Question 1

Where are the contingent items disclosed in the financial statements?

Accepted Answer

A) On the assets side of the balance sheet. 
B) On the liabilities side of the balance sheet. 
C) As footnotes to financial statements. 
D) In the income statement. 
A) On the assets side of the balance sheet. 
B) On the liabilities side of the balance sheet. 
C) As footnotes to financial statements. 
D) In the income statement.

Question 2

The 'face value of an OBS item' is also referred to as the notional value.

Accepted Answer

A) True 
 B)False

Question 3

Conceptually, a swap contract can be viewed as a succession of forward contracts.

Accepted Answer

A) True 
 B)False

Question 4

Assume that a bank's market value of assets is $200, the market value of its contingent assets is $50, the market value of its liabilities is $180 and the market value of its contingent liabilities is $60.What is the value of this bank's net worth?

Accepted Answer

A) $200 + $180 - $50 - $60 = $270 
B) $180 - $200 + $50 + $60 = $90 
C) $200 - $180 + $50 - $60 = $10 
D) $200 - $180 - $50 + $60 = $30. 
A) $200 + $180 - $50 - $60 = $270 
B) $180 - $200 + $50 + $60 = $90 
C) $200 - $180 + $50 - $60 = $10 
D) $200 - $180 - $50 + $60 = $30.

Question 5

Which of the following statements is true?

Accepted Answer

A) Back-end fee is the fee imposed on the used component of a loan commitment. 
B) Back-end fee is the fee imposed at the beginning of a loan contract. 
C) Back-end fee is the fee imposed on the unused component of a loan commitment. 
D) Back-end fee is the fee imposed at the end of a loan contract. 
A) Back-end fee is the fee imposed on the used component of a loan commitment. 
B) Back-end fee is the fee imposed at the beginning of a loan contract. 
C) Back-end fee is the fee imposed on the unused component of a loan commitment. 
D) Back-end fee is the fee imposed at the end of a loan contract.

Question 6

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 7

Explain how the use of forward and future contracts creates contingent credit risk for an FI.

Accepted Answer

Contingent credit risk is likely to be p

Question 8

Assume a bank has bought a call option on bonds with a notional value of $200.Further assume that and that the delta of the option is calculated at 0.45.What is the contingent asset value (round to two decimals)?

Accepted Answer

A) $200 / 0.45 = $444.44 
B) $200 * 0.45 = $90.00 
C) ($200 / 0.45) / 100 = $4.44 
D) ($200 * 0.45) / 100 = $0.90 
A) $200 / 0.45 = $444.44 
B) $200 * 0.45 = $90.00 
C) ($200 / 0.45) / 100 = $4.44 
D) ($200 * 0.45) / 100 = $0.90

Question 9

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.

Question 10

Which of the following are included in commitments and non-market related items?

Accepted Answer

A) direct credit substitutes and trade performance related items 
B) swaps and options. 
C) future contracts. 
D) None of the listed options are correct. 
A) direct credit substitutes and trade performance related items 
B) swaps and options. 
C) future contracts. 
D) None of the listed options are correct.

Question 11

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 12

Which of the following statements is true?

Accepted Answer

A) For an in-the-money call option the price of the underlying security is below the option's exercise price. 
B) For an in-the-money call option the price of the underlying security is equal to the option's exercise price. 
C) For an in-the-money call option the price of the underlying security exceeds the option's exercise price. 
D) The answer to the question depends on the type of the call option. 
A) For an in-the-money call option the price of the underlying security is below the option's exercise price. 
B) For an in-the-money call option the price of the underlying security is equal to the option's exercise price. 
C) For an in-the-money call option the price of the underlying security exceeds the option's exercise price. 
D) The answer to the question depends on the type of the call option.

Question 13

The delta of an option is always greater than one.

Accepted Answer

A) True 
 B)False

Question 14

Briefly explain how off-balance-sheet transactions can affect an FI's solvency.

Accepted Answer

An item or activity is an OBS asset if,

Question 15

The delta of an option refers to the change in the value of an:

Accepted Answer

A) option for a large unit change in the price of the underlying security. 
B) option for a small unit change in the price of the underlying security. 
C) underlying security for a small unit change in the price of the option. 
D) underlying security for a large unit change in the price of the option. 
A) option for a large unit change in the price of the underlying security. 
B) option for a small unit change in the price of the underlying security. 
C) underlying security for a small unit change in the price of the option. 
D) underlying security for a large unit change in the price of the option.

Question 16

FIs may issue standby letters of credit to cover contingencies that are potentially more severe, less predictable and not necessarily trade related.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following are correct about off-balance sheet activities?

Accepted Answer

A) They provide a key source of interest income for many FIs. 
B) By hedging against on-balance-sheet interest rate, FX and credit risks, OBS derivative instruments actually reduce FI overall insolvency risk. 
C) Higher regulatory costs on derivative instruments may cause FIs to over-hedge resulting in a decrease in FI insolvency risk. 
D) All of the listed options are correct. 
A) They provide a key source of interest income for many FIs. 
B) By hedging against on-balance-sheet interest rate, FX and credit risks, OBS derivative instruments actually reduce FI overall insolvency risk. 
C) Higher regulatory costs on derivative instruments may cause FIs to over-hedge resulting in a decrease in FI insolvency risk. 
D) All of the listed options are correct.

Question 18

Takedown or draw-down risk in a loan commitment exposes the FI to:

Accepted Answer

A) immediate liquidity risk. 
B) basis and spread risk. 
C) externality effects. 
D) future liquidity risk. 
A) immediate liquidity risk. 
B) basis and spread risk. 
C) externality effects. 
D) future liquidity risk.

Question 19

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 20

Contingent assets and liabilities are assets and liabilities off the balance sheet that:

Accepted Answer

A) produce positive or negative future cash flows for an FI. 
B) can be used in contingency situations, that is, they serve as a fall-back position. 
C) potentially can produce positive or negative future cash flows for an FI. 
D) None of the listed options are correct. 
A) produce positive or negative future cash flows for an FI. 
B) can be used in contingency situations, that is, they serve as a fall-back position. 
C) potentially can produce positive or negative future cash flows for an FI. 
D) None of the listed options are correct.

Where are the contingent items disclosed in the financial statements?

The 'face value of an OBS item' is also referred to as the notional value.

Conceptually, a swap contract can be viewed as a succession of forward contracts.

Assume that a bank's market value of assets is $200, the market value of its contingent assets is $50, the market value of its liabilities is $180 and the market value of its contingent liabilities is $60.What is the value of this bank's net worth?

Which of the following statements is true?

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

Explain how the use of forward and future contracts creates contingent credit risk for an FI.

Assume a bank has bought a call option on bonds with a notional value of $200.Further assume that and that the delta of the option is calculated at 0.45.What is the contingent asset value (round to two decimals)?

An off-balance sheet asset is an item that:

Which of the following are included in commitments and non-market related items?

Which of the following statements is true?

Which of the following statements is true?

The delta of an option is always greater than one.

Briefly explain how off-balance-sheet transactions can affect an FI's solvency.

The delta of an option refers to the change in the value of an:

FIs may issue standby letters of credit to cover contingencies that are potentially more severe, less predictable and not necessarily trade related.

Which of the following are correct about off-balance sheet activities?

Takedown or draw-down risk in a loan commitment exposes the FI to:

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

Contingent assets and liabilities are assets and liabilities off the balance sheet that:

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk 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

Credit Risk I: Individual Loan Risk

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 Risk

Capital Management and Adequacy

Filters

Exam 16: Off-Balance-Sheet Activities

Where are the contingent items disclosed in the financial statements?

The 'face value of an OBS item' is also referred to as the notional value.

Conceptually, a swap contract can be viewed as a succession of forward contracts.

Assume that a bank's market value of assets is $200, the market value of its contingent assets is $50, the market value of its liabilities is $180 and the market value of its contingent liabilities is $60.What is the value of this bank's net worth?

Which of the following statements is true?

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

Explain how the use of forward and future contracts creates contingent credit risk for an FI.

Assume a bank has bought a call option on bonds with a notional value of $200.Further assume that and that the delta of the option is calculated at 0.45.What is the contingent asset value (round to two decimals)?

An off-balance sheet asset is an item that:

Which of the following are included in commitments and non-market related items?

Which of the following statements is true?

Which of the following statements is true?

The delta of an option is always greater than one.

Briefly explain how off-balance-sheet transactions can affect an FI's solvency.

The delta of an option refers to the change in the value of an:

FIs may issue standby letters of credit to cover contingencies that are potentially more severe, less predictable and not necessarily trade related.

Which of the following are correct about off-balance sheet activities?

Takedown or draw-down risk in a loan commitment exposes the FI to:

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

Contingent assets and liabilities are assets and liabilities off the balance sheet that:

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk 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

Credit Risk I: Individual Loan Risk

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 Risk

Capital Management and Adequacy

Filters