1. What is the FI's interest rate risk exposure? (Points: 5);Exposed to increasing rates.;Exposed to decreasing rates.;Perfectly balanced.;Exposed to long-term rate changes.;Question 2.2. If a stock portfolio replicates the returns on a stock market index, the beta of the portfolio will be (Points: 5);less than 1.;greater than 1.;equal to 0.;equal to 1.;Question 3.3. What is the advantage of a futures hedge over an options hedge? (Points: 5);The futures hedge has lower credit risk exposure.;The futures hedge reduces volatility in profit gains on both sides.;The futures hedge is marked to market less frequently.;The futures hedge offers the least downside risk protection.;Question 4.4. Which of the following best describes economies of scope? (Points: 5);Occur when the average cost of production decreases as the level of output increases.;Cost effects related to managerial ability and other hard-to-quantify factors.;Occur when cost savings are realized from using many of the same inputs to produce multiple products.;Occur when the average cost of production increases as the level of output increases.;Question 5.5. When does "duration" become a less accurate predictor of expected change in security prices? (Points: 5);As interest rate shocks increase in size.;As interest rate shocks decrease in size.;When maturity distributions of an FI's assets and liabilities are considered.;As inflation decreases.;Question 6.6. Takedown risk in a loan commitment exposes the FI to (Points: 5);immediate liquidity risk.;basis risk.;spread risk.;future liquidity risk.;Question 7.7. Which of the following is NOT a potential causes of liquidity risk for a DI? (Points: 5);A decrease in the DI's stock price caused by market factors.;An increase in requests to fund large amounts of loan commitments.;A decrease in the availability of short-term borrowed funds.;An increase in requests by depositors to withdrawal large amounts of deposits.;Question 8.8. Swapping an obligation to pay interest at a specified fixed or floating rate for payments representing the total return on a loan or a bond of a specified amount is an example of (Points: 5);a commodity swap.;a credit swap.;a currency swap.;an equity swap.;Question 9.9. Which of the following describes debt repudiation? (Points: 5);Changing the contractual terms of a loan, such as its maturity and interest payments.;Direct nationalization of private sector assets.;Outright cancellation of all current and future debt obligations.;Automatic default of all international loans upon default of any one loan.;Question 10.10. What is the basic reason that two counterparties enter into a swap agreement? (Points: 5);Exchange of one specified cash flow in the future based on some underlying index.;Better management of credit risk by using a fixed or floating rate bond as hedging instrument.;To restructure or off-set the expected future cash flows to be collected from assets or liabilities held on the balance sheet.;Exchange of assets for a specific period of time at a specified interval.;Question 11.11. A contract that pays the par value of a loan in the event of default is a (Points: 5);put option.;call option.;digital default option.;futures option.;Question 12.12. If stored liquidity is used by a DI to fund an exercised loan commitment (Points: 5);the balance sheet will decrease by the amount of the new loan.;only the asset side of the balance sheet will increase.;the balance sheet will increase by the amount of the new loan.;there will be no effect on the balance sheet.;Question 13.13. Market risk measurement considers the return-risk ratio of traders, which may allow a more rational compensation system to be put in place. Thus MRM aids in (Points: 5);regulation.;resource allocation.;management information.;performance evaluation.;Question 14.14. Which of the following occur when managers undertake growth-oriented investments to increase an FI's size that may be inconsistent with stockholders' value-maximizing objectives? (Points: 5);Technology risk.;Operational efficiency.;Agency conflicts.;Diseconomies of scale.;Question 15.15. What is spread effect? (Points: 5);Periodic cash flow of interest and principal amortization payments on long-term assets that can be reinvested at market rates.;The effect that a change in the spread between rates on RSAs and RSLs has on net interest income as interest rates change.;The effect of mismatch of asset and liabilities within a maturity bucket.;The premium paid to compensate for the future uncertainty in a security's value.;Question 16.16. The decrease in European FX volatility during the last decade has occurred because of (Points: 5);the stabilizing force of the euro.;reduction in inflation rates in European countries.;the reduced volatility in many emerging-market countries.;Answers A and B only.;Question 17.17. Which of the following observations concerning floating-rate loans is NOT true? (Points: 5);They are less credit risky than fixed-rate loans.;They better enable FIs to hedge the cost of rising interest rates on liabilities.;They pass the risk of interest rate changes onto borrowers.;In rising interest rate environments, borrowers may find themselves unable to pay the interest on their floating-rate loans.;Question 18.18. What type of risk focuses upon mismatched asset and liability maturities and durations? (Points: 5);Liquidity risk.;Interest rate risk.;Credit risk.;Foreign exchange rate risk.;Question 19.19. What is a fire-sale price? (Points: 5);Market value of an asset.;Price received for an asset that has to be liquidated immediately.;Maximum price that will be received on sale of an asset irrespective of the time of sale.;Replacement value of an asset.;Question 20.20. A disadvantage of using asset management to manage a FI's liquidity risk is (Points: 5);the resulting shrinkage of the FI's balance sheet.;the high cost of purchased liabilities.;the accessibility of international money markets.;tax considerations.;Question 21.21. What is float? (Points: 5);Overnight payments via CHIPS or Fedwire.;Encoding, endorsing, microfilming, and handling customers' checks.;Time it takes a check to clear at a bank.;Management of multiple currency and security portfolios for trading and investment purposes.;Question 22.22. The risk that a German investor who purchases British bonds will lose money when trying to convert bond interest payments made in pounds sterling into euros is called (Points: 5);liquidity risk.;interest rate risk.;credit risk.;foreign exchange rate risk.;Question 23.23. An increase in interest rates (Points: 5);increases the market value of the FI's financial assets and liabilities.;decreases the market value of the FI's financial assets and liabilities.;decreases the book value of the FI's financial assets and liabilities.;increases the book value of the FI's financial assets and liabilities.;Question 24.24. What does KMV's Portfolio Manager Model use to identify the overall risk of the portfolio? (Points: 5);Maximum loss as a percent of capital.;Historical loan loss ratios.;Default probability on each loan in a portfolio.;Market value of an asset and the volatility of that asset's price.;Question 25.25. A contract that is a fixed-floating interest rate swap with a third party acting as an intermediary is known as (Points: 5);a pure credit swap.;a total return swap.;an off-market swap.;a plain vanilla swap.;Question 26.26. City bank has six-year zero coupon bonds with a total face value of $20 million. The current market yield on the bonds is 10 percent.;What is the daily earnings at risk (DEAR) of this bond portfolio? (Points: 5);-$246,110.63.;-$123,055.32.;-$135,473.74.;-$149,021.12.;Question 27.27. A $200 million loan commitment has an up-front fee of 20 basis points and a back-end fee of 25 basis points on the unused portion.;If 25 percent of the commitment is taken down, the total fees are (Points: 5);$250,000.;$4,000,000.;$400,000.;$775,000.;Question 28.28. A $200 million loan commitment has an up-front fee of 20 basis points and a back-end fee of 25 basis points on the unused portion.;The up-front fee is (Points: 5);$250,000.;$4,000,000.;$400,000.;$775,000.;Question 29.29. The current price of June $100,000 T-Bonds trading on the Chicago Board of Trade is 109.24. What is the price to be paid if the contract is delivered in June? (Points: 5);$107,240.;$109,240.;$109,750.;$110,250.;$115,760.;Question 30.30. A new computer system is expected to cost $40 million and generate annual savings of $12 million over the next five years.;What is the IRR for this investment?;Year 0 1 2 3 4;Cash Flows -40000000 12000000 12000000 12000000 12000000;(Points: 5);11.18 percent.;12.98 percent.;15.24 percent.;12.00 percent.
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