Question 1

Costs of securitisation include:

Accepted Answer

A)  costs of public/private credit risk insurance and guarantees. 
B)  costs of over-collateralisation. 
C)  valuation and packaging costs (the cost of asset heterogeneity). 
D)  All of the listed options are correct. 
A)  costs of public/private credit risk insurance and guarantees. 
B)  costs of over-collateralisation. 
C)  valuation and packaging costs (the cost of asset heterogeneity). 
D)  All of the listed options are correct.

Question 2

With over $1200 billion in doubtful and troubled loans on their books in the early 2000s, _________ banks presented a huge potential market for the sale of distressed loans.

Accepted Answer

A)  Australian 
B)  US 
C)  UK 
D)  Japanese 
A)  Australian 
B)  US 
C)  UK 
D)  Japanese

Question 3

Illiquidity is a problem to an FI because while FI:

Accepted Answer

A)  liabilities tend to be highly illiquid; its assets usually are not. 
B)  assets tend to be highly liquid, its liabilities usually are not. 
C)  liabilities tend to be highly liquid, its assets usually are not. 
D)  None of the listed options are correct. 
A)  liabilities tend to be highly illiquid; its assets usually are not. 
B)  assets tend to be highly liquid, its liabilities usually are not. 
C)  liabilities tend to be highly liquid, its assets usually are not. 
D)  None of the listed options are correct.

Question 4

Which of the following statements is true?

Accepted Answer

A)  Zero-coupon corporate bonds are bonds without any intervening cash flows between issue and maturity and thus these bonds typically sell at a large discount from face value. 
B)  Zero-coupon corporate bonds are bonds with semi-annual cash flows between issue and maturity and thus these bonds typically sell at a large discount from face value. 
C)  Zero-coupon corporate bonds are bonds without any intervening cash flows between issue and maturity and thus these bonds typically sell at a small discount from face value. 
D)  Zero-coupon corporate bonds are bonds with annual cash flows between issue and maturity and thus these bonds typically sell at a large discount from face value. 
A)  Zero-coupon corporate bonds are bonds without any intervening cash flows between issue and maturity and thus these bonds typically sell at a large discount from face value. 
B)  Zero-coupon corporate bonds are bonds with semi-annual cash flows between issue and maturity and thus these bonds typically sell at a large discount from face value. 
C)  Zero-coupon corporate bonds are bonds without any intervening cash flows between issue and maturity and thus these bonds typically sell at a small discount from face value. 
D)  Zero-coupon corporate bonds are bonds with annual cash flows between issue and maturity and thus these bonds typically sell at a large discount from face value.

Question 5

In a loan participation the holder (buyer):

Accepted Answer

A)  is not a party to the underlying credit agreement, so the initial contract between the loan seller and the borrower remains in place after the sale 
B)  is a party to the underlying credit agreement, so the initial contract between the loan seller and the borrower remains in place after the sale. 
C)  can vote only on material changes to the loan contract such as changes in interest rate or collateral backing. 
D)  is not a party to the underlying credit agreement, so the initial contract between the loan seller and the borrower remains in place after the sale and the holder (buyer) can vote only on material changes to the loan contract such as changes in interest rate or collateral backing. 
A)  is not a party to the underlying credit agreement, so the initial contract between the loan seller and the borrower remains in place after the sale 
B)  is a party to the underlying credit agreement, so the initial contract between the loan seller and the borrower remains in place after the sale. 
C)  can vote only on material changes to the loan contract such as changes in interest rate or collateral backing. 
D)  is not a party to the underlying credit agreement, so the initial contract between the loan seller and the borrower remains in place after the sale and the holder (buyer) can vote only on material changes to the loan contract such as changes in interest rate or collateral backing.

Question 6

Which of the following is not true of a loan that is sold without recourse?

Accepted Answer

A)  The loan is removed from the FI's balance sheet. 
B)  The FI has no explicit liability if the loan eventually goes bad. 
C)  The FI that originated the loan bears all the credit risk. 
D)  The buyer can put the loan back to the selling FI. 
A)  The loan is removed from the FI's balance sheet. 
B)  The FI has no explicit liability if the loan eventually goes bad. 
C)  The FI that originated the loan bears all the credit risk. 
D)  The buyer can put the loan back to the selling FI.

Question 7

Which statement is not true with respect to loan sales?

Accepted Answer

A)  Are one way used by FI managers to restructure their balance sheet. 
B)  Can change the interest rate sensitivity of the FI's balance sheet. 
C)  Can be used to manage FI's interest rate risk. 
D)  None of the listed options are correct. 
A)  Are one way used by FI managers to restructure their balance sheet. 
B)  Can change the interest rate sensitivity of the FI's balance sheet. 
C)  Can be used to manage FI's interest rate risk. 
D)  None of the listed options are correct.

Question 8

Correspondent banking is a relationship between:

Accepted Answer

A)  banks in two different countries. 
B)  a commercial bank and an investment bank in which the investment bank provides a number of deposit, lending and other services. 
C)  a small bank and a large bank in which the large bank provides a number of deposit, lending and other services. 
D)  a large bank and non-banking financial institution. 
A)  banks in two different countries. 
B)  a commercial bank and an investment bank in which the investment bank provides a number of deposit, lending and other services. 
C)  a small bank and a large bank in which the large bank provides a number of deposit, lending and other services. 
D)  a large bank and non-banking financial institution.

Question 9

Assignments:

Accepted Answer

A)  are common in loan syndications. 
B)  do not have buyer restrictions. 
C)  comprise less than 30 per cent of the US loan sales market. 
D)  involve extremely high monitoring costs. 
A)  are common in loan syndications. 
B)  do not have buyer restrictions. 
C)  comprise less than 30 per cent of the US loan sales market. 
D)  involve extremely high monitoring costs.

Question 10

The profitability of securitised assets is largely determined by the special purpose vehicle's:

Accepted Answer

A)  debt to equity ratio. 
B)  credit rating. 
C)  ownership. 
D)  timing insurance. 
A)  debt to equity ratio. 
B)  credit rating. 
C)  ownership. 
D)  timing insurance.

Question 11

Currently, this basic type of loan sale contracts comprises the bulk of loan sales trading.

Accepted Answer

A)  participations 
B)  originations 
C)  syndications 
D)  assignments 
A)  participations 
B)  originations 
C)  syndications 
D)  assignments

Question 12

While collateralised mortgage obligation (CMO) is still the primary mechanism for securitisation, the pass-throughs are second and growing vehicle for securitising bank assets.

Accepted Answer

A) True 
 B)False

Question 13

Interest rate swaps are used to assist in interest rate risk management of the securitised assets.

Accepted Answer

A) True 
 B)False

Question 14

This propensity to prepay means:

Accepted Answer

A)  realised coupons/cash flows on pass-through securities would conform to expected cash flows. 
B)  realised coupons/cash flows on pass-through securities can often deviate substantially from the stated or expected coupon flows. 
C)  realised coupons/cash flows on pass-through securities are prepaid. 
D)  None of the listed options are correct. 
A)  realised coupons/cash flows on pass-through securities would conform to expected cash flows. 
B)  realised coupons/cash flows on pass-through securities can often deviate substantially from the stated or expected coupon flows. 
C)  realised coupons/cash flows on pass-through securities are prepaid. 
D)  None of the listed options are correct.

Question 15

One way to boost the capital to assets ratio of an FI is through loan sales.

Accepted Answer

A) True 
 B)False

Question 16

Collateralised debt obligation (CDO) is:

Accepted Answer

A)  an asset-backed bond issued in multiple classes or tranches. 
B)  a mortgage issued in multiple classes or tranches. 
C)  unsecured notes issued in multiple classes or tranches. 
D)  commercial paper issued with collateral. 
A)  an asset-backed bond issued in multiple classes or tranches. 
B)  a mortgage issued in multiple classes or tranches. 
C)  unsecured notes issued in multiple classes or tranches. 
D)  commercial paper issued with collateral.

Question 17

The implementation of BIS capital requirements may be expected to:

Accepted Answer

A)  increase the downward trend in loan sales because of higher required capital levels. 
B)  increase the downward trend in loan sales because of the use of risk adjusted assets. 
C)  decrease the downward trend in loan sales because of the use of risk adjusted assets and because of higher required capital 
D)  decrease the downward trend in loan sales because of the use of risk adjusted assets and because of lower required capital levels. 
A)  increase the downward trend in loan sales because of higher required capital levels. 
B)  increase the downward trend in loan sales because of the use of risk adjusted assets. 
C)  decrease the downward trend in loan sales because of the use of risk adjusted assets and because of higher required capital 
D)  decrease the downward trend in loan sales because of the use of risk adjusted assets and because of lower required capital levels.

Question 18

Benefits of securitisation include:

Accepted Answer

A)  increased liquidity of bank loans 
B)  enhanced ability to manage the duration gap. 
C)  if off-balance-sheet, the issuer saves on reserve requirements, deposit insurance premiums and capital adequacy requirements. 
D)  All of the listed options are correct. 
A)  increased liquidity of bank loans 
B)  enhanced ability to manage the duration gap. 
C)  if off-balance-sheet, the issuer saves on reserve requirements, deposit insurance premiums and capital adequacy requirements. 
D)  All of the listed options are correct.

Question 19

What are the two basic types of loan sale contracts or mechanisms by which loans can be transferred between seller and buyer?

Accepted Answer

A)  participations and assignments 
B)  participations and originations 
C)  syndications and originations 
D)  transfers and assignments. 
A)  participations and assignments 
B)  participations and originations 
C)  syndications and originations 
D)  transfers and assignments.

Question 20

Which of the following statements is false?

Accepted Answer

A)  Default risk is the risk that the borrower is willing but unable to fulfil the terms promised under loan contract. 
B)  Default risk is the risk that the borrower refinances the loan before maturity. 
C)  Default risk is the risk that the borrower is able but unwilling to fulfil the terms promised under loan contract. 
D)  Default risk is the risk that the borrower is unable and unwilling to fulfil the terms promised under loan contract. 
A)  Default risk is the risk that the borrower is willing but unable to fulfil the terms promised under loan contract. 
B)  Default risk is the risk that the borrower refinances the loan before maturity. 
C)  Default risk is the risk that the borrower is able but unwilling to fulfil the terms promised under loan contract. 
D)  Default risk is the risk that the borrower is unable and unwilling to fulfil the terms promised under loan contract.

Costs of securitisation include:

With over $1200 billion in doubtful and troubled loans on their books in the early 2000s, _________ banks presented a huge potential market for the sale of distressed loans.

Illiquidity is a problem to an FI because while FI:

Which of the following statements is true?

In a loan participation the holder (buyer):

Which of the following is not true of a loan that is sold without recourse?

Which statement is not true with respect to loan sales?

Correspondent banking is a relationship between:

Assignments:

The profitability of securitised assets is largely determined by the special purpose vehicle's:

Currently, this basic type of loan sale contracts comprises the bulk of loan sales trading.

While collateralised mortgage obligation (CMO) is still the primary mechanism for securitisation, the pass-throughs are second and growing vehicle for securitising bank assets.

Interest rate swaps are used to assist in interest rate risk management of the securitised assets.

This propensity to prepay means:

One way to boost the capital to assets ratio of an FI is through loan sales.

Collateralised debt obligation (CDO) is:

The implementation of BIS capital requirements may be expected to:

Benefits of securitisation include:

What are the two basic types of loan sale contracts or mechanisms by which loans can be transferred between seller and buyer?

Which of the following statements is false?

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

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

Capital Management and Adequacy

Filters

Exam 8: Credit Risk I: Individual Loan Risk

Costs of securitisation include:

With over $1200 billion in doubtful and troubled loans on their books in the early 2000s, _________ banks presented a huge potential market for the sale of distressed loans.

Illiquidity is a problem to an FI because while FI:

Which of the following statements is true?

In a loan participation the holder (buyer):

Which of the following is not true of a loan that is sold without recourse?

Which statement is not true with respect to loan sales?

Correspondent banking is a relationship between:

Assignments:

The profitability of securitised assets is largely determined by the special purpose vehicle's:

Currently, this basic type of loan sale contracts comprises the bulk of loan sales trading.

While collateralised mortgage obligation (CMO) is still the primary mechanism for securitisation, the pass-throughs are second and growing vehicle for securitising bank assets.

Interest rate swaps are used to assist in interest rate risk management of the securitised assets.

This propensity to prepay means:

One way to boost the capital to assets ratio of an FI is through loan sales.

Collateralised debt obligation (CDO) is:

The implementation of BIS capital requirements may be expected to:

Benefits of securitisation include:

What are the two basic types of loan sale contracts or mechanisms by which loans can be transferred between seller and buyer?

Which of the following statements is false?

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

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

Capital Management and Adequacy

Filters