Question 1

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% of risk-weighted assets. 
C) The total of Tier II capital is limited to 100% 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% of risk-weighted assets. 
C) The total of Tier II capital is limited to 100% of Tier I capital. 
D) All of the listed options are correct.

Question 2

Which of the following elements is usually not included in the book value of capital?

Accepted Answer

A) the par value of shares 
B) the FI's earnings 
C) loan loss reserve 
D) the surplus value of shares 
A) the par value of shares 
B) the FI's earnings 
C) loan loss reserve 
D) the surplus value of shares

Question 3

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 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 risk 
C) pure risk and speculative risk 
D) inflation risk and interest rate risk

Question 4

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 5

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 6

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) FIs 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) FIs 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 7

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

Question 8

Which of the following statements is true for Basel II agreement?

Accepted Answer

A) The Basel capital framework consists of three mutually reinforcing pillars. 
B) Pillar I deals with the calculation of regulatory capital against FIs' credit risk only. 
C) Pillar II deals with market discipline. 
D) Pillar III deals with the supervisory review process. 
A) The Basel capital framework consists of three mutually reinforcing pillars. 
B) Pillar I deals with the calculation of regulatory capital against FIs' credit risk only. 
C) Pillar II deals with market discipline. 
D) Pillar III deals with the supervisory review process.

Question 9

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 10

The risk that the value of a security will change due to issuer-specific factors and applies to interest rate and equity positions related to a specific issuer is:

Accepted Answer

A) specific risk 
B) general market risk 
C) beta 
D) total risk 
A) specific risk 
B) general market risk 
C) beta 
D) total risk

Question 11

Identify the main functions of an FI's capital and differentiate between Tier 1 and Tier 2 capital.

Accepted Answer

FI's capital provides five main function

Question 12

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 13

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 14

The capital conservation buffer is _______ of risk-weighted assets, comprised of _______ only:

Accepted Answer

A) 2.5%, common equity Tier 1 only 
B) 2.5%, Tier 1 only 
C) 7.5%, common equity Tier 1 only 
D) 7.5%, Tier 1 only 
A) 2.5%, common equity Tier 1 only 
B) 2.5%, Tier 1 only 
C) 7.5%, common equity Tier 1 only 
D) 7.5%, Tier 1 only

Question 15

The net worth is a measure of an FI's capital that is equal to the difference between the:

Accepted Answer

A) book value of its assets and the market value of its liabilities 
B) market value of its assets and the book value of its liabilities 
C) market value of its assets and the market value of its liabilities 
D) book value of its liabilities and the book value of its assets 
A) book value of its assets and the market value of its liabilities 
B) market value of its assets and the book value of its liabilities 
C) market value of its assets and the market value of its liabilities 
D) book value of its liabilities and the book value of its assets

Question 16

Credit-risk-adjusted assets are on- and off-balance-sheet assets whose values are adjusted for approximate credit risk.

Accepted Answer

A) True 
 B)False

Question 17

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 $20 million and trade-related letters of credit with a face value of $70 million.All counterparties have a credit rating of BBB.What is the capital amount the FI needs to hold against these exposures?

Accepted Answer

A) $5.04 million 
B) $7.52 million 
C) $8.4 million 
D) $24.8 million 
A) $5.04 million 
B) $7.52 million 
C) $8.4 million 
D) $24.8 million

Question 18

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 19

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 20

Which of the following statements is true?

Accepted Answer

A) Banks get a tax-shelter against the cost of write-offs. 
B) The cost of a write-off is increased by a tax shelter. 
C) If losses exceed a bank's loan loss reserves, the bank is likely to use its liquidity holdings as its next line of defence. 
D) All of the listed options are correct. 
A) Banks get a tax-shelter against the cost of write-offs. 
B) The cost of a write-off is increased by a tax shelter. 
C) If losses exceed a bank's loan loss reserves, the bank is likely to use its liquidity holdings as its next line of defence. 
D) All of the listed options are correct.

Which of the following is true?

Which of the following elements is usually not included in the book value of capital?

Market risk is made up of:

Which of the following statements is true?

Which of the following statements is true?

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

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

Which of the following statements is true for Basel II agreement?

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.

The risk that the value of a security will change due to issuer-specific factors and applies to interest rate and equity positions related to a specific issuer is:

Identify the main functions of an FI's capital and differentiate between Tier 1 and Tier 2 capital.

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

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

The capital conservation buffer is _ of risk-weighted assets, comprised of _ only:

The net worth is a measure of an FI's capital that is equal to the difference between the:

Credit-risk-adjusted assets are on- and off-balance-sheet assets whose values are adjusted for approximate credit risk.

Which of the following statements is true?

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?

Which of the following statements is true?

Why Are Financial Institutions Special

The Financial Service Industry: Depository Institutions

The Financial Service Industry: Other Financial Institutions

Risks 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

Managing Interest Rate Risk Using Securitisation

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 Risks

Filters

Exam 18: Capital Management and Adequacy

Which of the following is true?

Which of the following elements is usually not included in the book value of capital?

Market risk is made up of:

Which of the following statements is true?

Which of the following statements is true?

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

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

Which of the following statements is true for Basel II agreement?

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.

The risk that the value of a security will change due to issuer-specific factors and applies to interest rate and equity positions related to a specific issuer is:

Identify the main functions of an FI's capital and differentiate between Tier 1 and Tier 2 capital.

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

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

The capital conservation buffer is _______ of risk-weighted assets, comprised of _______ only:

The net worth is a measure of an FI's capital that is equal to the difference between the:

Credit-risk-adjusted assets are on- and off-balance-sheet assets whose values are adjusted for approximate credit risk.

Which of the following statements is true?

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?

Which of the following statements is true?

Why Are Financial Institutions Special

The Financial Service Industry: Depository Institutions

The Financial Service Industry: Other Financial Institutions

Risks 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

Managing Interest Rate Risk Using Securitisation

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 Risks

Filters

The capital conservation buffer is _ of risk-weighted assets, comprised of _ only: