ICBRR Online Practice Questions and Answers

In the United States, stock investors must comply with the Regulation T of the Federal Reserve Bank and may borrow up to ___ of the value of the securities from their brokers.

A. 30%

B. 40%

C. 50%

D. 60%

The probability of default on a bond is 3%, and in the case of default, investors expect to lose 70% of their investment. The bond's risk premium is 1.9%. The expected loss and the credit spread of the bond are, respectively:

A. 1.6% and 2.5%.

B. 2.1% and 3%.

C. 1.6% and 3.5%.

D. 2.1% and 4%.

Present value of a basis point (PVBP) is one of the ways to quantify the risk of a bond, and it measures:

A. The change in value of a bond when yields increase by 0.01%.

B. The percentage change in bond price when yields change by 1 basis point.

C. The present value of the future cash flows of a bond calculated at a yield equal to 1%.

D. The percentage change in bond price when the yields change by 1%.

The exercise for an American type option prior to expiration day is virtually certain in the following case:

A. In the event of a high dividend for an in-the-money call option

B. In the event of a high dividend for an in-the-money put option

C. In the event of a low dividend for an in-the-money call option

D. In the event of a low dividend for an in-the-money put option

Which of the following are conclusions that could be drawn from the shape of the statistical distribution of losses that a bank might incur over a future time period?

A. In most years a bank would look more profitable than it will be on average.

II. Most of the time a sufficiently well capitalized bank will appear over-capitalized.

III. Bad years do not come along very often, but when they do they lead to enormous losses.

B. I, II

C. I, III

D. II, III

E. I, II, III

Which of the following statements about endogenous and exogenous types of liquidity are accurate?

A. Endogenous liquidity is the liquidity inherent in the bank's assets themselves.

II. Exogenous liquidity is the liquidity provided by the bank's liquidity structure to fund its assets and maturing liabilities.

III. Exogenous liquidity is the non-contractual and contingent capital supplied by investors to support the bank in times of liquidity stress.

IV. Endogenous liquidity is the same as funding liquidity.

B. I, II

C. I, III

D. II, III

E. I, II, IV

US based Alpha Bank holds European corporate bonds and US inflation璱ndexed Treasury notes in its investment portfolio. This investment portfolio is not exposed to changes in which of the following?

A. Foreign exchange rates

B. Credit spread on the corporate bonds

C. Equity values

D. European interest rates

An asset and liability manager for a large financial institution has to recognize that retail products ___ include embedded options, which are often not rationally exercised, while wholesale products ___ carry penalties for repayment or include rights to terminate wholesale contracts on very different terms than are common in retail products.

A. Frequently; typically

B. Hardly ever; typically

C. Frequently; rarely

D. Hardly ever; rarely

Which of the following factors are typically included in standard operational risk definitions?

A. Human errors

II. Process failure

III. Systems failure

IV. Unexpected events

B. I and II

C. I and IV

D. II and III

E. I, II and III

Bank Alpha is making a decision about lending 10-year loans in a sector that is fairly illiquid and is looking at various options to fund the loans. Which of the following options to fund the loans exhibits the most exogenous liquidity risk?

A. Overnight interbank markets

B. The 6-month LIBOR markets

C. The 1-year treasury markets

D. Foreign exchange markets