Question 1

An FI that invests $100 million into corporate bonds is exposed to the following risks:

Accepted Answer

A) credit and interest rate risk 
B) liquidity and technology risk 
C) solvency and technology risk 
D) off-balance-sheet and interest rate risk 
A) credit and interest rate risk 
B) liquidity and technology risk 
C) solvency and technology risk 
D) off-balance-sheet and interest rate risk

Question 2

An Australian FI that invests €50 million in three-year maturity loans and partially funds these loans with €30 million one-year deposits is exposed to the following risks.

Accepted Answer

A) A depreciation of the euro against the Australian dollar plus credit risk plus refinancing risk, such as increasing interest rates in the Eurozone. 
B) An appreciation of the euro against the Australian dollar plus credit risk plus refinancing risk, such as increasing interest rates in the Eurozone. 
C) A depreciation of the euro against the Australian dollar plus credit risk plus reinvestment risk, such as decreasing interest rates in the Eurozone. 
D) A depreciation of the euro against the Australian dollar reinvestment risk, such as increasing interest rates in the Eurozone. 
A) A depreciation of the euro against the Australian dollar plus credit risk plus refinancing risk, such as increasing interest rates in the Eurozone. 
B) An appreciation of the euro against the Australian dollar plus credit risk plus refinancing risk, such as increasing interest rates in the Eurozone. 
C) A depreciation of the euro against the Australian dollar plus credit risk plus reinvestment risk, such as decreasing interest rates in the Eurozone. 
D) A depreciation of the euro against the Australian dollar reinvestment risk, such as increasing interest rates in the Eurozone.

Question 3

The risk that a debt security's price will fall, subjecting the investor to a capital loss is:

Accepted Answer

A) credit risk 
B) political risk 
C) currency risk 
D) market risk 
A) credit risk 
B) political risk 
C) currency risk 
D) market risk

Question 4

The major difference between firm-specific credit risk and systematic credit risk is that:

Accepted Answer

A) FIs can diversify systematic credit risk, while firm-specific credit risk cannot be diversified. 
B) FIs can diversify firm-specific credit risk, while systematic credit risk cannot be diversified. 
C) None of the listed options are correct, as FIs can diversify both types of credit risk. 
D) None of the listed options are correct, as FIs cannot diversify either type of credit risk. 
A) FIs can diversify systematic credit risk, while firm-specific credit risk cannot be diversified. 
B) FIs can diversify firm-specific credit risk, while systematic credit risk cannot be diversified. 
C) None of the listed options are correct, as FIs can diversify both types of credit risk. 
D) None of the listed options are correct, as FIs cannot diversify either type of credit risk.

Question 5

Event risks such as earthquakes, fraud and theft:

Accepted Answer

A) do not have an impact on an FI's performance 
B) are easy to measure and to predict 
C) form a normal cost of doing business for FIs 
D) may have a significant and negative impact on an FI's performance but are difficult to measure and to predict 
A) do not have an impact on an FI's performance 
B) are easy to measure and to predict 
C) form a normal cost of doing business for FIs 
D) may have a significant and negative impact on an FI's performance but are difficult to measure and to predict

Question 6

Credit risk refers to the possibility that promised cash flows on financial claims such as loans and securities are not paid in full.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is a suitable description of the term 'economies of scale'?

Accepted Answer

A) the use of several inputs to produce one common output 
B) the ability to generate cost savings by producing more than one output with the same inputs 
C) the ability to lower average operating costs by expanding its output of financial services 
D) the ability to lower average operating costs by lowering its output of financial services 
A) the use of several inputs to produce one common output 
B) the ability to generate cost savings by producing more than one output with the same inputs 
C) the ability to lower average operating costs by expanding its output of financial services 
D) the ability to lower average operating costs by lowering its output of financial services

Question 8

What are the major objectives of technological expansion?

Accepted Answer

A) To lower operating costs, increase profits and capture new markets. 
B) To stabilise operating costs, increase profits and capture new markets. 
C) To lower operating costs, stabilise profits and capture new markets. 
D) To lower operating costs, increase profits and stabilise the existing market share. 
A) To lower operating costs, increase profits and capture new markets. 
B) To stabilise operating costs, increase profits and capture new markets. 
C) To lower operating costs, stabilise profits and capture new markets. 
D) To lower operating costs, increase profits and stabilise the existing market share.

Question 9

In which of the following situations is an Australian FI exposed to a depreciation of the euro against the Australian dollar?

Accepted Answer

A) The FI holds €00 million in assets and €70 million in liabilities. 
B) The FI holds €100 million in assets and €100 million in liabilities. 
C) The FI holds 70 million in assets and €100 million in liabilities. 
D) The FI does not hold any assets or liabilities in euros, but considers doing so in the future. 
A) The FI holds €00 million in assets and €70 million in liabilities. 
B) The FI holds €100 million in assets and €100 million in liabilities. 
C) The FI holds 70 million in assets and €100 million in liabilities. 
D) The FI does not hold any assets or liabilities in euros, but considers doing so in the future.

Question 10

Interest rate risk is the risk incurred by an FI when the maturities of its assets and liabilities are mismatched.

Accepted Answer

A) True 
 B)False

Question 11

The risk that interest income will increase at a slower rate than interest expense is:

Accepted Answer

A) credit risk 
B) political risk 
C) currency risk 
D) interest rate risk 
A) credit risk 
B) political risk 
C) currency risk 
D) interest rate risk

Question 12

Economies of scope imply an FI's ability to lower its average cost by expanding its output of financial services.

Accepted Answer

A) True 
 B)False

Question 13

During periods of high and volatile inflation, an FI's:

Accepted Answer

A) interest rate risk exposure and credit risk exposure tends to decrease 
B) interest rate risk exposure and credit risk exposure tends to increase 
C) interest rate risk exposure and credit risk exposure tends to be unaffected 
D) None of the listed options are correct. 
A) interest rate risk exposure and credit risk exposure tends to decrease 
B) interest rate risk exposure and credit risk exposure tends to increase 
C) interest rate risk exposure and credit risk exposure tends to be unaffected 
D) None of the listed options are correct.

Question 14

The Bank for International Settlements:

Accepted Answer

A) defines operational risk as the risk of direct or indirect loss resulting from inadequate or failed internal processes, people, and systems or from external events 
B) does not include technology risk in its categorisation of operational risk 
C) is the principal organisation of central banks in the minor economies of the world 
D) All of the listed options are correct. 
A) defines operational risk as the risk of direct or indirect loss resulting from inadequate or failed internal processes, people, and systems or from external events 
B) does not include technology risk in its categorisation of operational risk 
C) is the principal organisation of central banks in the minor economies of the world 
D) All of the listed options are correct.

Question 15

Which function of an FI involves buying primary securities and issuing secondary securities?

Accepted Answer

A) brokerage 
B) asset transformation 
C) investment research 
D) trading 
A) brokerage 
B) asset transformation 
C) investment research 
D) trading

Question 16

A small local bank failed because of a housing market collapse following the departure of the area's largest employer.What type of risk applies to the failure of the institution?

Accepted Answer

A) firm-specific risk 
B) technological risk 
C) operational risk 
D) insolvency risk 
A) firm-specific risk 
B) technological risk 
C) operational risk 
D) insolvency risk

An FI that invests $100 million into corporate bonds is exposed to the following risks:

An Australian FI that invests €50 million in three-year maturity loans and partially funds these loans with €30 million one-year deposits is exposed to the following risks.

The risk that a debt security's price will fall, subjecting the investor to a capital loss is:

The major difference between firm-specific credit risk and systematic credit risk is that:

Event risks such as earthquakes, fraud and theft:

Credit risk refers to the possibility that promised cash flows on financial claims such as loans and securities are not paid in full.

Which of the following is a suitable description of the term 'economies of scale'?

What are the major objectives of technological expansion?

In which of the following situations is an Australian FI exposed to a depreciation of the euro against the Australian dollar?

Interest rate risk is the risk incurred by an FI when the maturities of its assets and liabilities are mismatched.

The risk that interest income will increase at a slower rate than interest expense is:

Economies of scope imply an FI's ability to lower its average cost by expanding its output of financial services.

During periods of high and volatile inflation, an FI's:

The Bank for International Settlements:

Which function of an FI involves buying primary securities and issuing secondary securities?

A small local bank failed because of a housing market collapse following the departure of the area's largest employer.What type of risk applies to the failure of the institution?

Why Are Financial Institutions Special

The Financial Service Industry: Depository Institutions

The Financial Service Industry: Other 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

Capital Management and Adequacy

Filters

Exam 4: Risks of Financial Institutions

An FI that invests $100 million into corporate bonds is exposed to the following risks:

An Australian FI that invests €50 million in three-year maturity loans and partially funds these loans with €30 million one-year deposits is exposed to the following risks.

The risk that a debt security's price will fall, subjecting the investor to a capital loss is:

The major difference between firm-specific credit risk and systematic credit risk is that:

Event risks such as earthquakes, fraud and theft:

Credit risk refers to the possibility that promised cash flows on financial claims such as loans and securities are not paid in full.

Which of the following is a suitable description of the term 'economies of scale'?

What are the major objectives of technological expansion?

In which of the following situations is an Australian FI exposed to a depreciation of the euro against the Australian dollar?

Interest rate risk is the risk incurred by an FI when the maturities of its assets and liabilities are mismatched.

The risk that interest income will increase at a slower rate than interest expense is:

Economies of scope imply an FI's ability to lower its average cost by expanding its output of financial services.

During periods of high and volatile inflation, an FI's:

The Bank for International Settlements:

Which function of an FI involves buying primary securities and issuing secondary securities?

A small local bank failed because of a housing market collapse following the departure of the area's largest employer.What type of risk applies to the failure of the institution?

Why Are Financial Institutions Special

The Financial Service Industry: Depository Institutions

The Financial Service Industry: Other 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

Capital Management and Adequacy

Filters