Finance Questions
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Which of the following relating to the Royal Banking Commission is false?(a) While the Royal Commission can conduct public hearings and inquiry into misconduct, it does not have the power to prosecute.(b) While the big four banks were chastised for their conduct in relation to financial advice, no recommendation was made by the Royal Commission to strip banks of their financial advice divisions.(c) It was recommended that APRA rewrite executive pay standards and get its regulated entities to review remuneration structure.(d) The commission commented that APRA and ASIC consult closely with each other and are engaging in high level of information exchange.
Common equity Tier 1 is:(a) None of the listed options are correct.(b) made up discretionary non-cumulative dividends or coupons that have neither a maturity date nor an incentive to redeem(c) subordinated to all other types of funding, absorbs losses, has full flexibility of dividend payments and has no maturity date.(d) used to provide loss absorption on a going-concern basis and must be subordinated to depositors and general creditors and an original maturity of at least five years
Which of the following statements is true?(a) RAROC is calculated as the capital at risk divided by the loan's income.(b) RAROC is the risk-adjusted return on capital.(c) None of the listed options are correct.(d) RAROC should always be below an FI's RAROC benchmark as otherwise the FI increases its default risk exposure.
Which of the following statements is true?(a) Credit-risk adjusted assets are off-balance-sheet assets only whose values are adjusted for approximate credit risk.(b) Credit-risk adjusted assets are on- and off-balance-sheet assets whose values are adjusted for approximate credit risk of the FI.(c) Credit-risk adjusted assets are on- and off-balance-sheet assets whose values are adjusted for approximate credit risk.(d) Credit-risk adjusted assets are on-balance-sheet assets only whose values are adjusted for approximate credit risk.
Consider an FI with the following off-balance-sheet items: A two-year loan commitment with a face value of $120 million, a standby letter of credit with a face value of $20 million and trade-related letters of credit with a face value of $70 million. What is the total credit equivalent amount?2 marks
Which of the following are the two main sources of exchange settlement liquidity for Australian FIs provided by RBA repos?(a) ESAs and inter-day repurchase agreement facilities.(b) Intra-day repurchase agreement facilities and overnight repurchase agreement facilities.(c) ESAs and intra-day repurchase agreement facilities.(d) Inter-day repurchase agreement facilities and overnight repurchase agreement facilities.
Which of the following statements is true?(a) Technically, 99% of the area under a normal distribution lies between +/ 1.65σ from the mean.(b) Technically, 90% of the area under a normal distribution lies between +/ 2.33σ from the mean.(c) Technically, 99% of the area under a normal distribution lies between +/ 2.33σ from the mean.(d) Technically, 90% of the area under a normal distribution lies between +/ 1.65σ from the mean.
Consider the financial data provided in the table. What is this company's Z-score (round to two decimals)?W/C : 50KTOTAL ASSETS: 500KMV EQUITY: 40KBV LT DEBT: 360KRETAINED EARNINGS: $15KEBIT: 250KSALES: 1 MIL (3 marks)
A bank is planning to make a loan of $5 000 000 to a firm in the steel industry. It expects to charge a servicing fee of 50 basis points. The loan has a maturity of 8 years and a duration of 7.5 years. The cost of funds (the RAROC benchmark) for the bank is 10 per cent. Assume the bank has estimated the maximum change in risk premium on the steel manufacturing industry to be approximately 4.2 per cent based on two years of historical data. The current interest rate for loans in this sector is 12 per cent. Estimate the loan risk for this loan. (3 marks)
Assume that the modified duration of a bond is 2.45 years and that the potential adverse move in yield is 16.5 basis points. What is the bond's price volatility (round to two decimals)?2 marks
Which of the following statements is true?(a) The major models used by banks in calculating market risk exposures are RiskMetrics, Monaco simulation and historic (back) calculation.(b) The major models used by banks in calculating market risk exposures are RiskMetrics, Monte Carlo simulation and historic (back) calculation.(c) The major models used by banks in calculating market risk exposures are CreditMetrics, Monte Carlo simulation and historic (back) calculation.(d) The major models used by banks in calculating market risk exposures are CreditMetrics, Monte Carlo simulation and forward calculation.
What are the two basic types of loan sale contracts or mechanisms by which loans can be transferred between seller and buyer? (a) participations and originations(b) transfers and assignments(c) participations and assignments(d) syndications and originations
What are the two main liquidity facilities available to Australian FIs to prevent financial disturbances occurring?(a) secondary credit and seasonal credit(b) financing gap and the financing requirement(c) deposit insurance and the discount window(d) intra-day repurchase agreement and overnight repurchase agreement
Which of the following is not true of a loan that is sold without recourse?(a) The loan is removed from the FI's balance sheet.(b) The FI has no explicit liability if the loan eventually goes bad.(c) The buyer can put the loan back to the selling FI.(d) The FI that originated the loan bears all the credit risk.
Which of the following statements is true?(a) All banks are required to comply with the liquidity coverage ratio by 2015 and will need to hold high-quality liquefiable assets that can be converted to cash to meet liquidity needs for 30 days.(b) Large banks are required to comply with the liquidity coverage ratio by 2015 and will need to hold high-quality liquefiable assets that can be converted to cash to meet liquidity needs for 30 days, whereas small banks will only need to meet liquidity needs for 5 days.(c) These days only small banks are subject to the liquidity requirement.(d) All banks are required to comply with the liquidity coverage ratio by 2015 and will need to hold high-quality liquefiable assets that can be converted to cash to meet liquidity needs for 5 days.
Which of the following statements is true?(a) An example of a covenant is a restriction that encourages those actions of the borrower that have an impact on the probability of repayment.(b) A covenant is a restriction written into either bond or loan contracts.(c) All of the listed options are correct.(d) An example of a covenant is a restriction that limits those actions of the borrower that have an impact on the probability of repayment.
Assume the market value of a position is $100 000 and that its modified duration is 3.30 years. Further assume that the potential adverse move in yield is 16.5 basis points. What are the daily earnings at risk for this position (round to two decimals)?2 marks
Purchased liquidity management is:(a) an asset-side adjustment to the balance sheet to cover a deposit drain(b) an equity-side adjustment to the balance sheet to cover a deposit drain(c) a liability-side adjustment to the balance sheet to cover a deposit drain(d) All of the listed options are correct
Which of the following is a way in which an FI can raise liquidity(a) All of the listed options are correct.(b) borrowing funds in money markets(c) selling liquid assets(d) using excess cash reserves over and above the amount held in its exchange settlement account with the RBA
In Australia, a securitisation program must have:(a) specifically selected assets (e.g. mortgages, receivables, etc.) backing its liabilities in the form of debt securities(b) a specifically created SPV, which may or may not be resident in Australia and which is not required to provide data to the Australian Securities and Investments Commission (ASIC) under the Financial Statistics (Collection of Data) Act(c) a specifically created SPV, which is resident in Australia and which is not required to provide data to the Australian Prudential Regulation Authority (APRA)(d) a specifically created SPV, which is resident in Australia, which is not required to provide data to the Australian Prudential Regulation Authority and have specifically selected assets (e.g. mortgages, receivables, etc.) backing its liabilities in the form of debt securities