Question 1

Market value accounting often is said to be difficult to implement because of the amounts of nontraded assets.

Accepted Answer

A) True 
 B)False

Question 2

Broker-dealers make very few adjustments to the book value net worth to reach an approximate market value net worth.

Accepted Answer

A) True 
 B)False

Question 3

Basel III capital ratios will become fully effective in 2016.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following risk categories is NOT covered by the risk-based model for the life insurance industry?

Accepted Answer

A) Interest rate risk. 
B) Business risk. 
C) Asset risk. 
D) Foreign exchange risk. 
E) Insurance risk. 
A) Interest rate risk. 
B) Business risk. 
C) Asset risk. 
D) Foreign exchange risk. 
E) Insurance risk.

Question 5

The function of capital to serve as a source of funds is critical to regulators in setting risk-based deposit insurance premiums.

Accepted Answer

A) True 
 B)False

Question 6

A property-casualty (P-C) insurance firm has estimated the following risk-based capital charge for its individual risk classes: $$\begin{array} { | l | l | c | } 
\hline \text { Risk } & { \text { Description } } & \text { RBC Charge } \
\hline \text { R0 } & \text { Affiliated P-C } & \$ 6.0 \text { million } \
\hline \text { R1 } & \text { Fixed-income assets } & \$ 2.0 \text { million } \
\hline \text { R2 } & \text { Common stock } & \$ 1.0 \text { million } \
\hline \text { R3 } & \text { Reinsurance } & \$ 3.0 \text { million } \
\hline \text { R4 } & \text { Loss adjustment expense } & \$ 1.0 \text { million } \
\hline \text { R5 } & \text { Written premiums } & \$ 2.0 \text { million } \
\hline \text { Total } & & \$ 15.0 \text { million } \
\hline
\end{array}$$
-Using the model recommended by the National Association of Insurance Commissioners (NAIC), what is the total risk-based capital charge for the P-C firm?

Accepted Answer

A) $4.36 million. 
B) $10.00 million. 
C) $10.36 million. 
D) $12.50 million. 
E) $15.00 million. 
A) $4.36 million. 
B) $10.00 million. 
C) $10.36 million. 
D) $12.50 million. 
E) $15.00 million.

Question 7

What is the impact on economic capital of a 25 basis point decrease in interest rates if the FI is holding a 20-year, fixed-rate, 11 percent annual coupon bond selling at a par value of $100,000?

Accepted Answer

A) A decrease of $250. 
B) An increase of $250. 
C) An increase of $2,024. 
D) A decrease of $1,959. 
E) No impact on capital since the book value is unchanged. 
A) A decrease of $250. 
B) An increase of $250. 
C) An increase of $2,024. 
D) A decrease of $1,959. 
E) No impact on capital since the book value is unchanged.

Question 8

Under Basel III a depository institution's capital is divided into five categories.

Accepted Answer

A) True 
 B)False

Market value accounting often is said to be difficult to implement because of the amounts of nontraded assets.

Broker-dealers make very few adjustments to the book value net worth to reach an approximate market value net worth.

Basel III capital ratios will become fully effective in 2016.

Which of the following risk categories is NOT covered by the risk-based model for the life insurance industry?

The function of capital to serve as a source of funds is critical to regulators in setting risk-based deposit insurance premiums.

What is the impact on economic capital of a 25 basis point decrease in interest rates if the FI is holding a 20-year, fixed-rate, 11 percent annual coupon bond selling at a par value of $100,000?

Under Basel III a depository institution's capital is divided into five categories.

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Brokerage and Investment Banking

Financial Services: Mutual Funds and Hedge Funds

Financial Services: Insurance

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters

Exam 20: Capital Adequacy

Market value accounting often is said to be difficult to implement because of the amounts of nontraded assets.

Broker-dealers make very few adjustments to the book value net worth to reach an approximate market value net worth.

Basel III capital ratios will become fully effective in 2016.

Which of the following risk categories is NOT covered by the risk-based model for the life insurance industry?

The function of capital to serve as a source of funds is critical to regulators in setting risk-based deposit insurance premiums.

What is the impact on economic capital of a 25 basis point decrease in interest rates if the FI is holding a 20-year, fixed-rate, 11 percent annual coupon bond selling at a par value of $100,000?

Under Basel III a depository institution's capital is divided into five categories.

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Brokerage and Investment Banking

Financial Services: Mutual Funds and Hedge Funds

Financial Services: Insurance

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters