Question 1

Under Basel II, all standard residential mortgages attract a risk weight of 35%.

Accepted Answer

A) True 
 B)False

Question 2

In determining the risk-adjusted value of the on-balance-sheet credit equivalent amounts of the contingent guaranty contracts, the risk weights are determined by the credit rating of the underlying counterparty of the off-balance-sheet activity.

Accepted Answer

A) True 
 B)False

Question 3

Choose the correct statement:

Accepted Answer

A) APRA's APS 112 Capital adequacy: standardised approach to credit risk (APS 112) sets out the methods to be used to calculate credit-risk-adjusted assets using the standardised approach. 
B) APRA's APS 112 Capital adequacy: standardised approach to credit risk (APS 112) sets out the methods to be used to calculate credit-risk-adjusted assets using the advanced approach. 
C) APRA's APS 112 Capital adequacy: standardised approach to credit risk (APS 112) sets out the methods to be used to calculate credit-risk-adjusted assets using the combination approach. 
D) APRA's APS 112 Capital adequacy: standardised approach to credit risk (APS 112) sets out the methods to be used to calculate credit-risk-adjusted assets using the IRB approach. 
A) APRA's APS 112 Capital adequacy: standardised approach to credit risk (APS 112) sets out the methods to be used to calculate credit-risk-adjusted assets using the standardised approach. 
B) APRA's APS 112 Capital adequacy: standardised approach to credit risk (APS 112) sets out the methods to be used to calculate credit-risk-adjusted assets using the advanced approach. 
C) APRA's APS 112 Capital adequacy: standardised approach to credit risk (APS 112) sets out the methods to be used to calculate credit-risk-adjusted assets using the combination approach. 
D) APRA's APS 112 Capital adequacy: standardised approach to credit risk (APS 112) sets out the methods to be used to calculate credit-risk-adjusted assets using the IRB approach.

Question 4

Which of the following statements is true?

Accepted Answer

A) The market to book ratio shows the degree of discrepancy between the stock market value of an FI's equity and the book value of its equity. 
B) The market to book ratio shows the degree of discrepancy between the stock market value of an FI's assets and the book value of its assets. 
C) The market to book ratio shows the degree of discrepancy between the stock market value of an FI's liabilities and the book value of its liabilities. 
D) None of the listed options are correct. 
A) The market to book ratio shows the degree of discrepancy between the stock market value of an FI's equity and the book value of its equity. 
B) The market to book ratio shows the degree of discrepancy between the stock market value of an FI's assets and the book value of its assets. 
C) The market to book ratio shows the degree of discrepancy between the stock market value of an FI's liabilities and the book value of its liabilities. 
D) None of the listed options are correct.

Question 5

Economic capital is:

Accepted Answer

A) the asset and liability values of an FI reported according to their historical costs 
B) the amount of capital that the DI's shareholders are prepared to contribute so that the business remains as a going concern 
C) a measure of an FI's capital that is equal to the difference between the market value of its assets and the market value of its liabilities 
D) allows balance sheet values to reflect current rather than historical prices 
A) the asset and liability values of an FI reported according to their historical costs 
B) the amount of capital that the DI's shareholders are prepared to contribute so that the business remains as a going concern 
C) a measure of an FI's capital that is equal to the difference between the market value of its assets and the market value of its liabilities 
D) allows balance sheet values to reflect current rather than historical prices

Question 6

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

Accepted Answer

A) 9% 
B) 7.5% 
C) 8% 
D) 4.5% 
A) 9% 
B) 7.5% 
C) 8% 
D) 4.5%

Question 7

Choose the correct answer:

Accepted Answer

A) The purpose of Pillar 1 is to encourage market discipline through an information disclosure framework covering capital, capital adequacy, risk exposures and risk assessment processes. 
B) The purpose of Pillar 2 is to encourage market discipline through an information disclosure framework covering capital, capital adequacy, risk exposures and risk assessment processes. 
C) The purpose of Pillar 3 is to encourage market discipline through an information disclosure framework covering capital, capital adequacy, risk exposures and risk assessment processes. 
D) None of the listed options are correct. 
A) The purpose of Pillar 1 is to encourage market discipline through an information disclosure framework covering capital, capital adequacy, risk exposures and risk assessment processes. 
B) The purpose of Pillar 2 is to encourage market discipline through an information disclosure framework covering capital, capital adequacy, risk exposures and risk assessment processes. 
C) The purpose of Pillar 3 is to encourage market discipline through an information disclosure framework covering capital, capital adequacy, risk exposures and risk assessment processes. 
D) None of the listed options are correct.

Question 8

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 9

Book value is:

Accepted Answer

A) the asset and liability values of an FI reported according to their historical costs 
B) the amount of capital that the DI's shareholders are prepared to contribute so that the business remains as a going concern 
C) a measure of an FI's capital that is equal to the difference between the market value of its assets and the market value of its liabilities 
D) allows balance sheet values to reflect current rather than historical prices 
A) the asset and liability values of an FI reported according to their historical costs 
B) the amount of capital that the DI's shareholders are prepared to contribute so that the business remains as a going concern 
C) a measure of an FI's capital that is equal to the difference between the market value of its assets and the market value of its liabilities 
D) allows balance sheet values to reflect current rather than historical prices

Question 10

What are the major differences between the Basel I and the Basel II approaches to capital regulation?

Accepted Answer

Basel I required compliance with two cap

Question 11

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 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) FIs 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) FIs would be less willing to accept investments in shorter term assets. 
D) There are no arguments against market value accounting.

Question 13

Basel III has introduced the first set of global liquidity regulations.

Accepted Answer

A) True 
 B)False

Question 14

Common equity Tier 1 is:

Accepted Answer

A) made up discretionary non-cumulative dividends or coupons that have neither a maturity date nor an incentive to redeem 
B) used to provide loss absorption on a going-concern basis and must be subordinated to depositors and general creditors and an original maturity of at least five years 
C) subordinated to all other types of funding, absorbs losses, has full flexibility of dividend payments and has no maturity date 
D) None of the listed options are correct. 
A) made up discretionary non-cumulative dividends or coupons that have neither a maturity date nor an incentive to redeem 
B) used to provide loss absorption on a going-concern basis and must be subordinated to depositors and general creditors and an original maturity of at least five years 
C) subordinated to all other types of funding, absorbs losses, has full flexibility of dividend payments and has no maturity date 
D) None of the listed options are correct.

Question 15

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 16

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.

Under Basel II, all standard residential mortgages attract a risk weight of 35%.

In determining the risk-adjusted value of the on-balance-sheet credit equivalent amounts of the contingent guaranty contracts, the risk weights are determined by the credit rating of the underlying counterparty of the off-balance-sheet activity.

Choose the correct statement:

Which of the following statements is true?

Economic capital is:

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

Choose the correct answer:

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?

Book value is:

What are the major differences between the Basel I and the Basel II approaches to capital regulation?

Retained earnings are:

Which of the following are arguments against market value accounting?

Basel III has introduced the first set of global liquidity regulations.

Common equity Tier 1 is:

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

Choose the correct statement:

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

Under Basel II, all standard residential mortgages attract a risk weight of 35%.

In determining the risk-adjusted value of the on-balance-sheet credit equivalent amounts of the contingent guaranty contracts, the risk weights are determined by the credit rating of the underlying counterparty of the off-balance-sheet activity.

Choose the correct statement:

Which of the following statements is true?

Economic capital is:

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

Choose the correct answer:

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?

Book value is:

What are the major differences between the Basel I and the Basel II approaches to capital regulation?

Retained earnings are:

Which of the following are arguments against market value accounting?

Basel III has introduced the first set of global liquidity regulations.

Common equity Tier 1 is:

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

Choose the correct statement:

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