Week 3 Quiz PDF

Preview

Summary

week 3 quiz answers...

Description

Week 3 Quiz 

Question 1 0 out of 1 points

Consider the following information to answer the question:

Assets Rate sensitiv e

Fixed rate

Nonearning

Amoun Rat t e

Liabilitie Amoun Rat s t e

$35 000 Rate 10% 000 sensitive $21 000 000

9%

$4 000 000

Fixed rate

Equity

$40 000 000

8%

$12 000 000

7%

$8 000 000

What will be the FI's net interest income at year-end if interest rates do not change? Selected Answer:

[None Given]

Answers:

$1.89 million $1.35 million



Question 2 0 out of 1 points

Which of the following statements is true? Selected Answer:

A positive gap indicates that a rise in interest rates would lower the bank's net interest income.

Answers:

A negative gap indicates that a rise in interest rates would lower the bank's net interest income.



Question 3 0 out of 1 points

Which of the following statements is true? Selected

Answer:

An FI with a negative repricing gap has not particular expectations regarding interest rate movements.

Answers:

An FI with a negative repricing gap expects interest rates to remain fall. 

Question 4 1 out of 1 points

An FI with a negative gap of $20 million suffers a $0.2 million decrease in its net interest income if interest rates decrease by 1 per cent. Selected Answer:

Fals e

Answers: Fals e



Question 5 0 out of 1 points

The term 'rate-sensitive assets' refers to assets: Selected Answer:

for which demand is highly dependent on the level of interest rates

Answers:

whose interest rate will be repriced over some future period



Question 6 1 out of 1 points

If the spread between rate-sensitive assets and rate-sensitive liabilities increases for a bank, future changes in interest rates will lead to an increase in net interest income. Selected Answer:

Tru e

Answers:

Tru e



Question 7 0 out of 1 points

The Reserve Bank of Australia (RBA) undertook actions in regards to their open market operation in the post global financial crisis environment to move financial markets towards greater stability. This was achieved by:

Selected Answer:

increasing the supply of deposits held by banks and other authorised deposit-taking institutions in their exchange settlement accounts held with the RBA.

Answers:

All of the listed options are correct. 



Question 8 1 out of 1 points

Which of the following are rate-sensitive liabilities? Selected Answer:

Three-month term deposits, three-month bankers' acceptances, six-month negotiable certificates of deposit and one-year term deposits

Answers:

Three-month term deposits, three-month bankers' acceptances, six-month negotiable certificates of deposit and one-year term deposits



Question 9 1 out of 1 points

The liquidity premium theory of the term structure of interest rates: Selected Answer:

assumes that investors will hold long-term maturity assets if there is a sufficient premium to compensate for the uncertainty of the long term.

Answers:

assumes that investors will hold long-term maturity assets if there is a sufficient premium to compensate for the uncertainty of the long term.



Question 10 1 out of 1 points

The cumulative gap over the whole balance sheet by definition: Selected Answer: Answers:

must equal zero must be greater than zero must be lower than zero must equal zero can take any value

Question 2 1 out of 1 points

If an FI's repricing gap is less than zero, then: Selected Answer:

Answers:

its liability costs are more sensitive to changing market interest rates than are its asset yields it is deficient in its required reserves it is deficient in its capital ratio requirement its liability costs are more sensitive to changing market interest rates than are its asset yields its liability costs are less sensitive to changing market interest rates than are its asset yields

Question 4 0 out of 1 points

Consider the following repricing buckets and gaps: Repricing bucket 1 day

1 day to 3 months 3 to 6 months 6 to 12 months

1 to 5 years

Over 5 years

Asset s

Liabilitie Gaps s

$50 000 $120 000 $100 000

$70 000

$100 000 $100 000 $250 000

$80 000

$75 000 $130 000 $25 000 $100 000

-$70 000 $30 000

$0

$170 000 -$55 000 -$75 000

What is the annualised change in the bank's future net interest income if the average rate change for assets and liabilities that can be repriced within one year is a decrease of 100 basis points? Selected Answer:

$13 000

Answers:

-$13 000 $13 000 -$17 000 $17 000

Question 5 1 out of 1 points

How do you interpret the position of an FI with a positive on-balance-sheet gap and a negative off-balance sheet gap? Selected Answer:

Answers:

The FI uses its off-balance-sheet activities to hedge its onbalance-sheet activities. The FI uses its on-balance-sheet activities to hedge its offbalance-sheet activities. The FI uses its off-balance-sheet activities to hedge its onbalance-sheet activities. The FI believes that interest rates will increase and made a mistake in setting its gap for off-balance-sheet activities. The FI believes that interest rates will increase and made a mistake in setting its gap for on-balance-sheet activities.

Question 6 1 out of 1 points

Which of the following statements is true? Selected Answer:

A major reason for cheque accounts to be excluded from an FI's interest-sensitive liabilities is that the majority of these accounts are core deposits.

Answers:

A major reason for cheque accounts to be excluded from an FI's interest-sensitive liabilities is that the majority of these accounts are core deposits. Cheque accounts should be treated as interest-sensitive liabilities because if interest rates fall, deposits might be withdrawn and thus will need to be replaced by higher-yielding deposits. The final decision whether or not to include cheque accounts as rate sensitive liabilities must be made by predicting depositors' behaviours.

None of the listed options are correct.

Question 8 1 out of 1 points

Which of the following statements is true? Selected Answer:

APRA requires smaller Australian FIs to use the repricing gap method to estimate interest rate exposures in their banking book for capital adequacy.

Answers:

APRA requires smaller Australian FIs to use the repricing gap method to estimate interest rate exposures in their banking book for capital adequacy. Australian FIs are only required to use the repricing gap method if they are listed on an US stock exchange. APRA does not require Australian FIs to use the repricing gap method to estimate interest rate exposures in their banking book for capital adequacy. Australian FIs are only required to use the repricing gap if they are internationally active. Question 7 1 out of 1 points

When repricing all interest sensitive assets and all interest sensitive liabilities in a balance sheet, the cumulative gap will be: Selected Answer:

zero

Answers:

zero one greater than one a negative value Question 10 1 out of 1 points

The term 'rate-sensitive assets' refers to assets whose interest rate will be repriced over some future period. Selected Answer: Answers:

Tru e Tru e False

Question 1 1 out of 1 points

Which of the following statements is true? Selected Answer:

A major reason for cheque accounts to be excluded from an FI's

interest-sensitive liabilities is that the majority of these accounts are core deposits. Answers:

A major reason for cheque accounts to be excluded from an FI's interest-sensitive liabilities is that the majority of these accounts are core deposits. Cheque accounts should be treated as interest-sensitive liabilities because if interest rates fall, deposits might be withdrawn and thus will need to be replaced by higher-yielding deposits. The final decision whether or not to include cheque accounts as rate sensitive liabilities must be made by predicting depositors' behaviours. None of the listed options are correct. Question 2 0 out of 1 points

Consider the following repricing buckets and gaps: Repricin Asset Liabilitie Gap g bucket s s s 1 day

1 day to 3 months 3 to 6 months 6 to 12 months 1 to 5 years Over 5 years

$50 000 $120 000 $100 000

$70 000

$100 000 $100 000 $250 000

$80 000

$75 000 $130 000 $25 000 $100 000

Cumulativ e gap

-$70 000

-$70 000

$30 000

-$40 000

$0

-$40 000

$170 000

$130 000

-$55 000

$75 000

-$75 000

$0

What is the annualised change in the bank's future net interest income if the average rate change for assets and liabilities that can be repriced over five years is an increase of 50 basis points? Selected Answer:

$75 000

Answers:

$0 Not enough information to answer the question. $75 000 $7500

Question 3 1 out of 1 points

What is spread effect? Selected Answer:

Answers:

The effect that a change in the spread between rates on ratesensitive assets and rate-sensitive liabilities has on net interest income as interest rates change. Periodic cash flow of interest and principal amortisation payments on long-term assets that can be reinvested at market rates. The effect that a change in the spread between rates on ratesensitive assets and rate-sensitive liabilities has on net interest income as interest rates change. The effect of mismatch of asset and liabilities within a maturity bucket. The premium paid to compensate for the future uncertainty in a security's value.

Question 6 1 out of 1 points

If an FI's repricing gap is less than zero, then: Selected Answer:

Answers:

its liability costs are more sensitive to changing market interest rates than are its asset yields it is deficient in its required reserves it is deficient in its capital ratio requirement its liability costs are more sensitive to changing market interest rates than are its asset yields its liability costs are less sensitive to changing market interest rates than are its asset yields

Question 7 1 out of 1 points

Interest rate spread is the difference between the earning assets interest rate and cash rate set by RBA. Selected Answer:

Fals e

Answers:

True Fals e

Question 9 1 out of 1 points

The repricing model ignores information regarding the distribution of assets and liabilities within maturity buckets. This limitation of the model refers to: Selected Answer: Answers:

over-aggregation market value effect over-aggregation runoffs and pre-payments off-balance-sheet activities

Question 10 1 out of 1 points

The term 'rate-sensitive assets' refers to assets: Selected Answer:

whose interest rate will be repriced over some future period

Answers:

whose interest rate will be repriced over some future period with a particularly high interest rate with a particularly low interest rate for which demand is highly dependent on the level of interest rates...