PROFICIENCY CHECKS Flashcards
1
Q
BALANCE SHEET MANAGEMENT I & II
A
2
Q
A. BSM Financial Intermediation Proficiency Answers
A
3
Q
- Net Revenue From Funds (NRFF) generates:
a. Trading profits
b. Fee-based income
c. Net Interest Income
d. FX spread
A
c. Net Interest Income
3
Q
- The objectives of Financial Intermediation is :
a. to reconcile the diverse needs of borrowers
b. to reconcile the diverse needs of lenders
c. to mobilize savings and put them to productive use
d. A & B
e. All of the above.
A
e. All of the above.
4
Q
- Reserve requirements imposed by central banks:
a. decrease effective cost of funds
b. increase effective cost of funds
c. increase effective yield of funds
d. decrease effective yield of funds
A
b. increase effective cost of funds
5
Q
- A mismatch in the tenors of its assets and liabilities will expose a bank to:
a. FX risk
b. Interest rate risk
c. Equity risk
d. Commodity risk
A
b. Interest rate risk
6
Q
- The relationship between prices and yields for fixed-income securities is:
a. sometimes direct
b. sometimes inverse
c. always direct
d. always inverse
A
d. always inverse
7
Q
A.1 BSM Bank Treasury Management Proficiency Answers
A
7
Q
- Which action is NOT used by a country’s central bank to control money supply:
a. control demand for goods and services
b. carry out open market operations using government securities
c. determine reserve requirements
d. set level of discount rate
A
a. control demand for goods and services
8
Q
- To facilitate speed of processing transactions, the dealing room and back office are
usually located in the same room.
a. True
b. False
A
b. False
8
Q
- Which of the following statements is true?
a. The ALM function of a bank focuses on operational risk and credit risk.
b. Maturity mismatches between a bank’s assets and the liabilities are seldom in
practice.
c. A PH bank with multi-currency transactions may centralize the ALM function in
PHP as a functional currency.
A
c. A PH bank with multi-currency transactions may centralize the ALM function in
PHP as a functional currency.
9
Q
- Which of the following would represent a floating or variable rate asset for a bank?
a. A 10-year amortizing loan made to a corporate borrower with Interest set 5% p.a.
on the outstanding principal
b. A 5-year FRN issued by the bank, paying interest of 6-month LIBOR + 0.25%
c. A 5-year loan granted by a bank where interest is reset and paid semi-annually at
T + 1%
A
c. A 5-year loan granted by a bank where interest is reset and paid semi-annually at
T + 1%
10
Q
- Which of the following is the most liquid asset for a bank to generate PHP funds?
a. A 10-year US Treasury bond bought by the bank
b. A 3-year variable rate loan to a government agency
c. A 1-month certificate of deposit (CD) issued by the bank
A
a. A 10-year US Treasury bond bought by the bank
11
Q
- In the context of ALM, TPP
a. TPP stands for transfer process & procedures and is the mechanism by which internal
credit/debits are made to different business units. The ALM function ensures that payments are
recorded and attributed correctly.
b. TPP stands for transaction process pricing. ALM is responsible for monitoring the prices
shown to customers for banks products and ensuring that they are calculated on a fair basis.
c. TPP stands for funds transfer pool pricing, the process by which monies are received from or
given to any individual business units which raise or utilize cash in their businesses. The ALM
function is generally responsible for ensuring that fair rates for the cash are either paid to or
charged to the individual businesses.
A
c. TPP stands for funds transfer pool pricing, the process by which monies are received from or
given to any individual business units which raise or utilize cash in their businesses. The ALM
function is generally responsible for ensuring that fair rates for the cash are either paid to or
charged to the individual businesses.
12
Q
- Which organization is generally responsible for determining the mandatory reserve requirement?
a. The treasury of a financial institution
b. The regulatory body covering banking in a jurisdiction
c. The ALCO of a financial institution
A
b. The regulatory body covering banking in a jurisdiction
13
Q
- ACI’s code of conduct for the FX and Money Markets is known as:
a. The Moral Code
b. The FX Global. Code
c. The Ethical Code
d. The Code for Ethical Conduct
A
b. The FX Global. Code
14
Q
- Which of the following would NOT usually represent a viable method of raising funds for an
institution in the event of a lliquidity shortage?
a. Liquidating long-term loan assets
b. Liquidating investments in government T-bills
c. Increasing the interest rates payable on deposit accounts
d. Borrowing money through the interbank market
A
a. Liquidating long-term loan assets
15
Q
- Describe the main role(s) of a Treasury group in a bank
a. Manage liquidity and reserves
b. Orchestrate the specialized activities of sourcing and origination groups
c. Interest rate and foreign exchange exposure management
d. A & B
e. All of the above
A
e. All of the above
16
Q
- Which of the following statements is true regarding a bank’s ALCO?
a. Whether the preferred risk target is NII or fee-based line of business is ultimately
irrelevant – the optimal hedging actions for a treasury will be identical in each case.
b. Central bank regulators do not advise or enforce membership of an asset and liability
committee for an institut
c. The ALCO will often determine the optimal mix as regards the generation of assets and
liabilities for a bank.
A
c. The ALCO will often determine the optimal mix as regards the generation of assets and
liabilities for a bank.
17
Q
- A bank Treasury’s ultimate financial objective is to:
a. reduce funding cost
b. increase asset yield
c. diversify asset classes
d. increase risk-adjusted return on capital (RAROC)
A
18
Q
- Which of the following would not normally be a function of the back office?
a. Money transfer
b. Securities account management
c. Trade execution
d. Trade reporting
A
c. Trade execution
19
Q
- A dealer’s job is normally classified as:
a. Front office
b. Middle office
c. Back office
A
a. Front office
19
Q
A.2 BSM Market Risk Management Proficiency Answers
A
20
Q
- There is trading liquidity if:
a. the market is very liquid with funds
b. there is at least one dealing bid price
c. there is continuous quoting of two-way prices
d. there is a credible and tamper-proof benchmark rate
A
c. there is continuous quoting of two-way prices
20
1. Market risk is described as:
a. the risk that you might choose the wrong market to trade
b. the risk involved between two different markets
c. the risk that rates will move in favor of your position
d. the risk that your interest rate position might lose money
d. the risk that your interest rate position might lose money
21
3. A bank grants a 5-year PHP 100 MM loan to a corporate client. The interest payable on this loan is
reset every six months at prevailing Interest rate. The bank Treasury funds this loan by borrowing PHP
100 MM for six months and rolls this over every six months for the next five years. Which of the
following statements is true?
a. Liquidity risk is present, but not interest rate risk.
b. Interest rate risk is present, but not liquidity risk.
c. Both liquidity and interest rate risk are present.
d. Neither liquidity risk nor interest rate risk are present.
a. Liquidity risk is present, but not interest rate risk.
22
4. An institution makes a 5-year variable rate loan, and funds this with a 6-month interbank borrowing. The
rate paid on the loan is linked to interbank borrowing rates, and payments are made every six months.
The institution plans to roll over the borrowing until the maturity of the loan. What do these two
transactions generate?
a. Significant liquidity and repricing risks in six months' time
b. Significant liquidity risk but little repricing risk in six months' time
c. Significant repricing risk but little liquidity risk in six months' time
b. Significant liquidity risk but little repricing risk in six months' time
23
5. A bank has a money market gap position when:
a. it has a loan and a deposit in two different currencies
b. it has several deposits funding one loan
c. it has a loan and deposit which will mature on different dates
d. it takes a deposit from the interbank market and lends it to a corporate client
c. it has a loan and deposit which will mature on different dates
24
6. A bank booked a 6-mo. USD loan and 1-mo. USD deposit; based on the two money market
transactions, the bank has
a. positive gap and expects a rise in USD interest rates
b. positive gap and expects a fall in USD interest rates
c. negative gap and expects a rise in USD interest rates
d. negative gap and expects a fall in USD interest rates
d. negative gap and expects a fall in USD interest rates
25
7. What is Interest Rate Gap:
a. Exists when interest rate sensitive assets and liabilities are not equal within a particular
time
b. Interest rate gap is equivalent to the difference and mismatch of interest rate sensitive
assets and liabilities
c. It is a tool that determines the opportunity for profit or potential loss
d. A & B
e. All of the above
d. A & B
26
8. A bond is quoted at a discount when:
a. Current YTM is higher than the coupon rate
b. Current YTM is lower than the coupon rate
c. Current YTM is the same as the coupon rate
d. Current YTM is the same as inflation rate
a. Current YTM is higher than the coupon rate
27
see image on docs
(A.) At what rate can you borrow 3-mo. GBP 1MM from the market-maker? How much interest do you have to pay? Use tenor of 90/365.
At 5.80
I= PRT; I= 1MM x 0.0580 x 90/365= 14301.36986
A. 5.80%, interest of 14,301.37
FV of GBP 1MM (1 + .0580 x 90/365) = GBP 1,014,301.37
(B.) At what rate can you lend 1-mo. USD 5MM to the market-maker? How much interest will you receive? Use tenor of 31/360?
At 3.50
I= PRT; I= 5MM x 0.0350 x 31/360= 15069.444
B. 3.50%, interest of 15,069.45
FV of USD 5MM (1 + .0350 x 31/360) = USD 5,015,069.45
(C.) If you want to receive EUR 1MM in three months time, how much will you invest now at the prevailing quoted rate. Use tenor of 92/365. Assume you are the price-taker.
EUR 1MM/(1 + .0470 x 92/365) = EUR 988,292.12
28
B. MONEY & CAPITAL MARKET INSTRUMENTS
29
Proficiency Check
A bank accepts a spot/3-mo. deposit for GBP 1MM at 6.50% for 92 days from a multinational company. Use 365 dpy basis, as it is the convention for GBP money market transactions.
(A.) What is the interest amount to be paid by the bank to the depositor? Assume nominal interest rate is equal to effective interest rate.
(B.) How much will the depositor receive at maturity date of the time deposit?
(A.) What is the interest amount to be paid by the bank to the depositor? Assume nominal interest rate is equal to effective interest rate.
Interest Amount I =PRT
=USD 1MM x .0650 x 92/365
=USD 16,383.56
(B.) How much will the depositor receive at maturity date of the time deposit?
Maturity Amount = FV= PV (1+ rt)
=USD 1MM x (1 + .0650 x 92/365)
=USD 1MM x (1.01638356)
=USD 1,016,383.56
30
A 6-mo. commercial loan granted by a bank is funded by a 6-mo. Certificate of Deposit. The bank pays the CD a nominal interest rate of 13.00%, for which it has to set aside 8.00% as Fed reserve requirements.
(A.) What is the break-even rate for the commercial loan, given the CD nominal rate of 13.00% and the reserve requirements of 8.00%?
A. (.13/.92) x 100 = 14.13%
(B.) What is prime rate if credit spread is at 50 bps?
B. 14.13 + .50 = 14.63
see image on docs
MMY = (DR) / (1-rt)
31
PROFICIENCY CHECK ABOUT T- BILLS, NOT SURE IF KASAMA UN, PANAY PICS SA DOCS
32
The Money Market
Set 1 – Exercises
33
2. Swaps, options and futures may be classified under the ____________
a. Money market
b. Foreign exchange market
c. Derivatives market
d. Equity market
c. Derivatives market
34
1. The international financial market is based described as a__________
a. Physical marketplace
b. A market comprising banks and financial institutions dealing with
one another
c. A global market place of bank dealers
d. A global market connected by a telecommunication network of
investors, traders, borrowers and lenders
d. A global market connected by a telecommunication network of
investors, traders, borrowers and lenders
35
3. The functions of the BSP are to
a. Control money supply
b. Carry out open market operations
c. Act as lender of last resort
d. All of the above
d. All of the above
36
4. If the BSP carries out a regular RP, it is trying to
a. Increase liquidity in the system
b. Decrease liquidity in the system
c. Maintain the present liquidity in the system
d. Reduce government borrowings
a. Increase liquidity in the system
37
5. Reserve requirements imposed by the BSP are meant to
a. Make lending more efficient in the economy
b. Control the volume of credit creation in the economy
c. Price out uncompetitive banks in the market
d. All of the above
b. Control the volume of credit creation in the economy
38
6. The offshore money market
a. Always located offshore
b. Is meant exclusively for non-residents
c. Is relatively free from local banking regulations such as reserve
requirements, taxes and nature of transactions
d. None of the above
c. Is relatively free from local banking regulations such as reserve
requirements, taxes and nature of transactions
39
7. An offshore currency is one which is
a. Transacted offshore
b. Transacted outside the national boundary of its domicile
c. Transacted only by non-residents of the currency’s domicile
d. Not regulated at all
b. Transacted outside the national boundary of its domicile
40
8. The capital market may be separated into the following sub-markets:
a. Debt and equity
b. Spot and forward foreign exchange
c. Options, swaps and futures
d. Offshore and local money markets
a. Debt and equity
41
9. If a bank does a reverse repo, it is
a. Borrowing funds
b. Lending funds
c. Borrowing funds on a collaterized basis
d. Lending funds on a collaterized basis
d. Lending funds on a collateralized basis
42
The financial market today is
a. A borderless market
b. A controlled market
c. Clearly separated by national boundaries
d. None of the above
a. A borderless market
43
D. SECURITIES DEALERSHIP
44
1. The type of auction wherein all Auction Participants are awarded at the same price or yield is a:
a. English Auction
b. Dutch Auction
c. Swiss Auction
d. None of the above
b. Dutch Auction
45
3. A group of financial institutions that commit to distribute or fully purchase new securities to be issued by a Corporate Issuer is known as:
a. an Investment Pool
b. a Financial Advisory Panel
c. an Underwriting Syndicate
d. none of the above
c. an Underwriting Syndicate
45
2. A Securities Registry is selected by and works primarily on behalf of the:
a. Issuer of the Security
b. Investor in the Security
c. Regulator of the Market
d. None of the above
a. Issuer of the Security
46
4. An Initial Public Offering or IPO of a fixed income security is a financial activity under the:
a. Intermediary Market
b. Secondary Market
c. Gray Market
d. Primary Market
d. Primary Market
47
5. A bank or securities firm that has excess cash for short term investments can
use the Repo Market and enter into:
a. a Repo
b. a Sell and Buyback
c. a Reverse Repo
d. none of the above
c. a Reverse Repo (lend ata to)
repo (borrow ata)
48
6. The difference in the yield of a Corporate Security versus the yield of a
Government Security with similar tenor and features is referred to as the:
a. Credit Swap
b. Credit Spread
c. Credit Ring
d. none of the above
b. Credit Spread
49
7. The settlement entity that has a primary role in facilitating transfers by immobilizing physically-certificated securities and converting these into units in an electronic book-entry accounting system is a:
a. Securities Custodian
b. Securities Transfer Agent
c. Securities Depository
d. none of the above
c. Securities Depository
50
8. A country’s Treasury Bonds are considered “risk-free” because these have very little:
a. price risk
b. liquidity risk
c. default risk
d. none of the above
c. default risk
50
9. Securities categorized as Held for Trading or “HFT” should follow:
a. accrual accounting guidelines
b. cash accounting guidelines
c. mark to market accounting guidelines
d. none of the above
c. mark to market accounting guidelines
51
10. A “special repo” has a rate different from a regular repo because it is characterized by:
a. the need for the Repo Buyer to borrow a specific security
b. the need for the Repo Seller to borrow cash
c. the need for the Cash Borrower to get funding
d. none of the above
a. the need for the Repo Buyer to borrow a specific security
52
12. Settlement risk in securities trading is largely mitigated by a:
a. Real-time Transfer System
b. Delivery-versus-Payment System
c. Gross Payment System
d. none of the above
b. Delivery-versus-Payment System
53
11. The daily process of simulating the “cost to close” interest sensitive trading positions is called :
a. settlement process
b. interest accrual process
c. mark-to-market process
d. none of the above
c. mark-to-market process
54
13. A Securities Dealer expecting a rise in interest rates would do which of the following actions:
a. buy more/increase securities trading positions
b. lend more securities in the securities lending market
c. sell off / decrease securities trading positions
d. none of the above
c. sell off / decrease securities trading positions
55
14. Within the securities market the person tasked as a “public representative” and execute orders on behalf of a client investor
a. dealer / trader
b. broker / salesman
c. associated person
d. securities regulator
b. broker / salesman
56
15. To determine a client’s suitability for a securities investment, a licensed Securities Broker must assess which of the following criteria of the prospective investor?
a. knowledge of the product / transaction
b. financial sophistication
c. capacity to absorb financial loss from the transaction
d. all of the above
d. all of the above
57
16. Which of the following activities under securities dealing would pertain to the “Held to Maturity” portion of the securities portfolio:
a. Market Making
b. Balance Sheet Management
c. Interest Rate Risk Trading
d. none of the above
b. Balance Sheet Management
58
17. The type of auction wherein an Issuer redeems and accepts outstanding securities as payment for a new security to be issued is called a:
a. Swiss Auction
b. Swing Auction
c. Switch Auction
d. Repo Auction
c. Switch Auction
59
18. A Dealer that intends to hold an outstanding “short securities position” without existing inventory of fixed income securities will likely have to:
a. enter into a Repo
b. enter into a Securities Lending Transaction as Borrower
c. enter into Credit ring
d. none of the above
b. enter into a Securities Lending Transaction as Borrower
60
19. If an Issuer goes into a default process, which of the following holders of that Issuer’s securities have priority on the residual assets of the Issuer?
a. fixed income securities holders
b. preferred shareholders
c. common shareholders
d. none of the above
a. fixed income securities holders
61
21. Buying a PH Treasury @2.50% and selling it @1.50% will generate a:
a. M M profit
b. MM loss
c. FX profit
d. FX loss
a. M M profit
61
20. The securities dealing activity wherein traders specialize in continually providing firm bid and offer prices to the other securities market participants is referred to as
a. marking-to-market
b. market-making
c. proprietary positioning
d. none of the above
b. market-making
62
F. FORWARD RATE AGREEMENTS
63
1.An FRA Bank quotes you a 2 x 5 USD FRA at
4.50% -4.55%. At what rate can you buy a 2 x 5 USD FRA?
4.55, BUYING FROM MARKET MAKER
64
2.An FRA Bank quotes you an 8 x 11 FRA at 5.50% -6.00%. At what rate can you hedge if you’re concerned about rising interest rates?
6.00% , BUYING KASI
65
65
3.A month ago, you sold a 3 x 6 FRA at 5.50% for a notional amount of USD 10MM. Today you are quoted the following rates:
1 x 4 FRA4.50% -4.75%
2 x 5 FRA5.00% -5.25%
3 x 6 FRA5.30% -5.60%
What’s your undiscounted P/L? Use tenor of 91/360.
66
4.You bought a 6-mo. asset funded by a 3-mo. liability. You wish to hedge your interest rate exposure. Which of the following strategy will offset your gap?
a.Borrow spot 3-mo.
b.Sell a 3 x 6 FRA
c.Buy a 3 x 9 FRA
d.Buy a 3 x 6 FRA
d.Buy a 3 x 6 FRA
BUY A 3X6 FRA TO COVER A NEGATIVE GAP
67
5.An FRA Bank quotes you an 8 x 11 FRA at 5.50% -6.00%. At what rate can you hedge if you’re concerned about falling interest rates?
5.50%
