Question 1

A eurobond is a loan provided by a group of FIs as opposed to a single lender.

Accepted Answer

A) True 
 B)False

Question 2

A transferable mortgage is a mortgage contract that allows a change of asset to be mortgaged.

Accepted Answer

A) True 
 B)False

Question 3

What are the two basic types of loan sale contracts or mechanisms by which loans can be transferred between seller and buyer?

Accepted Answer

A) participations and assignments 
B) participations and originations 
C) syndications and originations 
D) transfers and assignments 
A) participations and assignments 
B) participations and originations 
C) syndications and originations 
D) transfers and assignments

Question 4

A bank loan sale occurs when an FI originates a loan and sells the loan with or without recourse to an outside buyer.

Accepted Answer

A) True 
 B)False

Question 5

Asset securitisation is where:

Accepted Answer

A) existing securities are sold to create a pool of funds for investment in income assets 
B) securities are created based on house loans and income payments from the house owners are then paid to the investors 
C) securities are created based on a pool of underlying assets and the value and income payments of the securities are derived from the underlying assets 
D) All of the listed options are correct. 
A) existing securities are sold to create a pool of funds for investment in income assets 
B) securities are created based on house loans and income payments from the house owners are then paid to the investors 
C) securities are created based on a pool of underlying assets and the value and income payments of the securities are derived from the underlying assets 
D) All of the listed options are correct.

Question 6

What is NOT true of loan assignments?

Accepted Answer

A) All rights are transferred on sale. 
B) The loan buyer holds a direct claim on the borrower. 
C) Ownership rights are generally much clearer in a loan sale by assignment. 
D) Contract terms are unrestrictive from the seller's perspective. 
A) All rights are transferred on sale. 
B) The loan buyer holds a direct claim on the borrower. 
C) Ownership rights are generally much clearer in a loan sale by assignment. 
D) Contract terms are unrestrictive from the seller's perspective.

Question 7

Assignments:

Accepted Answer

A) are common in loan syndications 
B) do not have buyer restrictions 
C) comprise less than 30 per cent of the US loan sales market 
D) involve extremely high monitoring costs 
A) are common in loan syndications 
B) do not have buyer restrictions 
C) comprise less than 30 per cent of the US loan sales market 
D) involve extremely high monitoring costs

Question 8

Syndication is the creation of securities based on a pool of underlying assets; and the value and income payments of the created securities are derived from the underlying assets.

Accepted Answer

A) True 
 B)False

Question 9

Banks have been partially responsible for big corporate collapses such as Enron.

Accepted Answer

A) True 
 B)False

Question 10

....is a relationship between a small bank and a large bank in which the large bank provides a number of deposit, lending and other services.

Accepted Answer

A) Syndication 
B) Correspondent banking arrangement 
C) Cartel 
D) Reserve banking 
A) Syndication 
B) Correspondent banking arrangement 
C) Cartel 
D) Reserve banking

Question 11

A syndicated loan is a loan provided by a group of FIs as opposed to a single lender.

Accepted Answer

A) True 
 B)False

Question 12

The implementation of BIS capital requirements may be expected to:

Accepted Answer

A) increase the downward trend in loan sales because of higher required capital levels 
B) increase the downward trend in loan sales because of the use of risk-adjusted assets 
C) decrease the downward trend in loan sales because of the use of risk-adjusted assets and because of higher required capital 
D) decrease the downward trend in loan sales because of the use of risk-adjusted assets and because of lower required capital levels 
A) increase the downward trend in loan sales because of higher required capital levels 
B) increase the downward trend in loan sales because of the use of risk-adjusted assets 
C) decrease the downward trend in loan sales because of the use of risk-adjusted assets and because of higher required capital 
D) decrease the downward trend in loan sales because of the use of risk-adjusted assets and because of lower required capital levels

Question 13

Credit card facilities is a revolving loan product.

Accepted Answer

A) True 
 B)False

Question 14

Creating mortgage-backed pass-through securities:

Accepted Answer

A) can largely resolve the duration and illiquidity risk problems for a FI 
B) would not have any effect on the duration and illiquidity risk problems for a FI 
C) can worsen the duration and illiquidity risk problems for a FI 
D) None of the listed options are correct. 
A) can largely resolve the duration and illiquidity risk problems for a FI 
B) would not have any effect on the duration and illiquidity risk problems for a FI 
C) can worsen the duration and illiquidity risk problems for a FI 
D) None of the listed options are correct.

Question 15

Currently, this basic type of loan sale contracts comprises the bulk of loan sales trading.

Accepted Answer

A) participations 
B) originations 
C) syndications 
D) assignments 
A) participations 
B) originations 
C) syndications 
D) assignments

Question 16

The buyer of a loan participation benefits because the only risk exposure is to the borrower.

Accepted Answer

A) True 
 B)False

Question 17

Which is of the statements below is true?

Accepted Answer

A) An FI will earn fees when arranging a large loan, even if it sells part or all of the loan later. 
B) Like reserve requirements, the capital adequacy requirements imposed on FIs are a burden as long as required capital exceeds the amount the FI believes to be privately beneficial. 
C) In addition to credit risk and interest rate risk, holding loans on the balance sheet can increase the overall illiquidity of an FI's assets. 
D) All of the listed options are correct. 
A) An FI will earn fees when arranging a large loan, even if it sells part or all of the loan later. 
B) Like reserve requirements, the capital adequacy requirements imposed on FIs are a burden as long as required capital exceeds the amount the FI believes to be privately beneficial. 
C) In addition to credit risk and interest rate risk, holding loans on the balance sheet can increase the overall illiquidity of an FI's assets. 
D) All of the listed options are correct.

Question 18

Collateralised debt obligations (CDOs) were responsible for significant damage and disruption to global financial markets as:

Accepted Answer

A) investors accepted the recommendations of CDO arrangers and rating agencies 
B) many investors were unable to assess the fairness of prices 
C) the securities' cash flow was based on cash flows from other financial securities and not the cash flows from real assets 
D) the CDOs' cash flows were based on cash flows from real assets and not from other financial securities 
A) investors accepted the recommendations of CDO arrangers and rating agencies 
B) many investors were unable to assess the fairness of prices 
C) the securities' cash flow was based on cash flows from other financial securities and not the cash flows from real assets 
D) the CDOs' cash flows were based on cash flows from real assets and not from other financial securities

Question 19

While collateralised mortgage obligation (CMO) is still the primary mechanism for securitisation, the pass-throughs are a second and growing vehicle for securitising bank assets.

Accepted Answer

A) True 
 B)False

Question 20

As coupon rates on new mortgages fall:

Accepted Answer

A) individuals are inclined to sell off their mortgages 
B) there is a decreased incentive for individuals in the pool to pay off old, high-cost mortgages and refinance at lower rates 
C) there is an increased incentive for individuals in the pool to pay off old, high-cost mortgages and refinance at lower rates 
D) there is no effect on mortgage payments 
A) individuals are inclined to sell off their mortgages 
B) there is a decreased incentive for individuals in the pool to pay off old, high-cost mortgages and refinance at lower rates 
C) there is an increased incentive for individuals in the pool to pay off old, high-cost mortgages and refinance at lower rates 
D) there is no effect on mortgage payments

A eurobond is a loan provided by a group of FIs as opposed to a single lender.

A transferable mortgage is a mortgage contract that allows a change of asset to be mortgaged.

What are the two basic types of loan sale contracts or mechanisms by which loans can be transferred between seller and buyer?

A bank loan sale occurs when an FI originates a loan and sells the loan with or without recourse to an outside buyer.

Asset securitisation is where:

What is NOT true of loan assignments?

Assignments:

Syndication is the creation of securities based on a pool of underlying assets; and the value and income payments of the created securities are derived from the underlying assets.

Banks have been partially responsible for big corporate collapses such as Enron.

....is a relationship between a small bank and a large bank in which the large bank provides a number of deposit, lending and other services.

A syndicated loan is a loan provided by a group of FIs as opposed to a single lender.

The implementation of BIS capital requirements may be expected to:

Credit card facilities is a revolving loan product.

Creating mortgage-backed pass-through securities:

Currently, this basic type of loan sale contracts comprises the bulk of loan sales trading.

The buyer of a loan participation benefits because the only risk exposure is to the borrower.

Which is of the statements below is true?

Collateralised debt obligations (CDOs) were responsible for significant damage and disruption to global financial markets as:

While collateralised mortgage obligation (CMO) is still the primary mechanism for securitisation, the pass-throughs are a second and growing vehicle for securitising bank assets.

As coupon rates on new mortgages fall:

Why Are Financial Institutions Special

The Financial Service Industry: Depository Institutions

The Financial Service Industry: Other Financial Institutions

Risks 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

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 8: Managing Interest Rate Risk Using Securitisation

A eurobond is a loan provided by a group of FIs as opposed to a single lender.

A transferable mortgage is a mortgage contract that allows a change of asset to be mortgaged.

What are the two basic types of loan sale contracts or mechanisms by which loans can be transferred between seller and buyer?

A bank loan sale occurs when an FI originates a loan and sells the loan with or without recourse to an outside buyer.

Asset securitisation is where:

What is NOT true of loan assignments?

Assignments:

Syndication is the creation of securities based on a pool of underlying assets; and the value and income payments of the created securities are derived from the underlying assets.

Banks have been partially responsible for big corporate collapses such as Enron.

....is a relationship between a small bank and a large bank in which the large bank provides a number of deposit, lending and other services.

A syndicated loan is a loan provided by a group of FIs as opposed to a single lender.

The implementation of BIS capital requirements may be expected to:

Credit card facilities is a revolving loan product.

Creating mortgage-backed pass-through securities:

Currently, this basic type of loan sale contracts comprises the bulk of loan sales trading.

The buyer of a loan participation benefits because the only risk exposure is to the borrower.

Which is of the statements below is true?

Collateralised debt obligations (CDOs) were responsible for significant damage and disruption to global financial markets as:

While collateralised mortgage obligation (CMO) is still the primary mechanism for securitisation, the pass-throughs are a second and growing vehicle for securitising bank assets.

As coupon rates on new mortgages fall:

Why Are Financial Institutions Special

The Financial Service Industry: Depository Institutions

The Financial Service Industry: Other Financial Institutions

Risks 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

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