Chapter 21: Your Results: The correct answer for each question is indicated by a . 1 INCORRECT When a bank encounters a surge of deposit customers, withdrawing their funds unexpectedly , we say the bank is experiencing a/an: A)funding gap B)bank surrender C)bank run D)excess liquidity position E)fire sale 2 INCORRECT The __________ _____ of a bank are those that exhi bit a higher degree of stabilit y from day to day. A)discount window borrowing B)federal funds purchases C)repurchase agreements D)core deposits E)large, negotiable CDs 3 CORRECT This week, Bank-A experienced an unexpectedly high amount fund requests from customers holding loan commitments. Bank-A is experiencing the results of: A)asset side liquidity risk B)credit risk C)net deposit drain D)liability side liquidity risk E)c and d 4 INCORRECT When a bank handles a deposit "drain" by raising funds in the fed funds market, or by means of "repos," we say the bank is using: A)long-term funding sources B)core deposits C)purchased liquidity D)liquidation of assets E)brokered deposits 5 CORRECT If a bank is forced to raise liquidity by selling off loans on short notice, the price it can receive on a loan sale would be termed: A)a fire-sale price B)the maximum liquidity price C)the deposit drain price
16 INCORRECTIn 2003, the Federal Reserve changed its discount window lending procedures. Thereare now three credit programs offered through the discount window: primary,secondary, and _______________.
A)insured-bank
B)disaster relief
C)seasonalD)non-depository
E)international
Chapter 22:
Your Results:
The correct answer for each question is indicated by a .
1 INCORRECT The "repricing gap" for a bank refers to:
A)ROA minus ROE.
B)rate-sensitive assets minus rate-sensitive liabilities.
C)total assets minus total liabilities.
D)net interest income minus overhead expenses
E)total assets minus total stockholders' equity.
2 CORRECTA "rate sensitive asset"-based on a one-year time horizon-represents a dollar amountof assets that ________________________ within one year.
A)can have a change in its interest rate, based on current market conditions
B)will disappear from the balance sheet
C)can be removed from the bank's balance sheet, due to customer behavior
D)will turn into a bank liability
E)will generate an increase in the bank's stockholders' equity
3 INCORRECT In the basic "repricing gap" model, an increase in market interest rates would:
A)lower the book value of stockholders' equity, of a bank with a negativeCGAP.
B)lower the net interest income, of a bank with a negative CGAP.
C)increase the net interest income, of a bank with a positive CGAP.
D)increase the market value of bank assets.
E)(a) and
(b)
4 INCORRECTWhich of the following would not be classified in the "one-year, rate sensitive asset"category?
A)Treasury bills with six-month maturity.
B)3-year maturity business loans, with "floating" interest rates.
C)Consumer loans with less than one year to maturity.
D)3-year maturity business loans, with fixed interest rates.
E)(a), (b), and (c)
5 INCORRECT The "leverage adjusted duration gap" is:
A)used to measure the sensitivity of net interest income to interest rate
changes.
B)equal to the rate sensitive assets minus the rate sensitive liabilities.
C)used to measure the sensitivity of equity value to interest rate changes.
D)equal to total assets minus total liabilities
E)(a) and
(b)
6 CORRECT A bank that is trying to "immunize" is trying to:
A)minimize its exposure to interest rate risk.
B)increase its net interest income, as interest rates change.
C)increase its equity value, as interest rates change.
D)accept more credit risk, to increasereturns.
E)(b) and (c)
7 INCORRECT The use of "duration" in interest rate risk management focuses on:
A)changes in net interest income.
B)the times to "repricing" for bank assets and liabilities.
C)changes in market values of bank assets and liabilities.
D)changes in book value of stockholders' equity.
E)(a) and(b)
8 INCORRECT Values that are based on historical costs are called:
A)market values.
B)"mark to market" values.
C)regulatory values.
D)book values.
E)(a) and(b)
9 CORRECT
Imaginary State Bank holds just two assets: (1) a loan with market value of $500,000, having duration of 2 years, and (2) a loan with market value of $250,000,having duration of 4 years. Find the duration of this bank's asset portfolio.
Refer to the following, for Basic Bank:One-year, rate sensitive assets $80 millionOne-year, rate sensitive liabilities 100 millionTotal assets 160 million
Total liabilities 145 millionWhat is Basic Bank's "one-year repricing gap"?
A)$80 million
B)$20 million
C)$15 million
D)-$15 million
E)-$20 million
11 INCORRECT
Refer to the following, for Basic Bank:One-year, rate sensitive assets $80 millionOne-year, rate sensitive liabilities 100 million
Total assets 160 millionTotal liabilities 145 millionSuppose market interest rates were to fall by one percentage point. What is theexpected change in Basic Bank's annual net interest income?
A)Increase of $150,000
B)Increase of $200,000
C)Decrease of $800,000
D)Decrease of $150,000
E)Decrease of $200,000
12 INCORRECTWhich of the following bank balance sheet items would be categorized within the
"one-year, rate sensitive liabilities"?A)18-month certificates of deposit
B)6-month consumerloans
C)3-month certificates of deposit
D)stockholders' equity
E)(a) and(c)
13 INCORRECT The one-year "cumulative gap" (or CGAP) can be obtained by:
A)adding up all assets and then subtracting all liabilities.
B)adding up all assets having maturity of more than one year.
C)multiplying the expected interest rate change by the "gap" for one year.
D)adding up all the "gaps" for periods out to one year.
E)adding up the market values of all assets and then subtracting the marketvalues of all liabilities.
14 CORRECTWhen a bank's spread ____________, its net interest income is expected to
6 INCORRECTBert is selling options, anticipating profitable price movements. His option sales arenot motivated by a desire to reduce risk. Bert is taking ____________ positions.
A)long
B)naked
C)futures
D)forward
E)spot
7 CORRECT
Standard State Bank owns bonds, and sold bond futures contracts on bonds for
hedging purposes. But Standard State's bond values are less than perfectly correlatedwith the values of bonds specified in the futures contracts. This gives rise to:
A)basis risk
B)counterparty risk
C)swap risk
D)default risk
E)systematic risk
8 INCORRECT
Last month, Mary purchased a bond futures contract; the futures price is 104(percent of face value). Now, contracts with the same delivery date are showing afutures price of 101. Which of the following is/are true?
A)Mary's contract is null and void.
B)Mary promised to "sell" bonds, when she entered into the contract.
C)Mary has experienced a loss on her contract.
D)Mary is required to place a "reversing" trade at this point.
E)(c) and (d)
9 INCORRECT
Savvy Savings Bank has a loan portfolio comprised of fixed-rate mortgage loans. Itsliabilities are short-term deposits. If Savvy wants to hedge against interest rate risk,which of the following makes the most sense?
A)buy a futures contract on bonds.
B)sell a futures contract on stocks.
C)buy an interest rate swap.
D)sell an interest rate swap.
E)Buy a currency swap.
10 CORRECT If you "write" call options on bonds, then you
D)will neither gain nor lose, no matter what happens to bondprices
E)(b) and (c)
11 INCORRECTA/an _________________contract is an agreement for the immediate exchange of funds for assets.
A)futures
B)forward
C)call option
D)spot
E)put option
12 CORRECT A futures contract is most similar to which of the following?
A)forward contract
B)spot contract
C)call option
D)put option
E)basis contract
13 INCORRECTIf an institution is protected against an adverse movement of interest rates, we wouldsay that it:
A)has maximized profit
B)has maximized the value of its stockholders
C)has speculated optimally
D)is optimized
E)is immunized
14 CORRECTAmerican Bank takes a "short position" in Eurodollar futures, with a delivery date inthree months. One week later, the Eurodollar futures price has risen. Then:
A)American has lost on its futures contract.
B)American is required to buy Eurodollars.
C)American has gained on its futures contract.
D)The delivery date will be adjusted; delivery must occur immediately.
E)The Eurodollar futures price will have to fall.
15 INCORRECT Buying a "floor":
A)would not be part of a r isk-reducing strategy
B)is similar to buying a futures contract on interest rates
C)is similar to buying a call option on interest rates
