) True 
 B)False

Question 4

Total capital (Tier 1 capital plus Tier 2 capital) must be at least ______ of risk-weighted assets at all times:

Accepted Answer

A)  9 per cent 
B)  7.5 per cent 
C)  8 per cent 
D)  4.5 per cent 
A)  9 per cent 
B)  7.5 per cent 
C)  8 per cent 
D)  4.5 per cent

Question 5

Choose the correct statement:

Accepted Answer

A)  Any Pillar 2 adjustment between the DI and APRA is made public to ensure investors are aware of the DI's current position. 
B)  Any Pillar 2 adjustment is confidential between the DI and APRA to avoid any adverse signalling effects. 
C)  Any Pillar 2 adjustment is confidential between the DI and APRA, only if the DI does not want to disclose the adjustment. 
D)  Any Pillar 2 adjustment between the DI and APRA is withheld for six weeks. 
A)  Any Pillar 2 adjustment between the DI and APRA is made public to ensure investors are aware of the DI's current position. 
B)  Any Pillar 2 adjustment is confidential between the DI and APRA to avoid any adverse signalling effects. 
C)  Any Pillar 2 adjustment is confidential between the DI and APRA, only if the DI does not want to disclose the adjustment. 
D)  Any Pillar 2 adjustment between the DI and APRA is withheld for six weeks.

Question 6

Assume an FI has $50 000 in assets and $45 000 in liabilities. Which of the following statements is true if interest rates on both assets and liabilities increase simultaneously?

Accepted Answer

A)  As the interest rate for both assets and liabilities increase the value of the FI's net worth will remain constant. 
B)  As the interest rate for both assets and liabilities increase the value of the FI's assets and liabilities will both decrease. 
C)  As the interest rate for both assets and liabilities increase the value of the FI's assets and liabilities will both increase. 
D)  As the interest rate for both assets and liabilities increase the value of the FI's assets and liabilities will both increase, however as the FI has more assets than liabilities, the increase in the value of the FI's assets will be greater than the increase in the value of its liabilities. 
A)  As the interest rate for both assets and liabilities increase the value of the FI's net worth will remain constant. 
B)  As the interest rate for both assets and liabilities increase the value of the FI's assets and liabilities will both decrease. 
C)  As the interest rate for both assets and liabilities increase the value of the FI's assets and liabilities will both increase. 
D)  As the interest rate for both assets and liabilities increase the value of the FI's assets and liabilities will both increase, however as the FI has more assets than liabilities, the increase in the value of the FI's assets will be greater than the increase in the value of its liabilities.

Question 7

Choose the correct capital adequacy ratio(s):

Accepted Answer

A)  Total capital (Tier 1 capital plus Tier 2 capital) must be at least 6.5 per cent of risk-weighted assets at all times. 
B)  Total Tier 1 capital must be at least 9 per cent of risk-weighted assets at all times. 
C)  Common equity Tier 1 must be at least 7.5 per cent of risk-weighted assets at all times. 
D)  None of the listed options are correct. 
A)  Total capital (Tier 1 capital plus Tier 2 capital) must be at least 6.5 per cent of risk-weighted assets at all times. 
B)  Total Tier 1 capital must be at least 9 per cent of risk-weighted assets at all times. 
C)  Common equity Tier 1 must be at least 7.5 per cent of risk-weighted assets at all times. 
D)  None of the listed options are correct.

Question 8

Retained earnings are:

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 9

The market risk capital charge is included in capital regulations as regulators recognise that changes in market value can impact on a FI's insolvency risk.

Accepted Answer

A)  Market risk takes into account general market risk, specific market risk and operational risk. 
B)  FIs with APRA approval can use a combination approach with all risk categories and across all regions. 
C)  APRA can increase or decrease capital requirements from the internal model if it considers that it doesn't reflect fully the FI's market risk profile. 
D)  All of the listed options are correct. 
A)  Market risk takes into account general market risk, specific market risk and operational risk. 
B)  FIs with APRA approval can use a combination approach with all risk categories and across all regions. 
C)  APRA can increase or decrease capital requirements from the internal model if it considers that it doesn't reflect fully the FI's market risk profile. 
D)  All of the listed options are correct.

Question 10

Which of the following statements is true?

Accepted Answer

A)  The credit equivalent amount is calculated by multiplying the present value of an off-balance-sheet instrument by a conversion factor. 
B)  The credit equivalent amount is calculated by multiplying the present value of an on-balance-sheet instrument by a conversion factor. 
C)  The credit equivalent amount is calculated by multiplying the notional amount by a conversion factor. 
D)  The credit equivalent amount is calculated by multiplying the face value of an on-balance-sheet instrument by a conversion factor. 
A)  The credit equivalent amount is calculated by multiplying the present value of an off-balance-sheet instrument by a conversion factor. 
B)  The credit equivalent amount is calculated by multiplying the present value of an on-balance-sheet instrument by a conversion factor. 
C)  The credit equivalent amount is calculated by multiplying the notional amount by a conversion factor. 
D)  The credit equivalent amount is calculated by multiplying the face value of an on-balance-sheet instrument by a conversion factor.

Question 11

Basel III's development and implementation has been driven by G20 countries following the global financial crisis and will include:

Accepted Answer

A)  capital conservation buffers and pro-cyclical buffers. 
B)  increased capital requirements which can be met by holding more primary and secondary capital. 
C)  global liquidity and funding standards and higher quality of capital. 
D)  an increase in the maximum capital requirements. 
A)  capital conservation buffers and pro-cyclical buffers. 
B)  increased capital requirements which can be met by holding more primary and secondary capital. 
C)  global liquidity and funding standards and higher quality of capital. 
D)  an increase in the maximum capital requirements.

Question 12

Which of the following are arguments against market value accounting?

Accepted Answer

A)  It introduces a higher degree of stability into an FI's earnings. 
B)  It is difficult to implement. 
C)  FI's would be less willing to accept investments in shorter term assets. 
D)  There are no arguments against market value accounting. 
A)  It introduces a higher degree of stability into an FI's earnings. 
B)  It is difficult to implement. 
C)  FI's would be less willing to accept investments in shorter term assets. 
D)  There are no arguments against market value accounting.

Question 13

Market to book ratio is a ratio that shows the discrepancy between the:

Accepted Answer

A)  stock market value of an FI's equity and the book value of its equity. 
B)  historic value of an FI's equity and the book value of its equity. 
C)  US dollar value of an FI's equity and the book value of its equity. 
D)  value of an FI's debt and the book value of its debt. 
A)  stock market value of an FI's equity and the book value of its equity. 
B)  historic value of an FI's equity and the book value of its equity. 
C)  US dollar value of an FI's equity and the book value of its equity. 
D)  value of an FI's debt and the book value of its debt.

Question 14

The leverage ratio is calculated as assets divided by core capital.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements is true?

Accepted Answer

A)  Basel II broadened measures for measurement of capital and introduced the concept of two pillars to protect solvency of individual FIs whereas Basel III introduced liquidity and higher capital levels to protect the financial system in general. 
B)  APRA introduced an enhanced Basel II called Basel 2.5 with new provisions that were difficult for Australian FIs to meet in the short term. 
C)  Basel II set targets that were commensurate with the risk profile and environment in an endeavour to protect solvency of individual FIs whereas Basel III introduced liquidity and higher capital levels to protect the financial system in general. 
D)  Basel III changes to capital requirements requires higher secondary capital levels to be held by FIs. 
A)  Basel II broadened measures for measurement of capital and introduced the concept of two pillars to protect solvency of individual FIs whereas Basel III introduced liquidity and higher capital levels to protect the financial system in general. 
B)  APRA introduced an enhanced Basel II called Basel 2.5 with new provisions that were difficult for Australian FIs to meet in the short term. 
C)  Basel II set targets that were commensurate with the risk profile and environment in an endeavour to protect solvency of individual FIs whereas Basel III introduced liquidity and higher capital levels to protect the financial system in general. 
D)  Basel III changes to capital requirements requires higher secondary capital levels to be held by FIs.

Question 16

Within the framework of Pillar I, which Basel Accord introduced two capital buffers: a capital conservation buffer and a countercyclical capital buffer?

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.

Question 17

Choose the correct statement:

Accepted Answer

A)  For DIs adopting advanced approaches to risk measurement, APRA requires the use of models that capture 'economic capital'. 
B)  For DIs adopting standardised approaches to risk measurement, APRA requires the use of models that capture 'economic capital'. 
C)  For DIs adopting combination approaches to risk measurement, APRA requires the use of models that capture 'economic capital' 
D)  None of the listed options are correct. 
A)  For DIs adopting advanced approaches to risk measurement, APRA requires the use of models that capture 'economic capital'. 
B)  For DIs adopting standardised approaches to risk measurement, APRA requires the use of models that capture 'economic capital'. 
C)  For DIs adopting combination approaches to risk measurement, APRA requires the use of models that capture 'economic capital' 
D)  None of the listed options are correct.

Question 18

To calculate the operational risk capital charge, the DI's activities are first divided into:

Accepted Answer

A)  investment banking, commercial banking and 'all other activity'. 
B)  commercial lending, retail lending and 'all other activity'. 
C)  derivative trading, foreign exchange trading and 'all other activity'. 
D)  retail banking, commercial banking and 'all other activity'. 
A)  investment banking, commercial banking and 'all other activity'. 
B)  commercial lending, retail lending and 'all other activity'. 
C)  derivative trading, foreign exchange trading and 'all other activity'. 
D)  retail banking, commercial banking and 'all other activity'.

Question 19

Which of the following statements is true?

Accepted Answer

A)  The par value of shares is the current market price of the common stock shares issued by the FI times the number of shares outstanding. 
B)  Retained earnings is the accumulated value of past profits not yet paid out in dividends to shareholders. 
C)  Loan loss reserve is a special reserve set aside out of retained earnings to meet unexpected losses on the portfolio. 
D)  All of the listed options are correct. 
A)  The par value of shares is the current market price of the common stock shares issued by the FI times the number of shares outstanding. 
B)  Retained earnings is the accumulated value of past profits not yet paid out in dividends to shareholders. 
C)  Loan loss reserve is a special reserve set aside out of retained earnings to meet unexpected losses on the portfolio. 
D)  All of the listed options are correct.

Question 20

Procyclicality refers to features or characteristics that:

Accepted Answer

A)  serve to exacerbate or amplify the underlying cyclicality of economic activity. 
B)  are only apparent during the down cycle of an economy. 
C)  help the economy to recover from a down cycle. 
D)  None of the listed options are correct. 
A)  serve to exacerbate or amplify the underlying cyclicality of economic activity. 
B)  are only apparent during the down cycle of an economy. 
C)  help the economy to recover from a down cycle. 
D)  None of the listed options are correct.

Which of the following statements is true?

Counterparty credit risk is the risk that the other side of a contract will default on payment obligation, whereby 'the other side' is always the FI.

In the standardised approach to operational risk capital, FI's are required to map their overall gross income into eight business lines that are pre-determined by the bank regulator.

Total capital (Tier 1 capital plus Tier 2 capital) must be at least ______ of risk-weighted assets at all times:

Choose the correct statement:

Assume an FI has $50 000 in assets and $45 000 in liabilities. Which of the following statements is true if interest rates on both assets and liabilities increase simultaneously?

Choose the correct capital adequacy ratio(s):

Retained earnings are:

The market risk capital charge is included in capital regulations as regulators recognise that changes in market value can impact on a FI's insolvency risk.

Which of the following statements is true?

Basel III's development and implementation has been driven by G20 countries following the global financial crisis and will include:

Which of the following are arguments against market value accounting?

Market to book ratio is a ratio that shows the discrepancy between the:

The leverage ratio is calculated as assets divided by core capital.

Which of the following statements is true?

Within the framework of Pillar I, which Basel Accord introduced two capital buffers: a capital conservation buffer and a countercyclical capital buffer?

Choose the correct statement:

To calculate the operational risk capital charge, the DI's activities are first divided into:

Which of the following statements is true?

Procyclicality refers to features or characteristics that:

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?

Counterparty credit risk is the risk that the other side of a contract will default on payment obligation, whereby 'the other side' is always the FI.

In the standardised approach to operational risk capital, FI's are required to map their overall gross income into eight business lines that are pre-determined by the bank regulator.

Total capital (Tier 1 capital plus Tier 2 capital) must be at least ______ of risk-weighted assets at all times:

Choose the correct statement:

Assume an FI has $50 000 in assets and $45 000 in liabilities. Which of the following statements is true if interest rates on both assets and liabilities increase simultaneously?

Choose the correct capital adequacy ratio(s):

Retained earnings are:

The market risk capital charge is included in capital regulations as regulators recognise that changes in market value can impact on a FI's insolvency risk.

Which of the following statements is true?

Basel III's development and implementation has been driven by G20 countries following the global financial crisis and will include:

Which of the following are arguments against market value accounting?

Market to book ratio is a ratio that shows the discrepancy between the:

The leverage ratio is calculated as assets divided by core capital.

Which of the following statements is true?

Within the framework of Pillar I, which Basel Accord introduced two capital buffers: a capital conservation buffer and a countercyclical capital buffer?

Choose the correct statement:

To calculate the operational risk capital charge, the DI's activities are first divided into:

Which of the following statements is true?

Procyclicality refers to features or characteristics that:

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