[Solved] Assignment 219435

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Subject: Business    / Finance
Question
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)
.coursehero.com/tutors-problems/Finance/8632747-1-What-is-the-FIs-interest-rate-risk-exposure-Points-5/#48943199″ title=”Click to Continue > by Advertisement” style=”font-variant-numeric: inherit; font-stretch: inherit; line-height: inherit; font-family: “Haas Grot Text Web”, “Helvetica Neue”, Helvetica, Arial, sans-serif; font-size: 14px; outline: 0px; color: rgb(0, 181, 226); z-index: 2147483647; box-sizing: border-box !important; margin: 0px 0px 0px 3px !important; padding: 0px !important; border: 0px !important; font-weight: 700 !important; vertical-align: baseline !important; background: 0px 0px !important; bottom: auto !important; clip: auto !important; clear: none !important; display: inline-block !important; float: none !important; height: auto !important; max-height: none !important; max-width: none !important; min-height: 0px !important; min-width: 0px !important; overflow: visible !important; position: static !important; pointer-events: auto !important; right: auto !important; transform: none !important; visibility: visible !important; width: auto !important; zoom: 1 !important; text-transform: uppercase !important;”>PUT OPTION.akamaihd.net/items/it/img/arrow-10×10.png”>.
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.coursehero.com/tutors-problems/Finance/8632747-1-What-is-the-FIs-interest-rate-risk-exposure-Points-5/#79697788″ title=”Click to Continue > by Advertisement” style=”font-variant-numeric: inherit; font-stretch: inherit; line-height: inherit; font-family: “Haas Grot Text Web”, “Helvetica Neue”, Helvetica, Arial, sans-serif; font-size: 14px; outline: 0px; color: rgb(0, 181, 226); z-index: 2147483647; box-sizing: border-box !important; margin: 0px 0px 0px 3px !important; padding: 0px !important; border: 0px !important; font-weight: 700 !important; vertical-align: baseline !important; background: 0px 0px !important; bottom: auto !important; clip: auto !important; clear: none !important; display: inline-block !important; float: none !important; height: auto !important; max-height: none !important; max-width: none !important; min-height: 0px !important; min-width: 0px !important; overflow: visible !important; position: static !important; pointer-events: auto !important; right: auto !important; transform: none !important; visibility: visible !important; width: auto !important; zoom: 1 !important; text-transform: uppercase !important;”>TRADING AND INVESTMENT.akamaihd.net/items/it/img/arrow-10×10.png”> 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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