Question 1

Two basic strategies for reducing the effects of interest rate risk include using hedging strategies and:

Accepted Answer

A)  buying financial futures contracts. 
B)  selling options on futures. 
C)  forecasting interest rates. 
D)  financing long term. 
A)  buying financial futures contracts. 
B)  selling options on futures. 
C)  forecasting interest rates. 
D)  financing long term.

Question 2

If a fall in interest rates causes a bank's market value of net worth to rise,the bank must have a:

Accepted Answer

A)  positive duration gap for its portfolio of assets and liabilities. 
B)  negative duration gap for its portfolio of assets and liabilities. 
C)  negative gap. 
D)  positive gap. 
A)  positive duration gap for its portfolio of assets and liabilities. 
B)  negative duration gap for its portfolio of assets and liabilities. 
C)  negative gap. 
D)  positive gap.

Question 3

When there is an upward sloping yield curve and interest rates are forecast to increase a firm decides to restructure its outstanding debt to longer term then in the short-term the company:

Accepted Answer

A)  faces an immediate decrease in its costs of funds. 
B)  faces an immediate increase in its costs of funds. 
C)  is reducing its basis risk. 
D)  is reducing its business risk. 
A)  faces an immediate decrease in its costs of funds. 
B)  faces an immediate increase in its costs of funds. 
C)  is reducing its basis risk. 
D)  is reducing its business risk.

Question 4

When interest rates move from 9 to 10% per annum for a three-year bond paying a 9% per annum coupon,the:

Accepted Answer

A)  coupon rate becomes higher than the current market yield 
B)  present value of the bond becomes higher than the face value 
C)  current yield becomes higher than the coupon rate 
D)  current price of the bond will increase 
A)  coupon rate becomes higher than the current market yield 
B)  present value of the bond becomes higher than the face value 
C)  current yield becomes higher than the coupon rate 
D)  current price of the bond will increase

Question 5

All things being equal,the duration of a bond is positively correlated with the bond's:

Accepted Answer

A)  yield to maturity. 
B)  coupon rate. 
C)  time to maturity. 
D)  all of the given answers. 
A)  yield to maturity. 
B)  coupon rate. 
C)  time to maturity. 
D)  all of the given answers.

Question 6

Which of the following statements about the limitations of duration analysis is incorrect?

Accepted Answer

A)  It assumes that the term structure of interest rates changes by an equal number of basis points. 
B)  It assumes that the yield curve is always upward-sloping. 
C)  Duration needs to be regularly recalculated as interest rates change. 
D)  The pricing of fixed-interest securities displays convexity. 
A)  It assumes that the term structure of interest rates changes by an equal number of basis points. 
B)  It assumes that the yield curve is always upward-sloping. 
C)  Duration needs to be regularly recalculated as interest rates change. 
D)  The pricing of fixed-interest securities displays convexity.

Question 7

Because of convexity of the price/yield curve of fixed-interest securities,when interest rates _______,duration will _______ the change in price.

Accepted Answer

A)  rise; underestimate 
B)  rise; overestimate 
C)  fall; overestimate 
D)  fall; not affect 
A)  rise; underestimate 
B)  rise; overestimate 
C)  fall; overestimate 
D)  fall; not affect

Question 8

If a bank increases interest rates on its loans for its customers and then they seek new loans from other banks this interest rate exposure is called _____ interest rate risk.

Accepted Answer

A)  direct 
B)  indirect 
C)  basis 
D)  reinvestment 
A)  direct 
B)  indirect 
C)  basis 
D)  reinvestment

Question 9

Which of the following duration analysis is incorrect?

Accepted Answer

A)  Duration can be used to calculate the dollar value impact of an interest rate change on the value of a security. 
B)  The duration of a portfolio is the weighted duration of each asset or liability in the portfolio. 
C)  A longer term bond with a higher duration than a short-term bond is faced with higher interest rate risk. 
D)  Duration analysis assumes that yield curves are normal or upward sloping. 
A)  Duration can be used to calculate the dollar value impact of an interest rate change on the value of a security. 
B)  The duration of a portfolio is the weighted duration of each asset or liability in the portfolio. 
C)  A longer term bond with a higher duration than a short-term bond is faced with higher interest rate risk. 
D)  Duration analysis assumes that yield curves are normal or upward sloping.

Question 10

The duration of securities can be used to estimate their sensitivity to:

Accepted Answer

A)  default risk. 
B)  holding period yields. 
C)  interest rate risk. 
D)  reinvestment risk. 
A)  default risk. 
B)  holding period yields. 
C)  interest rate risk. 
D)  reinvestment risk.

Question 11

When interest-sensitive assets are financed by interest-sensitive liabilities,changes in interest rates will affect:

Accepted Answer

A)  only interest-sensitive assets. 
B)  only interest-sensitive liabilities. 
C)  both interest-sensitive assets and interest-sensitive liabilities. 
D)  only long-term assets. 
A)  only interest-sensitive assets. 
B)  only interest-sensitive liabilities. 
C)  both interest-sensitive assets and interest-sensitive liabilities. 
D)  only long-term assets.

Question 12

According to the text,two forms of interest rate risk are:

Accepted Answer

A)  price risk and default risk. 
B)  reinvestment risk and systematic risk. 
C)  credit risk and price risk. 
D)  price risk and reinvestment risk. 
A)  price risk and default risk. 
B)  reinvestment risk and systematic risk. 
C)  credit risk and price risk. 
D)  price risk and reinvestment risk.

Question 13

For repricing gap analysis,fixed-rate assets and liabilities are combined in the calculation with interest-sensitive assets and interest-sensitive liabilities to obtain an overall net effect.

Accepted Answer

A) True 
 B)False

Question 14

The duration of a four-year zero coupon bond is:

Accepted Answer

A)  larger than four. 
B)  smaller than four. 
C)  equal to four. 
D)  equal to that of a four-year 5% coupon bond. 
A)  larger than four. 
B)  smaller than four. 
C)  equal to four. 
D)  equal to that of a four-year 5% coupon bond.

Question 15

A positive ARBL gap means that there is an upward movement in interest rates.

Accepted Answer

A) True 
 B)False

Two basic strategies for reducing the effects of interest rate risk include using hedging strategies and:

If a fall in interest rates causes a bank's market value of net worth to rise,the bank must have a:

When there is an upward sloping yield curve and interest rates are forecast to increase a firm decides to restructure its outstanding debt to longer term then in the short-term the company:

When interest rates move from 9 to 10% per annum for a three-year bond paying a 9% per annum coupon,the:

All things being equal,the duration of a bond is positively correlated with the bond's:

Which of the following statements about the limitations of duration analysis is incorrect?

Because of convexity of the price/yield curve of fixed-interest securities,when interest rates _,duration will _ the change in price.

If a bank increases interest rates on its loans for its customers and then they seek new loans from other banks this interest rate exposure is called _____ interest rate risk.

Which of the following duration analysis is incorrect?

The duration of securities can be used to estimate their sensitivity to:

When interest-sensitive assets are financed by interest-sensitive liabilities,changes in interest rates will affect:

According to the text,two forms of interest rate risk are:

For repricing gap analysis,fixed-rate assets and liabilities are combined in the calculation with interest-sensitive assets and interest-sensitive liabilities to obtain an overall net effect.

The duration of a four-year zero coupon bond is:

A positive ARBL gap means that there is an upward movement in interest rates.

A Modern Financial System: An Overview

Commercial Banks

Non-Bank Financial Institutions

The Share Market and the Corporation

Corporations Issuing Equity in the Share Market

Investors in the Share Market

Forecasting Share Price Movements

Mathematics of Finance: An Introduction to Basic Concepts and Calculations

Short-Term Debt

Medium-To-Long-Term Debt

International Debt Markets

Government Debt, monetary Policy and the Payments System

An Introduction to Interest Rate Determination and Forecasting

Foreign Exchange: The Structure and Operation of the Fx Market

Foreign Exchange: Factors That Influence the Exchange Rate

Foreign Exchange: Risk Identification and Management

An Introduction to Risk Management and Derivatives

Future Contracts and Forward Rate Agreements

Options

Interest Rate Swaps, Cross-Currency Swaps and Credit Default

Filters

Exam 14: Interest Rate Risk

Two basic strategies for reducing the effects of interest rate risk include using hedging strategies and:

If a fall in interest rates causes a bank's market value of net worth to rise,the bank must have a:

When there is an upward sloping yield curve and interest rates are forecast to increase a firm decides to restructure its outstanding debt to longer term then in the short-term the company:

When interest rates move from 9 to 10% per annum for a three-year bond paying a 9% per annum coupon,the:

All things being equal,the duration of a bond is positively correlated with the bond's:

Which of the following statements about the limitations of duration analysis is incorrect?

Because of convexity of the price/yield curve of fixed-interest securities,when interest rates _______,duration will _______ the change in price.

If a bank increases interest rates on its loans for its customers and then they seek new loans from other banks this interest rate exposure is called _____ interest rate risk.

Which of the following duration analysis is incorrect?

The duration of securities can be used to estimate their sensitivity to:

When interest-sensitive assets are financed by interest-sensitive liabilities,changes in interest rates will affect:

According to the text,two forms of interest rate risk are:

For repricing gap analysis,fixed-rate assets and liabilities are combined in the calculation with interest-sensitive assets and interest-sensitive liabilities to obtain an overall net effect.

The duration of a four-year zero coupon bond is:

A positive ARBL gap means that there is an upward movement in interest rates.

A Modern Financial System: An Overview

Commercial Banks

Non-Bank Financial Institutions

The Share Market and the Corporation

Corporations Issuing Equity in the Share Market

Investors in the Share Market

Forecasting Share Price Movements

Mathematics of Finance: An Introduction to Basic Concepts and Calculations

Short-Term Debt

Medium-To-Long-Term Debt

International Debt Markets

Government Debt, monetary Policy and the Payments System

An Introduction to Interest Rate Determination and Forecasting

Foreign Exchange: The Structure and Operation of the Fx Market

Foreign Exchange: Factors That Influence the Exchange Rate

Foreign Exchange: Risk Identification and Management

An Introduction to Risk Management and Derivatives

Future Contracts and Forward Rate Agreements

Options

Interest Rate Swaps, Cross-Currency Swaps and Credit Default

Filters

Because of convexity of the price/yield curve of fixed-interest securities,when interest rates _,duration will _ the change in price.