2016-FRR Online Practice Questions and Answers
After entering the securitization business, Delta Bank increases its cash efficiency by selling off the lower risk portions of the portfolio credit risk. This process ___ return on equity for the bank, because the cash generated by the risk-transfer and the overall ___ of the bank's exposure to the risk.
A. Increases; increase;
B. Increases; reduction;
C. Decreases; increase;
D. Decreases; reduction;
Which of the following factors can cause obligors to default at the same time?
I. Obligors may be harmed by exposures to similar risk factors simultaneously.
II. Obligors may exhibit herd behavior.
III. Obligors may be subject to the sampling bias.
IV.
Obligors may exhibit speculative bias.
A.
I
B.
II, III
C.
I, II
D.
III, IV
Which one of the following four statements about preferred shares is INCORRECT?
A. Preferred shares refer to a class of securities that is a cross between equity and debt.
B. Preferred shares represent residual of a corporation after its other liabilities have been paid.
C. Preferred shares are subordinated to debt.
D. Preferred shares can be perpetual or have maturities far exceeding debt maturities.
Bank customers traditionally trade commodity futures with banks in order to achieve which of the following goals?
I. To express their own price views
II. To reverse undesired short-term exposure created from fixed commodity sales
III.
To reach short- term budgetary targets
A.
I
B.
II
C.
I, III
D.
I, II, III
Which one of the following four factors typically drives the pricing of wholesale products?
A. Marketing considerations
B. Prevailing market price
C. Long-term competitiveness
D. Overall risk exposure
When operating in a heavily traded currency, a commercial and retail bank's treasury is likely to focus on cover operations. Which one of the following four commercial and retails treasury's operations is known as a cover operation?
A. Ensuring that the risks generated by the bank's business are mitigated in the market.
B. Managing the net interest rate risk in the banking book directly with market counterparties by operating a derivatives trading desk.
C. Effectively transferring the interest rate risk in the banking book to the investment bank at a fair transfer price.
D. Mitigating liquidity risk, or effectively managing the balance sheet and its funding.
Alpha Bank, a small bank,has a long position with larger BetaBank and has an identical short position with another larger bank GammaBank. Each large bank requires a 20% initial collateral to support the trade. As prices fluctuate in either direction, one large bank will require additional collateral from the small bank, while the risk of loss to the other large bank will increase. By running the trades through a clearinghouse, the small bank can achieve all of the following objectives EXCEPT:
A. Eliminating the collateral requirement
B. Protecting itself against increases in future collateral demands
C. Protecting against the risk of the failure of one of the large banks
D. Mitigating option hedging risks and altering margin requirement
A bank customer expecting to pay its Brazilian supplier BRL 100 million asks Alpha Bank to buy Australian dollars and sell Brazilian reals. Alpha bank does not hold Brazilian reals so it asks for a quote to buy Brazilian reals in the market. The market rate is 100. The bank quotes a selling rate of 101 to its customer, sells the reals, and receives AUD 1,010,000. To perform foreign exchange matched position trading, the banks should
A. Immediately buy the real at the market rate of 100 and pay AUD 1,000,000.
B. Immediately buy the real above the market rate of 105 and pay AUD 1,050,050.
C. Immediately sell the real at the market rate of 100 and receive AUD 1,000,000.
D. Immediately sell the real above the market rate of 105 and receive AUD 1,050,050.
A risk associate evaluating his current portfolio of assets and liabilities wants to determine how sensitive this portfolio is to changes in interest rates. Which one of the following four metrics is typically used for this purpose?
A. Modified duration
B. Duration of default
C. Effective duration
D. Macaulay duration