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![]() Sovereign Risk Having longer maturity assets than liabilities causes banks to bear which of the following risks?Į. Argentina has refused to pay loans made to it by foreign institutions three times. Made it more difficult for many debtors to receive bankruptcy protection. ![]() made it easier for foreign debtors to seek debt relief under U.S. applied only to corporations and financial institutions.Į. made it more difficult for many debtors to receive bankruptcy protection.ĭ. made it easier for many debtors to receive bankruptcy protection.ī. The market value of equity will decline if interest rates change In October 2005, the Bankruptcy Reform Act was signed into law. real interest rates will exceed nominal rates. bank capital will be insufficient to cover loan losses.Į. assets will be insufficient to cover loan losses.ĭ. interest income will rise by more than interest expense when rates increase.Ĭ. the market value of equity will decline if interest rates change.ī. Profitability would decline Present value uncertainty is the risk thatĪ. Liquidity Risk A thrift makes long-term fixed-rate mortgages funded with short-term deposits and then interest rates rise. This inability to get new repo financing is an example ofĮ. ![]() In 2007, many investment banks and other financial institutions were unable to roll over their maturing repurchase agreements during the subprime mortgage crisis. Technological Risk Repurchase agreements (repos) are used extensively to finance security holdings. Liquidity Risk MONDEX spent $50 million to develop the Smart Card, but tests of prototypes in New York and Canadian cities revealed very little consumer interest. False True The risk that an unanticipated increase in liability withdrawals may cause an FI to have to sell assets at fire sale prices is an example ofĮ. False False Breakdowns of ATMs and fraudulent use of information stored on a bank's computer system are examples of operational risk.ī. False True Assets in a bank's trading book tend to be held for a longer time than assets held in the banking book.ī. The bank will have a net foreign exchange loss on these accounts if the exchange rate moves to £1 = $1.95.ī. bank has £900 million in loans it has made to corporate customers and it has £750 million in deposits when the exchange rate is £1 = $1.98. False True Rising interest rates decrease the value of fixed-income assets and increase the value of fixed-income liabilities.ī. False True A bank that has made floating rate loans funded by longer maturity deposits is at risk from falling interest rates.ī. False TRue Many intermediaries, such as banks, cannot be asset transformers and match maturities of their assets and liabilities.ī. False True The subprime crisis is a good example of the credit risk faced by financial institutions.ī. False False A corporate borrower failing to repay a loan on time due to equipment breakdowns is an example of firm specific credit risk.ī. False False Maintaining a diversified loan portfolio helps a bank reduce systematic credit risk.ī. False True Loan charge-offs do not lead to insolvency risk because when loans are written off both loans and liabilities are reduced.ī. False False Risk arising from unhedged positions in securities, currencies, and derivatives is called market risk.ī. None of the above Liquidity The risk that an FI may not have enough capital to offset a sudden decline in the value of its assets is called operational risk.ī. AZS AZS As defined by S&P Capital IQ, which of the following ratio categories measures the flexibility to pay short-term obligations and/or mitigate unforeseen contingencies?Į. False True Which of the following is the Bloomberg function for Z-score?Į. Book value of debt to market value of equity Working Capital to total assets Using the Bloomberg Credit Risk Scale, the probability of default for a company ranked IG that does not default should increase over time, while the probability of default for a company ranked DS that does not default should decrease over time.ī. Unable to determine An increase in $300 million in short-term debt Which of the following are inputs to the Altman's Z-score Model?Į. A decrease in $300 million in long-term debtĮ. An increase in $300 million in short-term debtĭ. A decrease in $300 million in long-term debtĬ. An increase in $300 million in long-term debtī. No Change Decrease Which of the following will lead to the GREATEST increase in the Default Probability according to Bloomberg Credit Risk?Ī. False False If the standard deviation of assets increases, the value of risky debt willĬ. No Change Decrease A large ratio of inventory to working capital (relative to the industry average) generally suggests that the quantity of liquidity is poor.ī. As a company's leverage ratios increase and solvency ratios decline relative to industry peers, its borrowing capacity will most likely?Ĭ.
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