Question 1

Including on-balance-sheet and off-balance-sheet activities, a bank's net worth is calculated as:

Accepted Answer

A) (A-L) + (CA-CL) 
B) (A-L) - (CA-CL) 
C) (L-
A)  + (CA-CL) 
D) (L-
A)  - (CA-CL) 
A) (A-L) + (CA-CL) 
B) (A-L) - (CA-CL) 
C) (L-
A)  + (CA-CL) 
D) (L-
A)  - (CA-CL)

Question 2

If a future credit crunch occurs, a loan commitment may expose the FI to:

Accepted Answer

A) credit risk 
B) interest rate risk 
C) sovereign country risk 
D) funding risk 
A) credit risk 
B) interest rate risk 
C) sovereign country risk 
D) funding risk

Question 3

An adverse material changes in conditions clause is included in loan commitments to protect the FI against:

Accepted Answer

A) funding risk 
B) interest rate risk 
C) takedown risk 
D) credit risk 
A) funding risk 
B) interest rate risk 
C) takedown risk 
D) credit risk

Question 4

Settlement in case of 'when issued' (WI) trading must be completed on:

Accepted Answer

A) the date on which the counterparties agree 
B) Tuesday 
C) Wednesday 
D) Thursday 
A) the date on which the counterparties agree 
B) Tuesday 
C) Wednesday 
D) Thursday

Question 5

Interest rate risk is part of the loan commitment contingent risk because of the uncertainty of changes in interest rates before the borrower exercises his or her option to borrow.

Accepted Answer

A) True 
 B)False

Question 6

As compared to LCs, SLCs typically are used to cover contingencies that potentially are more severe and which may not be trade related.

Accepted Answer

A) True 
 B)False

Question 7

Assume a bank grants a loan commitment at an interest rate of 10% per annum and the risk premium on the loan is 2%.The bank charges borrowers an upfront fee on the whole commitment of 0.25% and a back-end fee on any unused proportion of the loan of 0.5%.The compensating balance is 10% and so are reserve requirements.Assume that the average draw-down of the loan is 80% over the time of the loan commitment.What is the promised return on the loan commitment (round to two decimals)?

Accepted Answer

A) 12.00% 
B) 12.75% 
C) 13.23% 
D) 13.67% 
A) 12.00% 
B) 12.75% 
C) 13.23% 
D) 13.67%

Question 8

Off-balance-sheet activities contributed to the 2008 global financial crisis with increasing financial market solvency risk exposure caused by:

Accepted Answer

A) loans sold with recourse had contingent liability implications for FIs when these loans went 'bad' 
B) sub-prime mortgages and OBS securities backed by these mortgages peaked prior to the mortgage market collapse 
C) the market for derivatives was opaque and 'trades' complex leading to counterparty risk where firms dealt directly with each other 
D) All of the listed options are correct. 
A) loans sold with recourse had contingent liability implications for FIs when these loans went 'bad' 
B) sub-prime mortgages and OBS securities backed by these mortgages peaked prior to the mortgage market collapse 
C) the market for derivatives was opaque and 'trades' complex leading to counterparty risk where firms dealt directly with each other 
D) All of the listed options are correct.

Question 9

Assume that the market value of assets is $120 and the market value of liabilities is $90.What is the bank's net worth?

Accepted Answer

A) $210 
B) $30 
C) -$30 
D) None of the listed options are correct. 
A) $210 
B) $30 
C) -$30 
D) None of the listed options are correct.

Question 10

The vega of an option measures:

Accepted Answer

A) interest rate risk 
B) volatility risk 
C) off-balance-sheet risk 
D) price elasticity 
A) interest rate risk 
B) volatility risk 
C) off-balance-sheet risk 
D) price elasticity

Question 11

Graphically explain the general set-up of a letter of credit transaction.In this context, explain why letters of credit are important

Accepted Answer

. @#IMG-DLM& Suppose the Australian importer sent

Question 12

How do you interpret a delta of 0.30?

Accepted Answer

A) A delta of 0.30 means that a one-cent change in the price of the underlying asset of the option leads to a 0.30 cent change in the price of the option. 
B) A delta of 0.30 means that a 10-cent change in the price of the underlying asset of the option leads to a 0.30 cent change in the price of the option. 
C) A delta of 0.30 means that a one-dollar change in the price of the underlying asset of the option leads to a 0.30 cent change in the price of the option. 
D) A delta of 0.30 means that a one-dollar change in the price of the underlying asset of the option leads to a 30% change in the price of the option. 
A) A delta of 0.30 means that a one-cent change in the price of the underlying asset of the option leads to a 0.30 cent change in the price of the option. 
B) A delta of 0.30 means that a 10-cent change in the price of the underlying asset of the option leads to a 0.30 cent change in the price of the option. 
C) A delta of 0.30 means that a one-dollar change in the price of the underlying asset of the option leads to a 0.30 cent change in the price of the option. 
D) A delta of 0.30 means that a one-dollar change in the price of the underlying asset of the option leads to a 30% change in the price of the option.

Question 13

Which of the following statements is true?

Accepted Answer

A) In its simplest form, the traditional valuation calculates an FI's net worth as the market value of assets less the market value of liabilities. 
B) In its simplest form, traditional valuation calculates an FI's net worth as the market value of assets plus the market value of liabilities. 
C) In its simplest form, traditional valuation calculates an FI's net worth as the market value of liabilities less the market value of assets. 
D) None of the listed options are correct. 
A) In its simplest form, the traditional valuation calculates an FI's net worth as the market value of assets less the market value of liabilities. 
B) In its simplest form, traditional valuation calculates an FI's net worth as the market value of assets plus the market value of liabilities. 
C) In its simplest form, traditional valuation calculates an FI's net worth as the market value of liabilities less the market value of assets. 
D) None of the listed options are correct.

Question 14

Which of the following statements is true?

Accepted Answer

A) An FI that issues a documentary letter of credit to one of its customers implicitly believes that the customer's credit standing is not sufficiently high enough to engage in international transactions. 
B) An FI that issues a documentary letter of credit to one of its customers implicitly assumes the borrower's credit risk. 
C) An FI that issues a documentary letter of credit to one of its customers has created a contingent asset. 
D) None of the listed options are correct. 
A) An FI that issues a documentary letter of credit to one of its customers implicitly believes that the customer's credit standing is not sufficiently high enough to engage in international transactions. 
B) An FI that issues a documentary letter of credit to one of its customers implicitly assumes the borrower's credit risk. 
C) An FI that issues a documentary letter of credit to one of its customers has created a contingent asset. 
D) None of the listed options are correct.

Question 15

An off-balance-sheet asset is an item that:

Accepted Answer

A) moves on to the asset side of the balance sheet when a contingent event occurs 
B) is off the balance sheet as it is not part of the FI's core operations 
C) is off the balance sheet as the FI does not wish to reveal its existence 
D) is off the balance sheet as it neither has an impact on the risk or profitability of the FI 
A) moves on to the asset side of the balance sheet when a contingent event occurs 
B) is off the balance sheet as it is not part of the FI's core operations 
C) is off the balance sheet as the FI does not wish to reveal its existence 
D) is off the balance sheet as it neither has an impact on the risk or profitability of the FI

Including on-balance-sheet and off-balance-sheet activities, a bank's net worth is calculated as:

If a future credit crunch occurs, a loan commitment may expose the FI to:

An adverse material changes in conditions clause is included in loan commitments to protect the FI against:

Settlement in case of 'when issued' (WI) trading must be completed on:

Interest rate risk is part of the loan commitment contingent risk because of the uncertainty of changes in interest rates before the borrower exercises his or her option to borrow.

As compared to LCs, SLCs typically are used to cover contingencies that potentially are more severe and which may not be trade related.

Off-balance-sheet activities contributed to the 2008 global financial crisis with increasing financial market solvency risk exposure caused by:

Assume that the market value of assets is $120 and the market value of liabilities is $90.What is the bank's net worth?

The vega of an option measures:

Graphically explain the general set-up of a letter of credit transaction.In this context, explain why letters of credit are important

How do you interpret a delta of 0.30?

Which of the following statements is true?

Which of the following statements is true?

An off-balance-sheet asset is an item that:

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

Including on-balance-sheet and off-balance-sheet activities, a bank's net worth is calculated as:

If a future credit crunch occurs, a loan commitment may expose the FI to:

An adverse material changes in conditions clause is included in loan commitments to protect the FI against:

Settlement in case of 'when issued' (WI) trading must be completed on:

Interest rate risk is part of the loan commitment contingent risk because of the uncertainty of changes in interest rates before the borrower exercises his or her option to borrow.

As compared to LCs, SLCs typically are used to cover contingencies that potentially are more severe and which may not be trade related.

Off-balance-sheet activities contributed to the 2008 global financial crisis with increasing financial market solvency risk exposure caused by:

Assume that the market value of assets is $120 and the market value of liabilities is $90.What is the bank's net worth?

The vega of an option measures:

Graphically explain the general set-up of a letter of credit transaction.In this context, explain why letters of credit are important

How do you interpret a delta of 0.30?

Which of the following statements is true?

Which of the following statements is true?

An off-balance-sheet asset is an item that:

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