726 Midterm 2 WQ08 (Answer Key)

726 Midterm 2 WQ08 (Answer Key) - Midterm 2 WQ08 KEY True...

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Midterm 2 WQ08 KEY True / False Questions 1. A bank with a negative repricing (or funding) gap faces reinvestment risk. FALSE 2. Duration is the weighted-average present value of the cash flows using the timing of the cash flows as weights. FALSE 3. Market risk management is important as a source of information on risk exposure for senior management. TRUE 4. Floating rate loans are less credit risky than fixed rate loans. FALSE 5. Comparing the loan mix of an individual FI to a national benchmark loan mix is useful in determining the extent that the individual FI may differ from an efficient portfolio composition. TRUE 6. The current market or contingent claims values of OBS items overestimates their notional value. FALSE 7. Contingent credit risk on derivative contracts is more serious for futures contracts than for forward contracts. FALSE 8. Agency conflicts occur when managers introduce new initiatives to achieve goals other than value maximization. TRUE 9. Most nonbank FIs have foreign exchange risk exposure that is smaller than the exposure of the large U.S. money-center banks. TRUE 10. The greater the volatility of foreign exchange rates given any net exposure position, the greater the fluctuations in value of the foreign exchange portfolio. TRUE 11. CRA statistical credit scoring models have difficulty measuring political risk events. TRUE 12. The greater is the difference between fair market prices and fire-sale asset prices, the less liquid is the DI’s portfolio of assets. TRUE 13. The relative time frame for active liquidity management is 2 to 4 months. FALSE
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Multiple Choice Questions 14. The yield curve a. relates rates for different maturities of assets. b. is normally calculated using U.S. Treasury securities. c. may change shape over time. d. should be calculated for securities in the same risk class. E All of the above are correct. 15. Which of the following statements is true? a. An increase in interest rates leads to an increase in the market value of financial securities. B Value of longer term securities decreases at a diminishing rate for increases in interest rates. c. Value of longer term securities increases at an increasing rate for any decline in interest rates. d. The shorter the maturity of a fixed income asset or liability, the greater the fall in market value for any given interest rate increase. e. The longer the maturity of a fixed income asset or liability, the greater the fall in market value for any given interest rate decrease. 16. The unbiased expectations theory of the term structure of interest rates a. assumes that long-term interest rates are an arithmetic average of short-term rates. B assumes that the yield curve reflects the market’s current expectations of future short-term interest rates. c.
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726 Midterm 2 WQ08 (Answer Key) - Midterm 2 WQ08 KEY True...

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