A) Selectively hedging a proportion of an FI's balance sheet position. B) Choosing to bear some interest rate risk as well as credit and FX risks. C) Reducing the risk to the lowest level possible. D) Using more hedge vehicles than is necessary to offset the risk in the cash asset. A) Selectively hedging a proportion of an FI's balance sheet position. B) Choosing to bear some interest rate risk as well as credit and FX risks. C) Reducing the risk to the lowest level possible. D) Using more hedge vehicles than is necessary to offset the risk in the cash asset.

The average duration of the loans is 10 years.The average duration of the deposits is 3 years. $\begin{array}{llr} \text { Consumer loans } & \$ 50 \text { million Deposits } & \$ 235 \text { million } \\ \text { Commercial Loans } & \$ 200 \text { million Equity } & \$ 15 \text { million } \\ \text { Total Assets } & \$ 250 \text { million Total Liabilities \& Equity } & \$ 250 \text { million } \end{array}$ If the current (spot)rate for one-year British pound futures is currently at $1.58/$\le$ and each contract size is $\le$62,500,how many contracts are required to be purchased or sold in order to fully hedge against the pound exposure? (Assume no basis risk).

A) Sell 1,600 BP futures. B) Buy 1,600 BP futures. C) Sell 1,712 BP futures. D) Buy 2,560 BP futures. E) Buy 1,712 BP futures. A) Sell 1,600 BP futures. B) Buy 1,600 BP futures. C) Sell 1,712 BP futures. D) Buy 2,560 BP futures. E) Buy 1,712 BP futures.

The average duration of the loans is 10 years.The average duration of the deposits is 3 years. $\begin{array}{llr} \text { Consumer loans } & \$ 50 \text { million Deposits } & \$ 235 \text { million } \\ \text { Commercial Loans } & \$ 200 \text { million Equity } & \$ 15 \text { million } \\ \text { Total Assets } & \$ 250 \text { million Total Liabilities \& Equity } & \$ 250 \text { million } \end{array}$ What is the leveraged-adjusted duration gap of the bank's portfolio?

A) 10 years. B) 7.3 years. C) 7 years. D) 7.18 years. A) 10 years. B) 7.3 years. C) 7 years. D) 7.18 years.

Exam 22: Futures and Forwards

A U.S.FI wishes to hedge a €10,000,000 loan using euro currency futures.Each euro futures contract is for 125,000 euros,and the hedge ratio is 1.40.The loan is payable in one year in euros. What type of currency hedge is necessary to protect the FI from exchange rate risk?

(Multiple Choice)

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Question 21

Conyers Bank holds U.S.Treasury bonds with a book value of $30 million.However,the U.S.Treasury bonds currently are worth $28,387,500. The bank's portfolio manager wants to shorten asset maturities.Which of the following statements is true?

(Multiple Choice)

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Question 22

What is overhedging?

(Multiple Choice)

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Question 23

The use of futures contracts by banks is subject to risk-based capital guidelines through the off-balance-sheet risk calculations for risk-based capital.

(True/False)

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Question 24

Which of the following measures the dollar value of futures contracts that should be sold per dollar of cash position exposure?

(Multiple Choice)

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Question 25

Which of the following is NOT true regarding hedge ratio?

(Multiple Choice)

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Question 26

Which of the following group of derivative securities had the smallest notational value among the top 25 FIs as of 2015?

(Multiple Choice)

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Question 27

Macrohedging uses a derivative contract,such as a futures or forward contract,to hedge a particular asset or liability risk.

(True/False)

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Question 28

Why does basis risk occur?

(Multiple Choice)

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Question 29

A U.S.FI wishes to hedge a €10,000,000 loan using euro currency futures.Each euro futures contract is for 125,000 euros,and the hedge ratio is 1.40.The loan is payable in one year in euros. How many currency contracts are necessary to hedge this asset?

(Multiple Choice)

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Question 30

A credit forward is a forward agreement that

(Multiple Choice)

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Question 31

When performing a linear regression of the relationship between changes in spot prices and changes in futures prices,what does R² = 0 indicate?

(Multiple Choice)

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Question 32

Immunizing the balance sheet against interest rate risk means that gains (losses)from an off-balance-sheet hedge will exactly offset losses (gains)from the balance sheet position.

(True/False)

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Question 33

Hedging selectively only a portion of the balance sheet is an attempt to increase the return of the FI by accepting some level of interest rate risk.

(True/False)

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Question 34

The average duration of the loans is 10 years.The average duration of the deposits is 3 years. Consumer loans \ 50 million Deposits \ 235 million Commercial Loans \ 200 million Equity \ 15 million Total Assets \ 250 million Total Liabilities \& Equity \ 250 million If the current (spot)rate for one-year British pound futures is currently at $1.58/ $\le$ and each contract size is $\le$ 62,500,how many contracts are required to be purchased or sold in order to fully hedge against the pound exposure? (Assume no basis risk).

(Multiple Choice)

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Question 35

The notational value of derivative contracts for the top 25 derivative users was less than the total current credit risk exposure of those contracts as of 2015.

(True/False)

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Question 36

The average duration of the loans is 10 years.The average duration of the deposits is 3 years. Consumer loans \ 50 million Deposits \ 235 million Commercial Loans \ 200 million Equity \ 15 million Total Assets \ 250 million Total Liabilities \& Equity \ 250 million What is the leveraged-adjusted duration gap of the bank's portfolio?

(Multiple Choice)

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Question 37

In a credit forward contract transaction

(Multiple Choice)

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Question 38

Conyers Bank holds U.S.Treasury bonds with a book value of $30 million.However,the U.S.Treasury bonds currently are worth $28,387,500. If the portfolio manager wants to shorten the bank's asset maturity,what type of risk is she concerned about?

(Multiple Choice)

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Question 39

An FI with a negative duration gap is exposed to interest rate declines and could hedge its interest rate risk by buying forward contracts.

(True/False)

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Question 40

Showing 21 - 40 of 130

Exam 22: Futures and Forwards

A U.S.FI wishes to hedge a €10,000,000 loan using euro currency futures.Each euro futures contract is for 125,000 euros,and the hedge ratio is 1.40.The loan is payable in one year in euros. What type of currency hedge is necessary to protect the FI from exchange rate risk?

Conyers Bank holds U.S.Treasury bonds with a book value of $30 million.However,the U.S.Treasury bonds currently are worth $28,387,500. The bank's portfolio manager wants to shorten asset maturities.Which of the following statements is true?

What is overhedging?

The use of futures contracts by banks is subject to risk-based capital guidelines through the off-balance-sheet risk calculations for risk-based capital.

Which of the following measures the dollar value of futures contracts that should be sold per dollar of cash position exposure?

Which of the following is NOT true regarding hedge ratio?

Which of the following group of derivative securities had the smallest notational value among the top 25 FIs as of 2015?

Macrohedging uses a derivative contract,such as a futures or forward contract,to hedge a particular asset or liability risk.

Why does basis risk occur?

A U.S.FI wishes to hedge a €10,000,000 loan using euro currency futures.Each euro futures contract is for 125,000 euros,and the hedge ratio is 1.40.The loan is payable in one year in euros. How many currency contracts are necessary to hedge this asset?

A credit forward is a forward agreement that

When performing a linear regression of the relationship between changes in spot prices and changes in futures prices,what does R2 = 0 indicate?

Immunizing the balance sheet against interest rate risk means that gains (losses)from an off-balance-sheet hedge will exactly offset losses (gains)from the balance sheet position.

Hedging selectively only a portion of the balance sheet is an attempt to increase the return of the FI by accepting some level of interest rate risk.

The notational value of derivative contracts for the top 25 derivative users was less than the total current credit risk exposure of those contracts as of 2015.

In a credit forward contract transaction

Conyers Bank holds U.S.Treasury bonds with a book value of $30 million.However,the U.S.Treasury bonds currently are worth $28,387,500. If the portfolio manager wants to shorten the bank's asset maturity,what type of risk is she concerned about?

An FI with a negative duration gap is exposed to interest rate declines and could hedge its interest rate risk by buying forward contracts.

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Firms and Investment Banks

Financial Services: Mutual Fund and Hedge Fund Companies

Financial Services: Insurance Companies

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Product and Geographic Expansion

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters

When performing a linear regression of the relationship between changes in spot prices and changes in futures prices,what does R² = 0 indicate?