Question 1

In the early 1980s:

Accepted Answer

A) banks increased their off-balance-sheet activities to avoid regulatory taxes 
B) banks decreased their off-balance-sheet activities to avoid regulatory costs 
C) banks decreased their off-balance-sheet activities to avoid competition from non-bank banks 
D) banks increased their off-balance-sheet activities to avoid competition from non-bank banks 
A) banks increased their off-balance-sheet activities to avoid regulatory taxes 
B) banks decreased their off-balance-sheet activities to avoid regulatory costs 
C) banks decreased their off-balance-sheet activities to avoid competition from non-bank banks 
D) banks increased their off-balance-sheet activities to avoid competition from non-bank banks

Question 2

Which of the following is true of an 'adverse material change in conditions clause' used in a loan commitment?

Accepted Answer

A) It allows the FI to cancel or reprice a loan commitment. 
B) It protects the lender against takedown risk. 
C) It protects the lender against basis risk. 
D) Exercise of the clause helps defaulted borrowers. 
A) It allows the FI to cancel or reprice a loan commitment. 
B) It protects the lender against takedown risk. 
C) It protects the lender against basis risk. 
D) Exercise of the clause helps defaulted borrowers.

Question 3

Which of the following statements is true?

Accepted Answer

A) When issued trading can expose FIs to future interest rate risk. 
B) When issued trading can expose FIs to future credit risk. 
C) When issued trading can expose FIs to future liquidity risk. 
D) When issued trading can expose FIs to future default risk. 
A) When issued trading can expose FIs to future interest rate risk. 
B) When issued trading can expose FIs to future credit risk. 
C) When issued trading can expose FIs to future liquidity risk. 
D) When issued trading can expose FIs to future default risk.

Question 4

Which of the following statements is true?

Accepted Answer

A) Large increases in the value of the OBS assets can render an FI economically insolvent. 
B) Large increases in the value of the OBS liabilities will not render an FI economically insolvent as the liabilities are only contingent. 
C) Large increases in the value of the OBS liabilities will not render an FI economically insolvent as the net worth of the institution will not be affected. 
D) Large increases in the value of the OBS liabilities can render an FI economically insolvent. 
A) Large increases in the value of the OBS assets can render an FI economically insolvent. 
B) Large increases in the value of the OBS liabilities will not render an FI economically insolvent as the liabilities are only contingent. 
C) Large increases in the value of the OBS liabilities will not render an FI economically insolvent as the net worth of the institution will not be affected. 
D) Large increases in the value of the OBS liabilities can render an FI economically insolvent.

Question 5

Which of the following statements is true?

Accepted Answer

A) Back-end fee is the fee imposed on the used component of a loan commitment. 
B) Back-end fee is the fee imposed at the beginning of a loan contract. 
C) Back-end fee is the fee imposed on the unused component of a loan commitment. 
D) Back-end fee is the fee imposed at the end of a loan contract. 
A) Back-end fee is the fee imposed on the used component of a loan commitment. 
B) Back-end fee is the fee imposed at the beginning of a loan contract. 
C) Back-end fee is the fee imposed on the unused component of a loan commitment. 
D) Back-end fee is the fee imposed at the end of a loan contract.

Question 6

Back-end fees are charged as a certain percentage of:

Accepted Answer

A) commitment size and loan taken down 
B) utilised portion of commitment size 
C) unused portion of commitment size 
D) interest payable on the loan commitment 
A) commitment size and loan taken down 
B) utilised portion of commitment size 
C) unused portion of commitment size 
D) interest payable on the loan commitment

Question 7

Which of the following statements is true?

Accepted Answer

A) Economically speaking, contingent assets and liabilities are contractual claims that might or might not impact on the economic value of a bank. 
B) Economically speaking, contingent assets and liabilities are contractual claims that do not impact on the economic value of a bank. 
C) Economically speaking, contingent assets and liabilities are contractual claims that directly impact on the economic value of a bank. 
D) Economically speaking, contingent assets and liabilities are contractual claims that indirectly impact on the economic value of a bank. 
A) Economically speaking, contingent assets and liabilities are contractual claims that might or might not impact on the economic value of a bank. 
B) Economically speaking, contingent assets and liabilities are contractual claims that do not impact on the economic value of a bank. 
C) Economically speaking, contingent assets and liabilities are contractual claims that directly impact on the economic value of a bank. 
D) Economically speaking, contingent assets and liabilities are contractual claims that indirectly impact on the economic value of a bank.

Question 8

Which of the following statements is true?

Accepted Answer

A) A futures contract is a standardised contract between two parties to deliver and pay for an asset in the future. 
B) A futures contract is a non-standardised contract between two parties to deliver and pay for an asset in the future. 
C) A futures contract is a standardised contract guaranteed by organised exchanges to deliver and pay for an asset in the future. 
D) A futures contract is a non-standardised contract b guaranteed by organised exchanges to deliver and pay for an asset in the future. 
A) A futures contract is a standardised contract between two parties to deliver and pay for an asset in the future. 
B) A futures contract is a non-standardised contract between two parties to deliver and pay for an asset in the future. 
C) A futures contract is a standardised contract guaranteed by organised exchanges to deliver and pay for an asset in the future. 
D) A futures contract is a non-standardised contract b guaranteed by organised exchanges to deliver and pay for an asset in the future.

Question 9

Which of the following statements is true?

Accepted Answer

A) For an in-the-money call option the price of the underlying security is below the option's exercise price. 
B) For an in-the-money call option the price of the underlying security is equal to the option's exercise price. 
C) For an in-the-money call option the price of the underlying security exceeds the option's exercise price. 
D) The answer to the question depends on the type of the call option. 
A) For an in-the-money call option the price of the underlying security is below the option's exercise price. 
B) For an in-the-money call option the price of the underlying security is equal to the option's exercise price. 
C) For an in-the-money call option the price of the underlying security exceeds the option's exercise price. 
D) The answer to the question depends on the type of the call option.

Question 10

Where are the contingent items disclosed in the financial statements?

Accepted Answer

A) on the assets side of the balance sheet 
B) on the liabilities side of the balance sheet 
C) as footnotes to financial statements 
D) in the income statement 
A) on the assets side of the balance sheet 
B) on the liabilities side of the balance sheet 
C) as footnotes to financial statements 
D) in the income statement

Question 11

Guarantees issued to cover contingencies that are potentially more severe and less predictable than contingencies covered under trade-related or documentary letters of credit are:

Accepted Answer

A) standby letters of credit 
B) a loan commitment agreement 
C) RBA letters of credit 
D) None of the listed options are correct. 
A) standby letters of credit 
B) a loan commitment agreement 
C) RBA letters of credit 
D) None of the listed options are correct.

Question 12

Briefly explain how off-balance-sheet transactions can affect an FI's solvency.

Accepted Answer

An item or activity is an OBS asset if,

Question 13

Which of the following situations is similar to the externality effect?

Accepted Answer

A) Exercising an adverse material change in conditions clause as a last resort, thereby cancelling or repricing a loan commitment. 
B) Increase in the cost of funds above normal levels while many FIs scramble for funds to meet their commitments to customers during a credit crunch. 
C) In a loan commitment, the borrower takes down only part of the funds over the specified time period. 
D) The buyer of a commercial letter of credit fails to perform as promised under a contractual obligation. 
A) Exercising an adverse material change in conditions clause as a last resort, thereby cancelling or repricing a loan commitment. 
B) Increase in the cost of funds above normal levels while many FIs scramble for funds to meet their commitments to customers during a credit crunch. 
C) In a loan commitment, the borrower takes down only part of the funds over the specified time period. 
D) The buyer of a commercial letter of credit fails to perform as promised under a contractual obligation.

Question 14

Which of the following statements is true?

Accepted Answer

A) The vega of an option is a measure of volatility risk. 
B) The omega of an option is a measure of volatility risk. 
C) The delta of an option is a measure of volatility risk. 
D) The alpha of an option is a measure of volatility risk. 
A) The vega of an option is a measure of volatility risk. 
B) The omega of an option is a measure of volatility risk. 
C) The delta of an option is a measure of volatility risk. 
D) The alpha of an option is a measure of volatility risk.

Question 15

Which of the following statements is true?

Accepted Answer

A) The default risk in futures contracts is considered to be less than that of forward contracts because of daily marking to market of futures. 
B) The default risk in futures contracts is considered to be less than that of forward contracts because of margin requirements on futures that act as a security bond and because of default guarantees by the future exchange itself. 
C) The default risk in futures contracts is considered to be less than that of forward contracts because of price limits that spread out over times of extreme price fluctuations. 
D) All of the listed options are correct. 
A) The default risk in futures contracts is considered to be less than that of forward contracts because of daily marking to market of futures. 
B) The default risk in futures contracts is considered to be less than that of forward contracts because of margin requirements on futures that act as a security bond and because of default guarantees by the future exchange itself. 
C) The default risk in futures contracts is considered to be less than that of forward contracts because of price limits that spread out over times of extreme price fluctuations. 
D) All of the listed options are correct.

Question 16

Which of the following statements is true?

Accepted Answer

A) The measure used to measure the change in delta as the underlying security price varies is called vega. 
B) The measure used to measure the change in delta as the underlying security price varies is called alpha. 
C) The measure used to measure the change in delta as the underlying security price varies is called beta. 
D) None of the listed options are correct. 
A) The measure used to measure the change in delta as the underlying security price varies is called vega. 
B) The measure used to measure the change in delta as the underlying security price varies is called alpha. 
C) The measure used to measure the change in delta as the underlying security price varies is called beta. 
D) None of the listed options are correct.

Question 17

Conceptually, a swap contract can be viewed as a succession of forward contracts.

Accepted Answer

A) True 
 B)False

Question 18

Standby letters of credit are guarantees issued to cover contingencies that are potentially more severe and less predictable than contingencies covered under trade-related or documentary letters of credit

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is true?

Accepted Answer

A) The variable spread between a lending rate and a borrowing rate, or between any two interest rates or prices is called basis risk. 
B) The variable spread between a lending rate and a borrowing rate, or between any two interest rates or prices is called spread risk. 
C) The variable spread between a lending rate and a borrowing rate, or between any two interest rates or prices is called interest spread risk. 
D) The variable spread between a lending rate and a borrowing rate, or between any two interest rates or prices is called funding risk 
A) The variable spread between a lending rate and a borrowing rate, or between any two interest rates or prices is called basis risk. 
B) The variable spread between a lending rate and a borrowing rate, or between any two interest rates or prices is called spread risk. 
C) The variable spread between a lending rate and a borrowing rate, or between any two interest rates or prices is called interest spread risk. 
D) The variable spread between a lending rate and a borrowing rate, or between any two interest rates or prices is called funding risk

Question 20

Which of the following contingent risks are most likely to be created if a bank provides a loan commitment?

Accepted Answer

A) interest rate risk and credit risk 
B) draw-down risk 
C) aggregate funding risk 
D) All of the listed options are correct. 
A) interest rate risk and credit risk 
B) draw-down risk 
C) aggregate funding risk 
D) All of the listed options are correct.

In the early 1980s:

Which of the following is true of an 'adverse material change in conditions clause' used in a loan commitment?

Which of the following statements is true?

Which of the following statements is true?

Which of the following statements is true?

Back-end fees are charged as a certain percentage of:

Which of the following statements is true?

Which of the following statements is true?

Which of the following statements is true?

Where are the contingent items disclosed in the financial statements?

Guarantees issued to cover contingencies that are potentially more severe and less predictable than contingencies covered under trade-related or documentary letters of credit are:

Briefly explain how off-balance-sheet transactions can affect an FI's solvency.

Which of the following situations is similar to the externality effect?

Which of the following statements is true?

Which of the following statements is true?

Which of the following statements is true?

Conceptually, a swap contract can be viewed as a succession of forward contracts.

Standby letters of credit are guarantees issued to cover contingencies that are potentially more severe and less predictable than contingencies covered under trade-related or documentary letters of credit

Which of the following statements is true?

Which of the following contingent risks are most likely to be created if a bank provides a loan commitment?

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

Technology and Other Operational Risks

Capital Management and Adequacy

Filters

Exam 16: Off-Balance-Sheet Activities

In the early 1980s:

Which of the following is true of an 'adverse material change in conditions clause' used in a loan commitment?

Which of the following statements is true?

Which of the following statements is true?

Which of the following statements is true?

Back-end fees are charged as a certain percentage of:

Which of the following statements is true?

Which of the following statements is true?

Which of the following statements is true?

Where are the contingent items disclosed in the financial statements?

Guarantees issued to cover contingencies that are potentially more severe and less predictable than contingencies covered under trade-related or documentary letters of credit are:

Briefly explain how off-balance-sheet transactions can affect an FI's solvency.

Which of the following situations is similar to the externality effect?

Which of the following statements is true?

Which of the following statements is true?

Which of the following statements is true?

Conceptually, a swap contract can be viewed as a succession of forward contracts.

Standby letters of credit are guarantees issued to cover contingencies that are potentially more severe and less predictable than contingencies covered under trade-related or documentary letters of credit

Which of the following statements is true?

Which of the following contingent risks are most likely to be created if a bank provides a loan commitment?

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

Technology and Other Operational Risks

Capital Management and Adequacy

Filters