B) False
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A) Large increases in the value of the OBS assets can render an FI economically insolvent.
B) Large increases in the value of the OBS liabilities will not render an FI economically insolvent as the liabilities are only contingent.
C) Large increases in the value of the OBS liabilities will not render an FI economically insolvent as the net worth of the institution will not be affected.
D) Large increases in the value of the OBS liabilities can render an FI economically insolvent.
F) B) and D)
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B) False
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A) The delta of an option can be calculated as the option's price divided by the price of the underlying security.
B) The delta of an option can be calculated as the change in the option's price divided by the change in the price of the underlying security.
C) The delta of an option can be calculated as the price of the underlying security divided by the price of the option.
D) The delta of an option can be calculated as the change in the price of the underlying security divided by the change in the price of the option.
F) C) and D)
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A) In general, default risk on OTC contracts decreases with the time to maturity of the contract and the fluctuation of underlying prices, interest rates or exchange rates.
B) In general, default risk on OTC contracts increases with the time to maturity of the contract and the fluctuation of underlying prices, interest rates or exchange rates.
C) In general, default risk on OTC contracts is independent of the time to maturity of the contract and the fluctuation of underlying prices, interest rates or exchange rates.
D) OTC contracts are generally free of default risk.
F) A) and C)
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B) False
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A) Exercising an adverse material change in conditions clause as a last resort, thereby cancelling or repricing a loan commitment.
B) Increase in the cost of funds above normal levels while many FIs scramble for funds to meet their commitments to customers during a credit crunch.
C) In a loan commitment, the borrower takes down only part of the funds over the specified time-period.
D) The buyer of a commercial letter of credit fails to perform as promised under a contractual obligation.
F) C) and D)
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A) A forward contract is a standardised contract between two parties to deliver and pay for an asset in the future.
B) A forward contract is a non-standardised contract between two parties to deliver and pay for an asset in the future.
C) A forward contract is a standardised contract guaranteed by organised exchanges to deliver and pay for an asset in the future.
D) A forward contract is a non-standardised contract guaranteed by organised exchanges to deliver and pay for an asset in the future.
F) A) and D)
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A) In its simplest form, the traditional valuation calculates an FI's net worth as the market value of assets less the market value of liabilities.
B) In its simplest form, traditional valuation calculates an FI's net worth as the market value of assets plus the market value of liabilities.
C) In its simplest form, traditional valuation calculates an FI's net worth as the market value of liabilities less the market value of assets.
D) None of the listed options are correct.
F) A) and D)
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A) A delta of 0.30 means that a one-cent change in the price of the underlying asset of the option leads to a 0.30 cent change in the price of the option.
B) A delta of 0.30 means that a ten-cent change in the price of the underlying asset of the option leads to a 0.30 cent change in the price of the option.
C) A delta of 0.30 means that a one-dollar change in the price of the underlying asset of the option leads to a 0.30 cent change in the price of the option.
D) A delta of 0.30 means that a one-dollar change in the price of the underlying asset of the option leads to a 30 per cent change in the price of the option.
F) All of the above
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A) banks increased their off-balance-sheet activities to avoid regulatory taxes.
B) banks decreased their off-balance-sheet activities to avoid regulatory costs.
C) banks decreased their off-balance-sheet activities to avoid competition from nonbank banks.
D) banks increased their off-balance-sheet activities to avoid competition from nonbank banks.
F) B) and C)
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B
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A) When issued trading can expose FIs to future interest rate risk.
B) When issued trading can expose FIs to future credit risk.
C) When issued trading can expose FIs to future liquidity risk.
D) When issued trading can expose FIs to future default risk.
F) C) and D)
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B) False
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A) 12.00 per cent
B) 12.75 per cent
C) 13.23 per cent
D) 13.67 per cent
F) A) and C)
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A) The measure used to measure the change in delta as the underlying security price varies is called vega.
B) The measure used to measure the change in delta as the underlying security price varies is called alpha.
C) The measure used to measure the change in delta as the underlying security price varies is called beta.
D) None of the listed options are correct.
F) All of the above
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D
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A) Expansionary monetary policy actions of the Reserve Bank of Australia.
B) FI's increased aversion toward lending during tight monetary conditions.
C) Low aggregate demand from borrowers to take down loan commitments.
D) Decrease in cost of funds.
F) A) and C)
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A) Forward contracts are classified as exotic derivatives.
B) Margin requirements on futures.
C) More flexibility as the buyer can decide whether or not to exercise the contract at maturity.
D) None of the listed options are correct as the default risk of a futures contract is generally considered to be higher than that of a forward contract.
F) None of the above
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A) guarantee safe delivery of goods to the importer.
B) guarantee receipt of payment from the importer upon receipt of the goods.
C) protect against adverse changes in foreign exchange rates.
D) ascertain the creditworthiness of the importer.
F) C) and D)
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A) The variable spread between a lending rate and a borrowing rate, or between any two interest rates or prices is called basis risk.
B) The variable spread between a lending rate and a borrowing rate, or between any two interest rates or prices is called spread risk.
C) The variable spread between a lending rate and a borrowing rate, or between any two interest rates or prices is called interest spread risk.
D) The variable spread between a lending rate and a borrowing rate, or between any two interest rates or prices is called funding risk.
F) All of the above
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A) items omitted from the short form balance sheet.
B) contingent assets and liabilities.
C) exceptionally risky assets and liabilities.
D) foreign (off shore) assets and liabilities.
F) B) and C)
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B
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