Question 1

Interest rate swaps are used to assist in interest rate risk management of the securitised assets.

Accepted Answer

A) True 
 B)False

Question 2

One way to boost the capital to assets ratio of an FI is through loan sales.

Accepted Answer

A) True 
 B)False

Question 3

... is the creation of securities based on a pool of underlying assets; and the value and income payments of the created securities are derived from the underlying assets.

Accepted Answer

A) Syndication 
B) Asset securitisation 
C) Arbitrage 
D) Hedging 
A) Syndication 
B) Asset securitisation 
C) Arbitrage 
D) Hedging

Question 4

Which of the following is true concerning loans sold without recourse?

Accepted Answer

A) The loan sale is technically removed from the balance sheet. 
B) The buyer cannot put the loan back to the selling FI. 
C) The FI has no explicit liability if the loan eventually goes bad. 
D) None of the listed options are correct. 
A) The loan sale is technically removed from the balance sheet. 
B) The buyer cannot put the loan back to the selling FI. 
C) The FI has no explicit liability if the loan eventually goes bad. 
D) None of the listed options are correct.

Question 5

The ___________ is an accrual class of a CMO that makes a payment to bondholders only when preceding CMO classes have been retired:

Accepted Answer

A) A Class 
B) B Class 
C) Z Class 
D) R Class 
A) A Class 
B) B Class 
C) Z Class 
D) R Class

Question 6

Fully amortised means:

Accepted Answer

A) periodic repayment on a loan that reflects only principal over the life of the loan 
B) a repayment on a loan with varying amounts that reflects part interest and part principal over the life of the loan 
C) an equal periodic repayment on a loan that reflects part interest and part principal over the life of the loan 
D) None of the listed options are correct. 
A) periodic repayment on a loan that reflects only principal over the life of the loan 
B) a repayment on a loan with varying amounts that reflects part interest and part principal over the life of the loan 
C) an equal periodic repayment on a loan that reflects part interest and part principal over the life of the loan 
D) None of the listed options are correct.

Question 7

Collateralised debt obligations:

Accepted Answer

A) can be created either by packaging and securitising whole mortgage loans 
B) can be created by placing existing pass-throughs in a trust off the balance sheet 
C) can be created either by packaging and securitising unsecured loans, or by placing existing pass-throughs in a trust on-balance sheet 
D) can be created either by packaging and securitising whole mortgage loans and by placing existing pass-throughs in a trust off the balance shee 
A) can be created either by packaging and securitising whole mortgage loans 
B) can be created by placing existing pass-throughs in a trust off the balance sheet 
C) can be created either by packaging and securitising unsecured loans, or by placing existing pass-throughs in a trust on-balance sheet 
D) can be created either by packaging and securitising whole mortgage loans and by placing existing pass-throughs in a trust off the balance shee

Question 8

Correspondent banking arrangement is a relationship between a small bank and a large bank in which the large bank provides a number of deposit, lending and other services.

Accepted Answer

A) True 
 B)False

Question 9

Choose the correct answer:

Accepted Answer

A) While pass-throughs and CMOs remain on banks and building societies balance sheets, mortgage-backed bonds (MBBs) remove mortgages from balance sheets as forms of off-balance-sheet securitisation. 
B) While pass-throughs and CMOs help banks and building societies remove mortgages from their balance sheets as forms of off-balance-sheet securitisation, mortgage-backed bonds (MBBs) normally remain on the balance sheet. 
C) Pass-throughs and CMOs are the same as mortgage-backed bonds (MBBs). 
D) None of the listed options are correct. 
A) While pass-throughs and CMOs remain on banks and building societies balance sheets, mortgage-backed bonds (MBBs) remove mortgages from balance sheets as forms of off-balance-sheet securitisation. 
B) While pass-throughs and CMOs help banks and building societies remove mortgages from their balance sheets as forms of off-balance-sheet securitisation, mortgage-backed bonds (MBBs) normally remain on the balance sheet. 
C) Pass-throughs and CMOs are the same as mortgage-backed bonds (MBBs). 
D) None of the listed options are correct.

Question 10

R class is:

Accepted Answer

A) an accrual class of a CMO that makes a payment to bondholders only when preceding CMO classes have been retired 
B) the residual class of a CMO, giving the owner the right to any remaining collateral in the trust after all other bond classes have been retired plus any reinvestment income earned by the trust 
C) a bond that has some prepayment protection and expected durations of five to seven years depending on the level of interest rates 
D) a bond that has the shortest average life with a minimum of prepayment protection.They are, therefore, of no interest to investors seeking short-duration mortgage-backed assets 
A) an accrual class of a CMO that makes a payment to bondholders only when preceding CMO classes have been retired 
B) the residual class of a CMO, giving the owner the right to any remaining collateral in the trust after all other bond classes have been retired plus any reinvestment income earned by the trust 
C) a bond that has some prepayment protection and expected durations of five to seven years depending on the level of interest rates 
D) a bond that has the shortest average life with a minimum of prepayment protection.They are, therefore, of no interest to investors seeking short-duration mortgage-backed assets

Question 11

Which of the following is true concerning loans sold with recourse?

Accepted Answer

A) Most loans are sold in this manner. 
B) The buyer cannot put the loan back to the selling FI. 
C) The FI has no explicit liability if the loan eventually goes bad. 
D) The FI that originated the loan retains a contingent credit risk liability. 
A) Most loans are sold in this manner. 
B) The buyer cannot put the loan back to the selling FI. 
C) The FI has no explicit liability if the loan eventually goes bad. 
D) The FI that originated the loan retains a contingent credit risk liability.

Question 12

A buyer of a loan participation is exposed to:

Accepted Answer

A) risk exposure to the original borrower defaulting 
B) risk exposure to the failure of the selling bank 
C) moral hazard problems because the borrower is no longer monitored by the seller 
D) risk exposure to the original borrower defaulting and risk exposure to the failure of the selling bank 
A) risk exposure to the original borrower defaulting 
B) risk exposure to the failure of the selling bank 
C) moral hazard problems because the borrower is no longer monitored by the seller 
D) risk exposure to the original borrower defaulting and risk exposure to the failure of the selling bank

Question 13

The move towards market value accounting:

Accepted Answer

A) increases banks' incentives to sell loans to avoid reporting capital losses 
B) decreases banks' incentives to sell loans to avoid reporting capital losses 
C) increases banks' incentives to sell loans since all assets will automatically be marked to market 
D) decreases banks' incentives to sell loans since all assets will automatically be marked to market 
A) increases banks' incentives to sell loans to avoid reporting capital losses 
B) decreases banks' incentives to sell loans to avoid reporting capital losses 
C) increases banks' incentives to sell loans since all assets will automatically be marked to market 
D) decreases banks' incentives to sell loans since all assets will automatically be marked to market

Question 14

A normal bond values fall with interest rate increases but the following bond often has a negative duration and therefore it is potentially attractive to banks and non-bank FIs seeking to hedge their regular bond and fixed-income portfolios.

Accepted Answer

A) A Class 
B) B Class 
C) Z Class 
D) R Class 
A) A Class 
B) B Class 
C) Z Class 
D) R Class

Question 15

What are four reasons why an FI may prefer the use of either pass-through securities or CMOs to the use of MBBs?

Accepted Answer

First, MBBs freeze mortgages on the FI's

Interest rate swaps are used to assist in interest rate risk management of the securitised assets.

One way to boost the capital to assets ratio of an FI is through loan sales.

... is the creation of securities based on a pool of underlying assets; and the value and income payments of the created securities are derived from the underlying assets.

Which of the following is true concerning loans sold without recourse?

The ___________ is an accrual class of a CMO that makes a payment to bondholders only when preceding CMO classes have been retired:

Fully amortised means:

Collateralised debt obligations:

Correspondent banking arrangement is a relationship between a small bank and a large bank in which the large bank provides a number of deposit, lending and other services.

Choose the correct answer:

R class is:

Which of the following is true concerning loans sold with recourse?

A buyer of a loan participation is exposed to:

The move towards market value accounting:

A normal bond values fall with interest rate increases but the following bond often has a negative duration and therefore it is potentially attractive to banks and non-bank FIs seeking to hedge their regular bond and fixed-income portfolios.

What are four reasons why an FI may prefer the use of either pass-through securities or CMOs to the use of MBBs?

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

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

Capital Management and Adequacy

Filters

Exam 8: Managing Interest Rate Risk Using Securitisation

Interest rate swaps are used to assist in interest rate risk management of the securitised assets.

One way to boost the capital to assets ratio of an FI is through loan sales.

... is the creation of securities based on a pool of underlying assets; and the value and income payments of the created securities are derived from the underlying assets.

Which of the following is true concerning loans sold without recourse?

The ___________ is an accrual class of a CMO that makes a payment to bondholders only when preceding CMO classes have been retired:

Fully amortised means:

Collateralised debt obligations:

Correspondent banking arrangement is a relationship between a small bank and a large bank in which the large bank provides a number of deposit, lending and other services.

Choose the correct answer:

R class is:

Which of the following is true concerning loans sold with recourse?

A buyer of a loan participation is exposed to:

The move towards market value accounting:

A normal bond values fall with interest rate increases but the following bond often has a negative duration and therefore it is potentially attractive to banks and non-bank FIs seeking to hedge their regular bond and fixed-income portfolios.

What are four reasons why an FI may prefer the use of either pass-through securities or CMOs to the use of MBBs?

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

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

Capital Management and Adequacy

Filters