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NEW QUESTION 39
Using a forward transaction, Omega Bank buys 100 metric tones of aluminum for delivery in six-months' time.
However, after two months, the bank becomes concerned with the potential fluctuations in aluminum prices
and wants to hedge its potential exposure against a possible decline in aluminum prices. Which one of the
following four strategies could the bank use to offset the risk from its current exposure to aluminum as it sets
the price for selling the commodity in four-months' time?
- A. Sell an aluminum futures contract
- B. Buy an aluminum forward contract
- C. Sell an aluminum forward contract
- D. Buy an aluminum futures contract
Answer: A
NEW QUESTION 40
Which of the following statements about the interest rates and option prices is correct?
- A. As interest rates rise, all options will rise in value.
- B. If rho is positive, rising interest rates increase option prices.
- C. If rho is positive, rising interest rates decrease option prices.
- D. As interest rates fall, all options will rise in value.
Answer: B
NEW QUESTION 41
Normally, commercial banking can be viewed as a fixed income carry trade since
- A. Short-term floating-rate deposits are used to fund short-term floating rate loans.
- B. Short-term fixed-rate deposits are used to fund short-term floating rate loans.
- C. Short-term floating-rate deposits are used to fund long-term fixed rate loans.
- D. Short-term fixed rate deposits are used to fund long-term floating rate loans.
Answer: C
NEW QUESTION 42
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 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 and sells the reals at
this quoted price. Then the bank immediately buys the real at the market rate and completes foreign exchange
matched transaction. What is the financial impact of this transaction for Alpha bank?
- A. This transaction leaves the bank a profit of BRL 10,101.
- B. This transaction leaves the bank a loss of AUD 10,101.
- C. This transaction leaves the bank a profit of AUD 10,101.
- D. This transaction leaves the bank a loss of BRL 10,101.
Answer: C
NEW QUESTION 43
Alpha Bank determined that Delta Industrial Machinery Corporation has 2% change of default on a one-year
no-payment of USD $1 million, including interest and principal repayment. The bank charges 3% interest rate
spread to firms in the machinery industry, and the risk-free interest rate is 6%. Alpha Bank receives both
interest and principal payments once at the end the year. Delta can only default at the end of the year. If Delta
defaults, the bank expects to lose 50% of its promised payment. Hence, the loss rate in this case will be
- A. 1%
- B. 10%
- C. 3%
- D. 5%
Answer: A
NEW QUESTION 44
Which one of the following four statements about economic capital of a bank is correct?
- A. Economic capital measures how the economy is doing compared to the bank.
- B. Economic capital reflects the possible losses that could occur based on the bank's own estimates of the
risks it is taking. - C. Economic capital is the present value of the earnings generated by the bank in the future.
- D. Economic capital is determined by rules imposed by an external authority.
Answer: B
NEW QUESTION 45
The Sarbanes-Oxley Act includes one of the following four requirements for financial institutions in the
United States:
- A. Risk and control requirements
- B. Market discipline requirements
- C. Regulatory response to systemic risk requirements
- D. Capital allocation requirements
Answer: A
NEW QUESTION 46
Which one of the following four relationships should be used to price equity forwards or futures?
- A. Equity forward or futures price = market equity price + (1 + risk-free rate + expected dividend rate)t
- B. Equity forward or futures price = market equity price x (1 + risk-free rate - expected dividend rate)t
- C. Equity forward or futures price = market equity price x (1 - risk-free rate - expected dividend rate)t
- D. Equity forward or futures price = market equity price + (1 + risk-free rate - expected dividend rate)t
Answer: B
NEW QUESTION 47
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. Effectively transferring the interest rate risk in the banking book to the investment bank at a fair transfer
price. - B. Mitigating liquidity risk, or effectively managing the balance sheet and its funding.
- C. Ensuring that the risks generated by the bank's business are mitigated in the market.
- D. Managing the net interest rate risk in the banking book directly with market counterparties by operating
a derivatives trading desk.
Answer: C
NEW QUESTION 48
Which one of the following four exercise features is typical for the most exchange-traded equity options?
- A. Asian exercise feature
- B. A shout option exercise feature
- C. American exercise feature
- D. European exercise feature
Answer: C
NEW QUESTION 49
Bank Alpha is making a decision about lending 10-year loans in a sector that is fairly illiquid and is looking at
various options to fund the loans. Which of the following options to fund the loans exhibits the most
exogenous liquidity risk?
- A. Foreign exchange markets
- B. The 6-month LIBOR markets
- C. The 1-year treasury markets
- D. Overnight interbank markets
Answer: D
NEW QUESTION 50
Which of the following statements depicts a difference between funding liquidity risks and trading liquidity
risks?
- A. Funding liquidity risks are associated with how fast prices move in the market while trading liquidity
risks originate out of bank trades. - B. Funding liquidity risks are concerned with the ability of the bank to fund deposits withdrawals while
trading liquidity risks are concerned with the change in bid-offer spreads of asset values. - C. Funding liquidity risks are short term risks while trading liquidity risks are longer term risks.
- D. Funding liquidity risks are associated only with the bank assets while trading liquidity risks are
associated with both assets and liabilities of the bank.
Answer: B
NEW QUESTION 51
According to the largest global poll of foreign exchange market participants, which one of the following four
global financial institutions was the most active participant in the global foreign exchange market?
- A. Citibank
- B. UBS AG
- C. Deutsche Bank
- D. Barclays Capital
Answer: C
NEW QUESTION 52
Which one of the following four option types has two strike prices?
- A. Asian options
- B. Range options
- C. American options
- D. Shout options
Answer: D
NEW QUESTION 53
Which one of the following statements correctly identifies risks in foreign exchange forwards?
- A. Long-term forward price fluctuations are driven by changes in the spot exchange rate, since most
inter-country interest rates differentials are small, and the effect of compounding is large for short
periods of time. - B. Short-term forward price fluctuations are driven by changes in the spot exchange rate, since most
inter-country interest rates differentials are significant, and the effect of compounding is large for short
periods of time. - C. Short-term forward price fluctuations are driven by changes in the spot exchange rate, since most
inter-country interest rates differentials are small, and the effect of compounding is small for short
periods of time. - D. Long-term forward price fluctuations are driven by changes in the spot exchange rate, since most
inter-country interest rates differentials are significant, and the effect of compounding is small for short
periods of time.
Answer: C
NEW QUESTION 54
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