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Which of the following statements is correct?
A. Unilateral collateral obligations to sovereign counterparties provide liquidity to banks.
B. Under Basel III commercial banks are most likely to incur lower costs to service their sovereign clients.
C. While banks usually do not call for collateral from sovereign counterparties, they must provide collateral for the offsetting hedge transactions which are undertaken with commercial counterparties.
D. Uncollateralised exposures to sovereign counterparties will not require additional regulatory capital to be set aside against potential credit losses
Correct Answer: C QUESTION 62
Which one of the following statements about interest rate movements is true?
A. An upward parallel shift of interest rates will cause a loss of income if the rate-sensitivity of a bank’s liabilities is higher than the rate-sensitivity of its assets.
B. A bank will lose income if it has more rate-sensitive liabilities than rate-sensitive assets.
C. Falling interest rates will always result in mark-to-market profits on short positions in fixed rate securities.
D. Rising interest rates can result in mark-to-market losses on fixed-rate assets.
Correct Answer: D
Under Basel rules, what is the meaning of EEPE?
A. Effective Expected Potential Exposure
B. Effective Expected Positive Exposure
C. Effective Expected Price Earning
D. Effective Expected Payment Exposure
Correct Answer: B
The major risk to the effectiveness of netting is:
A. Credit risk
B. Settlement risk
C. Liquidity risk
D. Legal risk
Correct Answer: D 200-125 vce
Which of the following methods is a means of credit risk mitigation?
A. entering into a plain vanilla IRS
B. entering into collateral agreements
C. hedging a portfolio’s USD exposure
D. investing only in sizeable and liquid markets
Correct Answer: B
Which of the following scenarios offer an example of wrong way risk?
A. A bank purchases credit protection on highly-rated tranches of US mortgage-backed securities from a US mortgage bank
B. A bank sells protection on the iTraxx main index at a level of 25 bps and shortly afterwards the index crosses the 200 bps level
C. A bank sells EUR put I USD call ATM options with an expiry date of 6 months and afterwards volatility moves up to substantially higher levels
D. A bank enters into a receiver’s swap while interest rates are increasing
Correct Answer: A
Which of the following is typical of liquid assets held by banks under prudential requirements?
A. prices increase during a systemic crisis
B. return on investment is relatively high
C. absence of active market makers
D. wide bid/offer spreads
Correct Answer: A
What is the correct interpretation of a EUR 2,000,000.00 overnight VaR figure with a 97% confidence level?
A. A loss of at least EUR 2,000,000.00 can be expected in 97 out of the next 100 days.
B. A loss of at most EUR 2,000,000.00 can be expected in 3 out of the next 100 days.
C. A loss of at least EUR 2,000,000.00 can be expected in 3 out of the next 100 days.
D. A loss of at most EUR 2,000,000.00 can be expected in 6 out of the next 100 days.
Correct Answer: C QUESTION 69
Hybex Electrics is a highly rated company with a considerable amount of fixed rate liabilities and would like to increase the percentage of floating rate debt. Which of the following is the best course of action?
A. Hybex should become a payer of a fixed rate on a swap against receipt of LIBOR.
B. Hybex should become a receiver of a floating rate on a swap against payment of a fixed rate
C. Hybex should become a receiver of a fixed rate on a swap against payment of LIBOR D.
D. Hybex should become a receiver of a floating rate on a swap against payment of LIBOR
Correct Answer: C
Which one of the following statements correctly describes the increased capital ratios that will come into effect under Basel III?
A. minimum tier 1 capital of 4.5% and minimum total capital plus a conservation buffer of 10.5%
B. minimum tier 1 capital of 6% and minimum total capital including conservation buffer of 8%
C. minimum tier 1 capital of 4% and minimum total capital including conservation buffer of 10.5%
D. minimum tier 1 capital of 6% and minimum total capital including conservation buffer of 10.5%
Correct Answer: D QUESTION 71
Responsibility for the activities of all personnel engaged in dealing (both dealers and support staff) for both principals and brokers lies with:
A. the market supervisor
B. the national ACI association
C. the management of such organizations
D. the central bank
Correct Answer: C QUESTION 72
Which Greek letter is used to describe the ratio of change in the option price compared with change in the price of the underlying instrument, when all other conditions are fixed?
D. theta Correct Answer: C QUESTION 73
When banks transact FX swaps, the spot price should be determined:
A. anytime after the swap is transacted
B. before the swap is transacted
C. immediately after the swap is transacted
D. no less than 24 hours after the completion of the swap
Correct Answer: C 200-105 pdf
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