Question 1

Which of the following statements is true?

Accepted Answer

A) Economically speaking, contingent assets and liabilities are contractual claims that might or might not impact on the economic value of a bank. 
B) Economically speaking, contingent assets and liabilities are contractual claims that do not impact on the economic value of a bank. 
C) Economically speaking, contingent assets and liabilities are contractual claims that directly impact on the economic value of a bank. 
D) Economically speaking, contingent assets and liabilities are contractual claims that indirectly impact on the economic value of a bank. 
A) Economically speaking, contingent assets and liabilities are contractual claims that might or might not impact on the economic value of a bank. 
B) Economically speaking, contingent assets and liabilities are contractual claims that do not impact on the economic value of a bank. 
C) Economically speaking, contingent assets and liabilities are contractual claims that directly impact on the economic value of a bank. 
D) Economically speaking, contingent assets and liabilities are contractual claims that indirectly impact on the economic value of a bank.

Question 2

The default risk of a futures contract is less than that of a forward contract.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is true?

Accepted Answer

A) The default risk in futures contracts is considered to be less than that of forward contracts because of daily marking to market of futures. 
B) The default risk in futures contracts is considered to be less than that of forward contracts because of margin requirements on futures that act as a security bond and because of default guarantees by the future exchange itself. 
C) The default risk in futures contracts is considered to be less than that of forward contracts because of price limits that spread out over times of extreme price fluctuations. 
D) All of the listed options are correct. 
A) The default risk in futures contracts is considered to be less than that of forward contracts because of daily marking to market of futures. 
B) The default risk in futures contracts is considered to be less than that of forward contracts because of margin requirements on futures that act as a security bond and because of default guarantees by the future exchange itself. 
C) The default risk in futures contracts is considered to be less than that of forward contracts because of price limits that spread out over times of extreme price fluctuations. 
D) All of the listed options are correct.

Question 4

Which of the following statements is true?

Accepted Answer

A) A futures contract is a standardised contract between two parties to deliver and pay for an asset in the future. 
B) A futures contract is a non-standardised contract between two parties to deliver and pay for an asset in the future. 
C) A futures contract is a standardised contract guaranteed by organised exchanges to deliver and pay for an asset in the future. 
D) A futures contract is a non-standardised contract b guaranteed by organised exchanges to deliver and pay for an asset in the future. 
A) A futures contract is a standardised contract between two parties to deliver and pay for an asset in the future. 
B) A futures contract is a non-standardised contract between two parties to deliver and pay for an asset in the future. 
C) A futures contract is a standardised contract guaranteed by organised exchanges to deliver and pay for an asset in the future. 
D) A futures contract is a non-standardised contract b guaranteed by organised exchanges to deliver and pay for an asset in the future.

Question 5

Which of the following contingent risks are most likely to be created if a bank provides a loan commitment?

Accepted Answer

A) interest rate risk and credit risk 
B) draw-down risk 
C) aggregate funding risk 
D) All of the listed options are correct. 
A) interest rate risk and credit risk 
B) draw-down risk 
C) aggregate funding risk 
D) All of the listed options are correct.

Question 6

Off-balance sheet activities contributed to the 2008 global financial crisis with increasing financial market solvency risk exposure caused by:

Accepted Answer

A) loans sold with recourse had contingent liability implications for FIs when these loans went 'bad'. 
B) sub-prime mortgages and OBS securities backed by these mortgages peaked prior to the mortgage market collapse. 
C) the market for derivatives was opaque and 'trades' complex leading to counterparty risk where firms dealt directly with each other 
D) All of the listed options are correct. 
A) loans sold with recourse had contingent liability implications for FIs when these loans went 'bad'. 
B) sub-prime mortgages and OBS securities backed by these mortgages peaked prior to the mortgage market collapse. 
C) the market for derivatives was opaque and 'trades' complex leading to counterparty risk where firms dealt directly with each other 
D) All of the listed options are correct.

Question 7

Which of the following statements is true?

Accepted Answer

A) The vega of an option is a measure of volatility risk. 
B) The omega of an option is a measure of volatility risk. 
C) The delta of an option is a measure of volatility risk. 
D) The alpha of an option is a measure of volatility risk. 
A) The vega of an option is a measure of volatility risk. 
B) The omega of an option is a measure of volatility risk. 
C) The delta of an option is a measure of volatility risk. 
D) The alpha of an option is a measure of volatility risk.

Question 8

Which of the following are typical off-balance sheet activities undertaken by Australian banks?

Accepted Answer

A) futures contracts and forward contracts 
B) direct credit substitutes. 
C) commitments. 
D) All of the listed options are correct. 
A) futures contracts and forward contracts 
B) direct credit substitutes. 
C) commitments. 
D) All of the listed options are correct.

Question 9

The term 'recourse' refers to the ability to put an asset or loan back to the seller should the:

Accepted Answer

A) asset need to be entirely written off. 
B) credit quality of that asset improve. 
C) buyer not need the asset any longer. 
D) credit quality of that asset deteriorate. 
A) asset need to be entirely written off. 
B) credit quality of that asset improve. 
C) buyer not need the asset any longer. 
D) credit quality of that asset deteriorate.

Question 10

Which of the following is true of an 'adverse material change in conditions clause' used in a loan commitment?

Accepted Answer

A) It allows the FI to cancel or reprice a loan commitment. 
B) It protects the lender against takedown risk. 
C) It protects the lender against basis risk. 
D) Exercise of the clause helps defaulted borrowers. 
A) It allows the FI to cancel or reprice a loan commitment. 
B) It protects the lender against takedown risk. 
C) It protects the lender against basis risk. 
D) Exercise of the clause helps defaulted borrowers.

Question 11

Basis risk refers to the variable spread between a lending rate and a borrowing rate, or between any two interest rates or prices

Accepted Answer

A) True 
 B)False

Question 12

Assume a bank makes a loan commitment to the value of $10m at a fixed interest rate of 10 per cent p.a.for a period of one year.Assume the borrower only uses 50 per cent of the provided funds over the course of the year.If the bank charges a back-end fee of 0.5 per cent, what is the additional revenue the bank would generate?

Accepted Answer

A) None, unless the loan is prepaid early. 
B) $2500 
C) $25 000 
D) $5000 
A) None, unless the loan is prepaid early. 
B) $2500 
C) $25 000 
D) $5000

Question 13

Which of the following statements is true?

Accepted Answer

A) Draw-down risk is a type of liquidity risk. 
B) Draw-down risk is a type of investment risk. 
C) Draw-down risk is a type of credit risk. 
D) Draw-down risk is a type of economic risk. 
A) Draw-down risk is a type of liquidity risk. 
B) Draw-down risk is a type of investment risk. 
C) Draw-down risk is a type of credit risk. 
D) Draw-down risk is a type of economic risk.

Question 14

Including on-balance-sheet and off-balance-sheet activities, a bank's net worth is calculated as:
A)(A-L) + (CA-CL)
B)(A-L) - (CA-CL)
C)(L-A) + (CA-CL)
D)(L-A) - (CA-CL)

Accepted Answer

The answer of Including on-balance-sheet and off-balance-sheet activities, a bank's...

Question 15

Back-end fees are charged as a certain percentage of:

Accepted Answer

A) commitment size and loan taken down. 
B) utilised portion of commitment size. 
C) unused portion of commitment size. 
D) interest payable on the loan commitment. 
A) commitment size and loan taken down. 
B) utilised portion of commitment size. 
C) unused portion of commitment size. 
D) interest payable on the loan commitment.

Question 16

If a future credit crunch occurs, a loan commitment may expose the FI to:

Accepted Answer

A) credit risk. 
B) interest rate risk. 
C) sovereign country risk. 
D) funding risk. 
A) credit risk. 
B) interest rate risk. 
C) sovereign country risk. 
D) funding risk.

Question 17

Under an interest rate cap, in return for a fee the seller promises to compensate the buyer should interest rates remain under a certain level.

Accepted Answer

A) True 
 B)False

Question 18

Graphically explain the general set-up of a letter of credit transaction.In this context, explain why letters of credit are important.

Accepted Answer

Suppose the Australian importer sent an

Question 19

The vega of an option measures:

Accepted Answer

A) interest rate risk. 
B) volatility risk. 
C) off-balance sheet risk. 
D) price elasticity. 
A) interest rate risk. 
B) volatility risk. 
C) off-balance sheet risk. 
D) price elasticity.

Question 20

The change in the value of an option for a small unit change in the price of the underlying security is called the:

Accepted Answer

A) alpha of an option. 
B) gamma of an option. 
C) beta of an option. 
D) delta of an option. 
A) alpha of an option. 
B) gamma of an option. 
C) beta of an option. 
D) delta of an option.

Which of the following statements is true?

The default risk of a futures contract is less than that of a forward contract.

Which of the following statements is true?

Which of the following statements is true?

Which of the following contingent risks are most likely to be created if a bank provides a loan commitment?

Off-balance sheet activities contributed to the 2008 global financial crisis with increasing financial market solvency risk exposure caused by:

Which of the following statements is true?

Which of the following are typical off-balance sheet activities undertaken by Australian banks?

The term 'recourse' refers to the ability to put an asset or loan back to the seller should the:

Which of the following is true of an 'adverse material change in conditions clause' used in a loan commitment?

Basis risk refers to the variable spread between a lending rate and a borrowing rate, or between any two interest rates or prices

Which of the following statements is true?

Including on-balance-sheet and off-balance-sheet activities, a bank's net worth is calculated as: A)(A-L) + (CA-CL) B)(A-L) - (CA-CL) C)(L-A) + (CA-CL) D)(L-A) - (CA-CL)

Back-end fees are charged as a certain percentage of:

If a future credit crunch occurs, a loan commitment may expose the FI to:

Under an interest rate cap, in return for a fee the seller promises to compensate the buyer should interest rates remain under a certain level.

Graphically explain the general set-up of a letter of credit transaction.In this context, explain why letters of credit are important.

The vega of an option measures:

The change in the value of an option for a small unit change in the price of the underlying security is called the:

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

Which of the following statements is true?

The default risk of a futures contract is less than that of a forward contract.

Which of the following statements is true?

Which of the following statements is true?

Which of the following contingent risks are most likely to be created if a bank provides a loan commitment?

Off-balance sheet activities contributed to the 2008 global financial crisis with increasing financial market solvency risk exposure caused by:

Which of the following statements is true?

Which of the following are typical off-balance sheet activities undertaken by Australian banks?

The term 'recourse' refers to the ability to put an asset or loan back to the seller should the:

Which of the following is true of an 'adverse material change in conditions clause' used in a loan commitment?

Basis risk refers to the variable spread between a lending rate and a borrowing rate, or between any two interest rates or prices

Which of the following statements is true?

Including on-balance-sheet and off-balance-sheet activities, a bank's net worth is calculated as: A)(A-L) + (CA-CL) B)(A-L) - (CA-CL) C)(L-A) + (CA-CL) D)(L-A) - (CA-CL)

Back-end fees are charged as a certain percentage of:

If a future credit crunch occurs, a loan commitment may expose the FI to:

Under an interest rate cap, in return for a fee the seller promises to compensate the buyer should interest rates remain under a certain level.

Graphically explain the general set-up of a letter of credit transaction.In this context, explain why letters of credit are important.

The vega of an option measures:

The change in the value of an option for a small unit change in the price of the underlying security is called the:

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