Question 1

A forward contract has only one payment cash flow that occurs at the time of delivery.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

An FI has a 1-year 8-percent US $160 million loan financed with a 1-year 7-percent UK ≤100 million CD. The current exchange rate is $1.60/≤.
-What is the cash spread earned by the FI if at the end of the year the ≤ is trading at $1.63/≤ in the cash market? Again adjust for all exchange rate changes.

Accepted Answer

A) $1,610,000 gain. 
B) $1,610,000 loss. 
C) $2,670,000 loss. 
D) $2,670,000 gain. 
E) $2,390,000 loss. 
A) $1,610,000 gain. 
B) $1,610,000 loss. 
C) $2,670,000 loss. 
D) $2,670,000 gain. 
E) $2,390,000 loss.

Question 4

Use the following two choices to identify whether each intermediary or entity is a net buyer or net seller of credit derivative securities.
-Corporations

Accepted Answer

A)  Net buyer 
B) Net seller 
A)  Net buyer 
B) Net seller

Question 5

In a credit forward contract transaction

Accepted Answer

A) the credit forward buyer is the lender who is trying to hedge the loan. 
B) the credit forward seller is the lender who is trying to hedge the loan. 
C) the credit forward buyer will pay the credit forward seller if the credit spread at the maturity of the forward contract is less than at the initiation of the contract. 
D) the credit forward seller will pay the credit forward buyer if the credit spread at the maturity of the forward contract is greater than at the initiation of the contract. 
E) the characteristics of the benchmark bond must be the same as those of the bank's loan to the borrower. 
A) the credit forward buyer is the lender who is trying to hedge the loan. 
B) the credit forward seller is the lender who is trying to hedge the loan. 
C) the credit forward buyer will pay the credit forward seller if the credit spread at the maturity of the forward contract is less than at the initiation of the contract. 
D) the credit forward seller will pay the credit forward buyer if the credit spread at the maturity of the forward contract is greater than at the initiation of the contract. 
E) the characteristics of the benchmark bond must be the same as those of the bank's loan to the borrower.

Question 6

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

Accepted Answer

A) Hedge ratio. 
B) Open position. 
C) Implied volatility. 
D) Payoff. 
E) Risk ratio. 
A) Hedge ratio. 
B) Open position. 
C) Implied volatility. 
D) Payoff. 
E) Risk ratio.

Question 7

Use the following two choices to identify whether each intermediary or entity is a net buyer or net seller of credit derivative securities.
-Banks

Accepted Answer

A) Net buyer 
B) Net seller 
A) Net buyer 
B) Net seller

A forward contract has only one payment cash flow that occurs at the time of delivery.

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

Use the following two choices to identify whether each intermediary or entity is a net buyer or net seller of credit derivative securities. -Corporations

In a credit forward contract transaction

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

Use the following two choices to identify whether each intermediary or entity is a net buyer or net seller of credit derivative securities. -Banks

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Brokerage and Investment Banking

Financial Services: Mutual Funds and Hedge Funds

Financial Services: Insurance

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

Exam 22: Futures and Forwards

A forward contract has only one payment cash flow that occurs at the time of delivery.

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

Use the following two choices to identify whether each intermediary or entity is a net buyer or net seller of credit derivative securities. -Corporations

In a credit forward contract transaction

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

Use the following two choices to identify whether each intermediary or entity is a net buyer or net seller of credit derivative securities. -Banks

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Brokerage and Investment Banking

Financial Services: Mutual Funds and Hedge Funds

Financial Services: Insurance

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