Started on Sunday, 20 October 2019, 10:45 PM

State Finished
Completed on Sunday, 20 October 2019, 11:46 PM
Time taken 1 hour 1 min
Marks 47.00/60.00
Grade 7.83 out of 10.00 (78%)
Question 1
Correct Mark 1.00 out of 1.00
Question text
A 90-day Treasury Bill is issued at $99; what is its annualized yield (assuming 365 days in a
year)?
Select one:

a. 1.0101%.

b. 2.0315%.

c. 4.0965%.
Treasury bill yield = ( 100 - price ) / price x 365 / days = ( 100 - 99 ) / 99 x 365 / 90 = 4.0965%

d. 12.2561%.
Feedback Your answer is correct.
The correct answer is: 4.0965%.
Question 2
Incorrect Mark 0.00 out of 1.00
Question text
A bank buys a 5% cap on a notional amount of $100m for 3-month LIBOR. If the LIBOR were 7%
for the next 3-month period, the settlement amount would be:
Select one:

a. $ 250,000.

b. $ 500,000.

c. $ 2,000,000.

d. No settlement as the cap for that period is simply abandoned .

Long Cap settlement sum = max ( 0, notional sum * ( market rate - strike ) * term )
= $ 100,000,000 * ( 7% - 5% ) * 3/12
= $ 500,000
Feedback Your answer is incorrect.
The correct answer is: $ 500,000.
Question 3
Correct Mark 1.00 out of 1.00
Question text
A bank uses short-term wholesale funds to cover long-term assets. How would this situation be
managed and what are the possible consequences?
Select one:

a. Renewal facilities are needed regularly and are readily available.

b. Renewal facilities are needed regularly, and insolvency would occur if they dried up.
This approach is fine as long as the funds are availbale, but if for some reason ( as happened in
2007 / 8 ) liquidity in the money markets dries up, then the borrworing bank will find itself with
no funds and simply become insolvent.

c. Renewal facilities are not required as long term loans are readily available.

d. Renewal facilities are for emergency purposes only.

Feedback
Your answer is correct.
The correct answer is: Renewal facilities are needed regularly, and insolvency would occur if
they dried up.
Question 4
Correct Mark 1.00 out of 1.00
Question text
A bond pays an annual coupon of 10% and is redeemable at par in 10 years.
Calculate the price of this bond if the investor's required return in 8%
Select one:

a. $98.74.

b. $107.50.

c. $114.28.

d. $113.42.

Feedback Your answer is correct.

The correct answer is: $113.42.
Question 5
Correct Mark 1.00 out of 1.00
Question text
A business has made an application for a loan to enable them to invest in new technologies.
The business has received cash inflows before tax and interest payable of $100,000, $150,000
and $125,000 for the last three years.
If it had to make interest payments of $ 35,000, $ 60,000 and $ 30,000 over the same period,
what has been its lowest cash interest cover?
Select one:

a. 2.

b. 2.5.
Cash will only be received when any invoice for those goods or services is paid. Thus to use
profits as the measure for interest cover ignores the fact that interest has to be paid in cash
and it may be more appropriate to consider cash interest cover. It will be lowest in year two
150/60 = 2.5

c. 3.

d. 3.5.
Feedback Your answer is correct.
The correct answer is: 2.5.
Question 6
Correct Mark 1.00 out of 1.00
Question text
A fund has a liability due in 12 years. Using a barbell portfolio approach to immunisation, 50%
of the fund is invested in bonds with a duration of 4 years.
For how long would the remaining 50% of the fund be invested for ?
Select one:

a. 8 years.

b. 12 years.

c. 16 years.

d. 20 years.
4 yrs x 50% + 20 yrs x 50% = 12 yrs
Feedback Your answer is correct.
The correct answer is: 20 years.
Question 7
Correct Mark 1.00 out of 1.00
Question text
A number of non-interest income streams can be provided at little or no cost, for which of the
following customers who are likely to expect additional services and expertise?
Select one:

a. Trust account fees.

To charge Trust account fees, customers are likely to expect expertise and activity in return for
their fees.

b. Transaction fees on accounts for.

c. Turnover fees on accounts.

d. Credit card fees.

Feedback Your answer is correct.
The correct answer is: Trust account fees.
Question 8
Correct Mark 1.00 out of 1.00
Question text
A project will cost $100,000 and will return $10,000 p.a. at the end of each of the next 20
years. If the required return is 8%, what is the net present value of the project below?
Select one:

a. -$7523.

b. +$7523.

c. +$1919.

d. -$1919.
Feedback Your answer is correct.
The correct answer is: -$1919.
Question 9
Correct Mark 1.00 out of 1.00
Question text
All credit assessments require consideration of the factors listed in the mnemonic CAMPARI, of
those listed which of the following is NOT included?
Select one:

a. Purpose.

b. Margin.

c. Cost.
Cost is not covered in the mnemonic.

d. Repayment.
Feedback Your answer is correct.
The correct answer is: Cost.
Question 10
Correct Mark 1.00 out of 1.00
Question text
As a lending manager in your local branch you have granted your customer an amount of
personal lending to be repaid over the next 7 years.
What type of lending would this constitute?
Select one:

a. Short-term loan.

b. Medium-term loan.
A broad indication of short, medium and long-term loan periods in the context is: short term,
typically less than 1 year but possibly up to 3 years; Medium term, 3-10 years; Long term, over
10 years.

c. Long-term mortgage.

d. Lifetime mortgage.
Feedback Your answer is correct.
The correct answer is: Medium-term loan.
Question 11
Correct Mark 1.00 out of 1.00
Question text
As an accountant you are looking at the bank’s balance sheet. Which of the following would
you expect to find under a cash heading?
Select one:

a. Corporate and government long-term securities.

b. Bonds and fixed rate notes.

c. Repos.

d. Certificates of Deposit and Commercial Paper.

Specifically included are Certificates of Deposit and Commercial Paper which, if they are held,
would usually be shown separately or under cash or a heading such as cash equivalents as
they are so easily converted in to cash.
Feedback Your answer is correct.
The correct answer is: Certificates of Deposit and Commercial Paper.
Question 12
Correct Mark 1.00 out of 1.00
Question text
Bank A has just declared profit for the year at $1000m. Amongst other items in its balance
sheet:-
Share capital - $ 500m
Other reserves - $ 400m
Share premium - $ 100m
Deposits from customer - $ 5000m
Deposits from bank - $ 1000m
What is the bank’s return on equity for the year?
Select one:

a. 0.17

b. 0.34.

c. 1.00.
Return on equity = net profit for the year / equity shareholders funds
= $ 100m / ( $500m + $400m + $100m )
= 10%

d. 1.11.
Feedback Your answer is correct.
The correct answer is: 1.00.
Question 13
Incorrect Mark 0.00 out of 1.00
Question text
Bank A in Malaysia decided to charge 10% interest rates on secured loans and 30% on credit
cards. Are the rates charged regulated under existing laws/guidelines?In the event they are
regulated, have the charges breached any of the maximum rates limit?
Select one:

a. Secured loan is not regulated. Credit card is regulated and it has breached the maximum
rates limit.
The Moneylenders Act 1951 limits the interest rate on secured loans to 12%. While Guidelines
on Reference Rates, Lending Rates and Deposit Rates of Banking institutions regulate interest r
ates on loans, rates for credit cards are not.

b. Secured loan is not regulated. Credit card is regulated and it has breached the maximum
rates limit.

c. Secured loan is not regulated. Credit card is regulated and it is below themaximum rates
lmit.

d. Secured loan is regulated and it is below the maximum rates limit. Credit card is not
regulated.
Feedback Your answer is incorrect.
The correct answer is:
Secured loan is regulated and it is below the maximum rates limit. Credit card is not regulated.
Question 14
Correct Mark 1.00 out of 1.00
Question text
Bank A is expanding its loan segment to population with known history of late interest payment
and high debt level. Under what condition this action could be good business practice?
Select one:

a. Bank’s profitability and market share is improved irrespective of loan repayment.

b. Risk is fully justified and the bank is willing to take greater risk.
Expanding loan to population with known history of late interest payment and high debt level is
one of the characteristics of sub-prime lending. Sub-prime lending is not automatically a bad th
ing; it could be good business practice if the risk is fully justified and the bank is willing to take
on greater risk.

c. Written approval from regulator is sought and obtained prior.

d. Clients understand the potential action taken against them in the event of default.
Feedback Your answer is correct.
The correct answer is: Risk is fully justified and the bank is willing to take greater risk.
Question 15
Correct Mark 1.00 out of 1.00
Question text
Bank A is relatively small and is highly concentrated in its residential property lending
operation. It plans to purchase some 10Y corporate bonds from a manufacturing company in its
investment portfolio.
Which of the following best describes this action?
Select one:

a. It diversifies bank’s source of income into trading or speculation activity.

b. It preserves bank’s capital since the newly purchased security has little credit risk.

c. It provides liquidity as the investment can be easily sold and turned into cash.

d. It diversifies the bank’s credit risk into a wider range of industries.

Since an investment portfolio is kept for the purpose of real investment rather than trading or
speculation; and a 10-year corporate bonds is neither low in credit risk nor can it be readily
sold (since the maturity is more than one year), Bank A’s action is best described as a
diversification of its credit risk into a wider range of industries.
Feedback Your answer is correct.
The correct answer is: It diversifies the bank’s credit risk into a wider range of industries.
Question 16
Incorrect Mark 0.00 out of 1.00
Question text
Bank A would like to hold instrument without any coupon payment and maximum original
maturities of up to one year only.
Which instrument will be MOST suitable for Bank A?
I. Certificate of deposits.
II. Municipal bonds.
III. Treasury bills.
Select one:

a. I and III only.

Certificate of deposits pay coupon on regular basis (at least annually) whereas municipal bonds
is a type of capital market instrument with maturities over one year. Only treasury bills fulfill all
the requirements.

b. II only

c. II and III only.

d. III only.
Feedback Your answer is incorrect.
The correct answer is: III only.
Question 17
Correct Mark 1.00 out of 1.00
Question text
Bond A returns 4% and is tax exempted. Bond B returns 5.5% but is taxed at 20%. Which bond
is preferable and why?
Select one:

a. Bond A as it has higher tax-equivalent return.

b. Bond B as it has higher tax-equivalent return.

The after tax return for Bond B would be 5.5% * (1 – 20%) = 4.4% which is higher than A

c. Bond B as it has higher gross return.

d. Bond A as it is exempted from tax.

Feedback Your answer is correct.
The correct answer is: Bond B as it has higher tax-equivalent return.
Question 18
Correct Mark 1.00 out of 1.00
Question text
Debtors can impact on a company’s ability to repay a loan. When assessing a loan application
from company ABC, what is the impact of them having a limited number of debtors?
Select one:

a. Interest payments could be imperilled if one fails to pay.

If there are a limited number of debtors, interest payment is imperilled if one of them fails to
pay.

b. Materials are being sourced from a small pool of clients.

c. Output is too high and stock is being retained.

d. Profits are unlikely to be enough to cover interest payments.

Feedback
Your answer is correct.
The correct answer is: Interest payments could be imperilled if one fails to pay.
Question 19
Correct Mark 1.00 out of 1.00
Question text
Evaluate the implication of a bank having a positive GAP?
Select one:

a. Variable-rate assets are being financed by variable-rate liabilities only.

 b. Some rate-sensitive assets are being financed from fixed rate sources.
If it is positive (if rate-sensitive assets > rate-sensitive liabilities), then some rate sensitive asse
ts are being financed from fixed-rate sources which will be beneficial if rates rise, but detriment
al if rates fall.

c. Some rate-sensitive liabilities are being serviced by fixed rate assets.

d. Fixed-rate liabilities are being serviced by fixed-rate assets only.

Feedback Your answer is correct.
The correct answer is: Some rate-sensitive assets are being financed from fixed rate sources.
Question 20
Correct Mark 1.00 out of 1.00
Question text
Evaluate the MAIN reasons why sub-prime loans are priced differently to prime-grade loans?
I. They are provided to borrowers with poor credit scores.
II. Considered to be higher risk than prime-grade loans.
III. The lending risk is not fully assessed.
Select one:

a. I and II only.
Sub-prime loans are loans to lenders with poor credit scores that are consequently riskier and p
riced at higher rates than prime-grade loans.

b. I, II and III only.

c. I and III only.

d. II and III only.

Feedback
Your answer is correct.
The correct answer is: I and II only.
Question 21
Correct Mark 1.00 out of 1.00
Question text
Evaluate which of the following is the BEST example of running account credit?
Select one:

a. Mortgages.

b. Personal loan.

c. Asset-backed finance.

d. Credit card.
Where the borrower can draw on funds from time to time are the best examples of credit cards
.
Feedback Your answer is correct.
The correct answer is: Credit card.
Question 22
Correct Mark 1.00 out of 1.00
Question text
For what MAIN reason would a central bank wish to increase the reserve requirement ratio?
Select one:

a. To increase the supply of credit.

b. To meet its requirements as lender of last resort.

c. To reduce the supply of credit.

If the central bank wants to reduce the supply of credit because, perhaps, there is too much av
ailable and inflation is growing too quickly, then it increases the reserve requirement.

d. To fund investments.
Feedback Your answer is correct.
The correct answer is: To reduce the supply of credit.
Question 23
Correct Mark 1.00 out of 1.00
Question text
Forward Rate Arrangements (FRAs) differ from Short-term Interest Rate (STIR) futures in which
of the following ways?
I. FRAs are not traded on the futures market
II. FRAs are priced directly off interest rates; STIRs are inversely related to interest rates
III. FRAs are bought to protect against interest rate rises whereas STIRs are sold

Select one:

a. I and II only.

b. I and III only.

c. I, II and III only.

FRAs are priced directly off interest rates: FRA prices rise as interest rates rise, whereas STIR
futures prices are inversely related to interest rates through their pricing mechanism
(Quotation = 100 – Interest rate) leading to some differences in actions.

d. II and III only.

Feedback Your answer is correct.
The correct answer is: I, II and III only.
Question 24
Correct Mark 1.00 out of 1.00
Question text
From the following example, calculate the retained profits for the year.
$million
Total profit for the year: 743

Reserves at the end of the year: 3,971

Reserves at the start of the year: 3,254
Select one:

a. $743 million.

b. $717 million.
Closing reserves – Opening reserves = Retained profit

3,971 – 3,254 = $717m

c. $697 million.

d. $707 million.
Feedback Your answer is correct.
The correct answer is: $717 million.
Question 25
Correct Mark 1.00 out of 1.00
Question text
Funds which are in ‘clearing’ can, to some extent, be relied on as longer-term funds for
what MAIN reason?
Select one:

a. Clearing can take up to 1 year.

b. Money never physically leaves the clearing system.

c. Banks can borrow from money in clearing.

d. Clearing is a constant process.

Since clearing is a constant process, these funds can, to an extent, also be relied on as longer-
term funds.
Feedback Your answer is correct.
The correct answer is: Clearing is a constant process.
Question 26
Incorrect Mark 0.00 out of 1.00
Question text
If a bank believes that interest rates are falling and bond prices rising and holds bond assets,
this will be beneficial for the bank. However, an increase in liabilities will be detrimental.
Hence when rates are falling, the bank may wish to:
I. Increase fixed-rate financing.
II. Increase fixed-rate asset holdings.
III. Reduce fixed-rate financing.
IV. Reduce fixed-rate asset holdings.
Select one:

a. I and II only.

b. I and IV only.
When rates are falling banks may wish to: Reduce fixed-rate financing; Increase fixed-rate
asset holdings.

c. II and III only.

d. III and IV only.

Feedback Your answer is incorrect.
The correct answer is: II and III only.
Question 27
Correct Mark 1.00 out of 1.00
Question text
If a bank believes that the yield curve for return on assets is flattening with longer- dated yields
falling and shorter-dated yields rising, which two of the following actions should it take?
I. Reduce short-term fixed rate financing.
II. Reduce long-term fixed rate financing.
III. Increase short-term fixed rate asset holdings.
IV. Increase long-term fixed rate asset holdings.
Select one:

a. I and III only.

b. I and IV only.

c. II and III only.

d. II and IV only.
Because short dated assets/liabilities will fall in value and long dated assets/liabilitieswill rise in
value.
Feedback Your answer is correct.
The correct answer is: II and IV only.
Question 28
Correct Mark 1.00 out of 1.00
Question text
If a bank holds $75 billion worth of assets and has $60 billion of liabilities, what is its basic
gearing?
Select one:

a. 60%.

b. 70%.

c. 80%.

d. 90%.
Feedback Your answer is correct.
The correct answer is: 80%.
Question 29
Correct Mark 1.00 out of 1.00
Question text
If a speculator buys a one-month $100 call for a premium of $9 and the cash price of bonds has
risen to $106 shortly before the options expiry, why would the speculator exercise the option?
Exercising the option allows the speculator to:
I. the bonds at $6 profit.
II. minimise loss to $3.
III. make a positive return on investment.
Select one:

a. I and II only.
A transaction in which an option is purchased to open a position is known as a long option
position. Thus, the purchase of the bond call option would result in a long call position.

b. I and III only.

c. II and III only.

 d. I, II and III only.
Feedback Your answer is correct.
The correct answer is: I and II only.
Question 30
Correct Mark 1.00 out of 1.00
Question text
If a speculator is going short on a STIR future what are they expecting to happen?
Select one:

a. Interest rates to rise.

Although the rate is expects to rise the speculator should go short as STIR futures are quoted
as 100 –IR. Thus there is an inverse relationship between quoted price and rates.

b. Interest rates to fall.

c. Government bond prices to rise.

d. Government bond prices to fall.

Feedback
Your answer is correct.
The correct answer is: Interest rates to rise.
Question 31
Correct Mark 1.00 out of 1.00
Question text
In Malaysia, a person convicted of money laundering offence is liable to a fine not exceeding:-
Select one:

a. 5 million ringgit or imprisonment for a term not exceeding 5 years or both.

In Malaysia, a person convicted of money laundering offense is liable to
- A fine not exceeding 5 million ringgit, or
- Imprisonment for a term not exceeding 5 years, or
- both

b. 5 million ringgit or imprisonment for a term not exceeding 10 years or both.

c. 10 million ringgit or imprisonment for a term not exceeding 1 years or both.

d. 10 million ringgit or imprisonment for a term not exceeding 5 years or both.

Feedback Your answer is correct.
The correct answer is: 5 million ringgit or imprisonment for a term not exceeding 5 years or
both.
Question 32
Incorrect Mark 0.00 out of 1.00
Question text
In March a borrower needs to borrow $30 million for 3 months in 6 months time and is worried
about higher forward interest rates. If he wishes to hedge the risk with STIRs, what should he
do now?
Select one:

a. Short 30 September STIRs.

b. Long 30 September STIRs.

c. Short 30 June STIRs.

d. Long 30 June STIRs.

A borrower needs to sell futures to hedge against a rise in rates. Since the unit of trade for STIR
is $1,000,000 the borrower would need 30 STIRs. 6 months from March would be SeptemberHe
nce, the borrower would need to short 30 September STIRs to hedge his interest risk
Feedback Your answer is incorrect.
The correct answer is: Short 30 September STIRs.
Question 33
Correct Mark 1.00 out of 1.00
Question text
Insurance companies sold ‘credit default swaps’ to customers as a means to:
Select one:

a. a form of insurance against the risk of default on a financial security.

Credit default swaps provided their buyer with a form of insurance against the risk of default on
a financial security such as a CDO.

b. an ability to invest in a diversified portfolio of securities that offered a fairly high interest
yield.

c. enable the bank to attract new funds.

d. provide additional funds for lending.

Feedback
Your answer is correct.
The correct answer is: a form of insurance against the risk of default on a financial security.
Question 34
Incorrect Mark 0.00 out of 1.00
Question text
Investment A requires $200,000 capital outlay at inception and will return $100,000 p.a. for the
next 3 years. Investment B requires $200,000 capital outlay at inception but will return $320,0
00 p.a. on the third year. Both assume 10% required return.Which investment should the inves
tor chooses and why?
Select one:

a. Investment A as the return is more frequent and hence better liquidity management.

b. Investment B as it has a higher total return at maturity.

c. Investment A as it has a higher net present value.

d. Investment B as it has a higher net present value.

Feedback Your answer is incorrect.

The correct answer is: Investment A as it has a higher net present value.
Question 35
Correct Mark 1.00 out of 1.00
Question text
Joseph deposited $100 in an account paying interest at 5% per annum (compound interest).
What is the total value of the deposit at the end of 5 years?
How does this account grow compared to a one paying simple interest at 5.5% per annum and
why the difference (if any)?
Select one:

a. $125.00; simple interest method pays more since the interest per annum is higher.

b. $127.00; simple interest method pays more since interest is earned on original capital
invested only.

c. $127.63; compound interest method pays more as interest grows on interest.

d. $130.52; both interest calculation methods pay exactly the same.

Feedback Your answer is correct.

The correct answer is: $127.63; compound interest method pays more as interest grows on
interest.
Question 36
Correct Mark 1.00 out of 1.00
Question text
Once a loan has been advanced to a business, if the bank now feels that the credit risk is too hi
gh due to a change in circumstances, what options does the bank have available to them.Assu
ming that the business has made all due payments and abided by the loan covenants, the bank
has what options?
I. Terminate the contract.
II. Include the loan in a sale of part of its loan book.
III. Acquire a credit default swap.
Select one:

a. I and II only.

b. I, II and III only.

c. I and III only.

d. II and III only.

The bank will not be able to terminate the contract, so must find some other means of limiting
the exposure, and two potential alternatives are: Loan sales; and Credit derivatives such as a c
redit default swap.
Feedback Your answer is correct.
The correct answer is: II and III only.
Question 37
Incorrect Mark 0.00 out of 1.00
Question text
Property bubble is forming and bank A is anticipating rate hike from regulator. It should hence:-
I. Short sell bonds.
II. Undertake repos.
III. Borrow cash at variable rate.
Select one:

a. I only.
If interest rate is expected to hike, bank A can short sell bonds (since higher rate means lower
bond price) and undertake repo (bank can borrow cash at fixed term via repo and invest the ca
sh at variable rate) to benefit from the rate hike. Borrowing cash at variable rate would mean h
igher interest expense and hence detrimental to the Bank instead.

b. I and II only.

c. I and III only.

d. II and III only.

Feedback Your answer is incorrect.
The correct answer is: I and II only.
Question 38
Correct Mark 1.00 out of 1.00
Question text
Taking an extract from the balance sheet of a bank, it provides the following information.

Select one:

a. 333%.
(Bonds issued + Customer deposits)/(Share capital + Reserves) = (80 + 120)/(40+20) = 333%

b. 400%.

c. 500%.

d. 1,000%.
Feedback Your answer is correct.
The correct answer is: 333%.
Question 39
Correct Mark 1.00 out of 1.00
Question text
The capital conservation buffer should consist entirely of common equity, part of Tier 1 capital,
and therefore raises the normal required level of common equity to what percentage?
Select one:

a. 6.5% of risk weighted assets.

b. 7% of risk weighted assets.

As noted, the capital conservation buffer should consist entirely of common equity, part of Tier
1 capital. It therefore raises the normal required level of common equity from 4.5% to 7% of ris
k-weighted assets, the normal level of Tier 1 capital from 6% to 8.5% and the normal required l
evel of total capital from 8% to 10.5%.

c. 8% of risk weighted assets.

d. 10.5% of risk weighted assets.

Feedback
Your answer is correct.
The correct answer is: 7% of risk weighted assets.
Question 40
Correct Mark 1.00 out of 1.00
Question text
The impact of the 2008 global financial crisis had what knocked on effect to the Malaysian
economy?
Select one:

a. It became independent from the rest of the world’s economies’.

b. It became stronger as a result of the weakening of the American economy.

c. It suffered systemic risk due to the effects of the decline in international trade.
The Malaysian financial system was not significantly affected by the crisis, but the Malaysian
economy suffered from the effects of the decline in international trade. Although Malaysia was
not directly involved, the 2008 global financial crisis is a very good example of the
consequences of systemic risk in the financial system.

d. It suffered from the effects of a devaluation.

Feedback Your answer is correct.
The correct answer is: It suffered systemic risk due to the effects of the decline in international
trade.
Question 41
Correct Mark 1.00 out of 1.00
Question text
Under normal market conditions, banks get their funds from which of the following?
I. Customer deposits.
II. Shareholder funds.
III. Wholesale markets.
IV. Governments.
Select one:

a. I and II only.

b. I, II and III only.

Banks get their funds from one or a combination of sources.

c. I and III only.

d. II and IV only.
Feedback Your answer is correct.
The correct answer is: I, II and III only.
Question 42
Incorrect Mark 0.00 out of 1.00
Question text
What could cause the inversion of the typical yield curve as seen below?

Select one:

a. High short-term interest rates.

b. An expectation that short-term rates will fall.

c. An expectation that long-term rates will fall.

The curve slopes downward reflecting the fact that short term rates are high and expected to
fall in the longer term.

d. Two markets concentrated at either end of the yield curve.

Feedback Your answer is incorrect.
The correct answer is: High short-term interest rates.
Question 43
Incorrect Mark 0.00 out of 1.00
Question text
What is the advantage of using leaseback on a bank’s physical assets rather than issuing
subordinated debt?
Select one:

a. Monies received can be treated as part of the regulatory capital .

b. Money must be paid at fixed periods and so is easier to predict.

Many banks sell their physical assets and lease them back for day-to-day use, to release the ca
sh which is tied up in them and put this into capital. It is usually cheaper to do this than to issu
e subordinated debt, which is often seen as an alternative.

c. It is usually cheaper to do so.

d. Monies received will be used to absorb losses if the equity capital has been exhausted.
Feedback
Your answer is incorrect.
The correct answer is: It is usually cheaper to do so.
Question 44
Correct Mark 1.00 out of 1.00
Question text
What is the debt-to-equity ratio in the following example?
Shareholders' Funds
Share Capital 100
Reserves 1,958
Profit from current year attributable to shareholders 78
Total shareholders' funds 2,136
Liabilities
Deposits from banks 1,278
Deposits from customers 5,943
Securities issued (bonds) 9,135
Securitised Mortgages 4,976
Total Debt 21,332
Select one:

a. 9.85.

b. 9.99.
Borrowings/Shareholders’ funds = Debt-to-equity
21,332/2,136 = 9.99

c. 10.01.

d. 10.15.
Feedback Your answer is correct.
The correct answer is: 9.99.
Question 45
Correct Mark 1.00 out of 1.00
Question text
What is the discount factor for perpetuity with required return of 5% p.a.?
Select one:

a. 0.95.

b. 1.

c. 10.

d. 20.
Perpetuity discount factor = 1/r = 1/0.05 = 20
Feedback
Your answer is correct.
The correct answer is: 20.
Question 46
Correct Mark 1.00 out of 1.00
Question text
What is the MAIN difficulty in pricing loans for banks that are impacted by the rate sensitivity of
offering relatively short term deposits?
Select one:

a. The rates offered for longer term loans are traditionally fixed rates.

b. Longer term deposits offer higher interest rates than short term loans.

c. The loans are usually of a much longer term than the deposits which fund them.
Rate sensitivity for such bank liabilities is high and can result in difficulties in pricing loans whic
h are usually of a much longer term than the deposits which fund them, so as to manage this in
terest rate risk.

d. Short term deposits offer much higher interest rates than longer term loans.
Feedback Your answer is correct.
The correct answer is: The loans are usually of a much longer term than the deposits which
fund them.
Question 47
Incorrect Mark 0.00 out of 1.00
Question text
What is the price of a callable bond if the price of a straight bond is 100 and value of the issuer’
s call option is 0.50; Assuming the bond is par at 5% yield and market rate is now 3%, how wou
ld the price of the callable bond compared to a straight bond?
Select one:

a. 100.50; callable bond is now worth more than straight bond.

b. 100.50; callable bond is now worth less than straight bond.

c. 99.50; callable bond is now worth more than straight bond.

d. 99.50; callable bond is now worth less than straight bond.

Feedback Your answer is incorrect.
The correct answer is: 99.50; callable bond is now worth less than straight bond.
Question 48
Correct Mark 1.00 out of 1.00
Question text
What is the speculator’s motivation when they take a long put option?
Select one:

a. Positively bullish.

b. Neutral to bearish.

c. Positively bearish.
The holder of a put option benefits from a fall in the value of the underlying asset.

d. Neutral to bullish.
Feedback Your answer is correct.
The correct answer is: Positively bearish.
Question 49
Correct Mark 1.00 out of 1.00
Question text
What would be the GAP in the following example?
Select one:

a. 50.

b. 100.

c. 200.

d. -200.
The GAP is the value of rate-sensitive assets minus the value of rate-sensitive liabilities. 1600 –
1800 = -200
Feedback Your answer is correct.
The correct answer is: -200.
Question 50
Correct Mark 1.00 out of 1.00
Question text
When deciding what the optimal commercial capital required is, which of the following must be
taken into account?
I. Banks sensitivity to market risk.
II. Liquidity.
III. The current debt to equity.
Select one:

a. I and II only.
The following must be taken into account:
• Capital structure
• Quality of assets held
• Quality of management of the bank
• Earnings
• Liquidity
• Banks’ sensitivity to market risk

b. I, II and III only.

c. I and III only.

d. II and III only.

Feedback Your answer is correct.
The correct answer is: I and II only.
Question 51
Correct Mark 1.00 out of 1.00
Question text
When processing a commercial loan application, which of the following is an example of what
components would be assessed for market risk?
Select one:

a. Financial position and performance.

b. Supply chain risk.

c. Strength of competitors.
 d. Management and personnel.
Feedback Your answer is correct.
The correct answer is: Strength of competitors.
Question 52
Incorrect Mark 0.00 out of 1.00
Question text
Which if the following is NOT a liability liquidity measure?
Select one:

a. Loan losses to net loans.v

Liability liquidity measures refer to the ability of a bank to issue new debt to cover the clearing
demands on it at reasonable cost.

b. Core deposits to total assets.

c. Loans to deposits.

d. Total assets to total equity.

Feedback Your answer is incorrect.
The correct answer is: Total assets to total equity.
Question 53
Incorrect Mark 0.00 out of 1.00
Question text
Which of the following actions would you recommend to a bank to help GAP management?
I. Finance long-term assets with matching but non-interest bearing liabilities.
II. Finance re-priceable assets with identical re-priceable liabilities.
III. Use off-balance sheet methods to hedge positions.
Select one:

a. I and II only.

b. I and III only.

c. I, II and III only.

 d. II and III only.
All three of the actions described could help GAP management.
Feedback Your answer is incorrect.
The correct answer is: I, II and III only.
Question 54
Correct Mark 1.00 out of 1.00
Question text
Which of the following are ongoing developments in branch interior design?
I.Reduction in the physical size of the branch.
II.The provision of a location where complex services such as interviews can be provided.
III.The inclusion of IT facilities for customers to use.
Select one:

a. I and II only.

b. I and III only.

c. I, II and III.
All the options are correct.

d. II and III only.

Feedback Your answer is correct.
The correct answer is: I, II and III.
Question 55
Correct Mark 1.00 out of 1.00
Question text
Which of the following describe financial imbalances?
Select one:

a. Conditions in the financial system that cannot be sustained and that will eventually crash.
Instability in the financial systems occurs when there are financial imbalances. Financial
imbalances are conditions in the financial system that cannot be sustained and that will
eventually result in a ‘crash’ and substantial losses for many financial institutions and
investors.

b. Risk that a failure in one part of the financial system will affect other parts of the system, so
that the system as a whole is threatened with failure.

c. Insufficient liquidity to settle obligations and meet customer demand for withdrawals of
cash.

d. Potential for the failure of an institution or market that will disrupt the financial
intermediation process.
Feedback Your answer is correct.
The correct answer is: Conditions in the financial system that cannot be sustained and that will
eventually crash.
Question 56
Correct Mark 1.00 out of 1.00
Question text
Which of the following does NOT represent a purpose of bank capital?
I. Provide a cushion against losses.
II. Give the markets confidence and thus help access them for liquidity.
III. To encourage growth through unrestricted lending and risk taking.
Select one:

a. I only.

b. I, II and III only.

c. II and III only.

d. III only.
Bank capital has three main purposes; it provides a cushion against losses, gives the markets c
onfidence and thus helps access to them for liquidity and prevents excessive growth through r
estricting lending and thus restricts the taking of risks.
Feedback Your answer is correct.
The correct answer is: III only.
Question 57
Correct Mark 1.00 out of 1.00
Question text
Which of the following would be a typical target to set when planning changes to immediately
alleviate the effects of a profit squeeze?
Select one:

a. An increase in staff and/or staff costs.

b. Reduction in staff and/or staff costs.

The biggest expenses in any service business are people, premises and systems.

c. A variable sum to be saved each year.

d. A set sum to be saved each year.

Feedback Your answer is correct.
The correct answer is: Reduction in staff and/or staff costs.
Question 58
Incorrect Mark 0.00 out of 1.00
Question text
Which of the following would be reasons NOT to use the lender of last resort?
I. It is more expensive.
II. It causes reputational damage.
III. Funds are only available in the short-term.
Select one:

a. I and II only.

b. I and III only.

c. I, II and III only.

Using the lender of last resort facilities is both expensive and damaging to the reputation of the
bank concerned.

d. II and III only.

Feedback Your answer is incorrect.
The correct answer is: I and II only.
Question 59
Correct Mark 1.00 out of 1.00
Question text
XXY Bank has $80 million in earning assets which it expects to generate 4% net interest
margin. The bank is willing to risk proportionate changes in NIM of plus or minus 25% during
the year. If the bank expects that interest rates will vary by up to 5% during the year, what
would the Earning Assets Ratio be?
Select one:

a. 5%

b. 15%

c. 20%

d. 25%
Feedback Your answer is correct.
The correct answer is: 20%
Question 60
Correct Mark 1.00 out of 1.00
Question text
Your bank branch has an ATM in the banking hall which contains a cheque imaging facility.
In what main way does this save money for your branch?
Select one:

a. The ability to pay in cheques beyond normal banking hours without using a cashier.
Some ATMs now use cheque imaging, saving the cost of a bank cashier’s time.

b. To prevent future disputes about the validity of the cheque.

c. To avoid using the clearing system.

d. Removing the need to print cheques.

Feedback Your answer is correct.
The correct answer is: The ability to pay in cheques beyond normal banking hours without
using a cashier.

Started on Sunday, 20 October 2019, 11:59 PM

State Finished
Completed on Monday, 21 October 2019, 12:29 AM
Time taken 30 mins 18 secs
Marks 12.00/20.00
Grade 6.00 out of 10.00 (60%)
Question 1
Correct Mark 1.00 out of 1.00
Question text
QUESTIONS 1 – 5 ARE BASED ON THE FOLLOWING INFORMATION.
Under the Basel III requirements the bank has just calculated its Risk Weighted Assets as
$2,000 million During the bank's review of its balance sheet it has analysed its assets and
liabilities and confirmed that the Duration GAP is positive.
As part of an initiative to improve profitability it has reduced the interest rates payable on
accounts. The bank has some 3 year bonds which pay an annual interest of 9% with a gross
redemption yield of 8% with the capital returned at the end of year 3.
Profits for the current year have been declared at $275 million. The bank has considered a
rights issue but not proceeded with it and share capital remains at $3,100 million.

Which of the following describes the effect on the banks assets and liabilities of a movement in
interest rates?
Select one:

a. Assets more sensitive

Positive duration GAP = Duration of assets > Duration of liabilities.

b. Interest rate movement does not affect assets

c. Liabilities more sensitive

d. Interest rate movement does not affect liabilities

Feedback Your answer is correct.
The correct answer is: Assets more sensitive
Question 2
Correct Mark 1.00 out of 1.00
Question text
What is the absolute minimum amount of Tier 1 capital will the bank be required to hold under
the Basel III requirements?
Select one:

a. $80 million

b. $100 million

c. $160 million

d. $120 million
Absolute minimum Tier 1 capital = 6% × 2000 = $120m
Feedback Your answer is correct.
The correct answer is: $120 million
Question 3
Correct Mark 1.00 out of 1.00
Question text
Having reduced the interest payable to account holders what is the main type of risk that the
bank should be aware of?
Select one:

a. Default risk

b. Interest Rate risk

c. Liquidity risk
As lower rates may lead to a reduction in customer deposits attracted.

d. Income risk
Feedback
Your answer is correct.
The correct answer is: Liquidity risk
Question 4
Incorrect Mark 0.00 out of 1.00
Question text
What is the duration on the recently issued 3 year bonds?
Select one:

a. 2.55 years

b. 2.76 years

c. 2.78 years

Duration = 275.91/ 100=2.76

d. 3.03 years
Feedback Your answer is incorrect.
The correct answer is: 2.76 years
Question 5
Correct Mark 1.00 out of 1.00
Question text
What is the bank's current return on equity?
Select one:

a. 8.78%

b. 8.87%
275/3100 ×100% = 8.87%

c. 9.73%

d. 9.87%
Feedback Your answer is correct.
The correct answer is: 8.87%

Question 6
Correct Mark 1.00 out of 1.00
Question text
QUESTIONS 6 – 10 ARE BASED ON THE FOLLOWING INFORMATION.
The bank’s board has recently asked the Compliance Department to review its anti-money
laundering (AML procedures to ensure they meet regulatory standards.
They have considered how their customers access their services and are considering fuller use
of ATMs. The bank return on equity (ROE) for the previous year was 14% and shareholder
equity was RM100 million.
Profit levels have remained the same but the return on equity has increased to 20%. Due to the
change in its ROE the bank is to review its liquidity position.
The bank has liabilities of RM180 million and assets of RM250 million and has just announced
that $20 million of assets will need to be written off.

If the bank is based in Malaysia and found to have breached AML rules, which of the following
sanctions could be applied?
I. A fine of up to RM5 million.
II. A maximum of 5 years imprisonment.
III. A fine of up to RM5 million and a maximum of 5 years imprisonment.
IV. An unlimited fine or 5 years imprisonment.
Select one:

a. I and II only

b. I, II and III only

The penalties under AMLA are up to 5 years in jail and/or a fine of up to RM5m so all answers
except IV could be applied.

c. II only

d. III only
Feedback Your answer is correct.
The correct answer is: I, II and III only
Question 7
Incorrect Mark 0.00 out of 1.00
Question text
The bank wants to introduce fuller use of ATMs in areas where there is a high footfall.
What is the main benefit to the bank of doing so?
Select one:

a. The bank can generate fee income by charging other banks for using the ATM.

b. It removes the need to have a full branch network.

Generally customers do not pay for ATM usage, however banks charge other banks for usage of
ATM by their customers.

c. Customers are able to deal with all their banking needs via the ATM.

d. ATMs can replace staff who deal with customers face-to-face.

Feedback Your answer is incorrect.
The correct answer is: The bank can generate fee income by charging other banks for using the
ATM.
Question 8
Correct Mark 1.00 out of 1.00
Question text
Calculate the change in shareholder equity between the previous year and this year:-
Select one:

a. + RM70 million

b. – RM70 million

c. + RM30 million

d. – RM30 million
Profit = 14% ×100 = 14.
Profit for current year unchanged at 14/20% return = $70m.
Therefore shareholders’ equity has fallen by $30m.
Feedback Your answer is correct.
The correct answer is: – RM30 million
Question 9
Correct Mark 1.00 out of 1.00
Question text
When considering risk management, which are the main risks to take into account?
Select one:

a. Credit, Liquidity and Market

These are the three main risks to consider in relation to risk management.

b. Credit, Liquidity and Systemic

c. Liquidity, Default and Market

d. Interest rate, Systemic and Credit

Feedback Your answer is correct.
The correct answer is: Credit, Liquidity and Market
Question 10
Incorrect Mark 0.00 out of 1.00
Question text
Calculate the percentage change in the bank's basic gearing that will be caused by writing off
the bad debts:-
Select one:

a. +40%
Basic gearing = Liabilities/Assets before 180/250 = 0.72 after write-off 180/230 = 0.783.
Change in basic gearing (0.783-0.72)/0.72 ×100% = 8.75%.

b. -40%

c. -8.75%

d. +8.75%
Feedback Your answer is incorrect.
The correct answer is: +8.75%

Question 11
Incorrect Mark 0.00 out of 1.00
Question text
QUESTIONS 11 – 15 ARE BASED ON THE FOLLOWING INFORMATION.
It is currently June and client A needs to borrow $10 million for 3 months from September
onwards. The forward rate for three months from September is currently quoted as 1.50%.
Economy’s current phase of expansion is likely to quicken as market confidence returns.
Output, employment and income all begin to rise and client A expect central bank will start to
adopt new interest rate policy soon in an effort to quell increasing inflationary pressure.
Client A is currently considering a few alternatives to hedge his interest rate risk:- FRAs, STIR
and interest rate options.
Client A has also shared his view with another client B who happens to be a speculator in rates.
What economic cycle is most likely be associated with the description above and what is the
next interest rate movement?
What impact does this have on yield curve?
Select one:

a. Contraction; lower interest rate; flattening yield curve

b. Recovery; higher interest rate; flattening yield curve

c. Contraction, higher interest rate; steepening yield curve

d. Recovery, lower interest rate; steepening yield curve

Based on the description, the economy has reached recovery or expansion phase of the cycle.
When economy starts to recover, central bank will start to raise rates, in an effort to quell
increasing inflationary pressures. As a result, the yield curve will start to flatten.
Feedback Your answer is incorrect.
The correct answer is: Recovery; higher interest rate; flattening yield curve
Question 12
Incorrect Mark 0.00 out of 1.00
Question text
What can client A do to hedge his underlying interest rate risk?
I. Short STIRs
II. Long FRA
III. Long interest rate cap
Select one:

a. I and II only

b. I and III only

Since client A needs to borrow money, he is exposed to risk of higher interest rate. In order to
hedge against higher interest rate, client A can short STIRs, long FRA or long interest rate cap.

c. I, II and III

d. II and III only

Feedback Your answer is incorrect.
The correct answer is: I, II and III
Question 13
Correct Mark 1.00 out of 1.00
Question text
What is the quotation for the September STIRs?
Select one:

a. 98.50
STIR price = 100- rates of interest
= 100 – 1.50
= 98.50

b. 99.50

c. 100

d. 101.50
Feedback
Your answer is correct.
The correct answer is: 98.50
Question 14
Incorrect Mark 0.00 out of 1.00
Question text
Let’s say client B ended up purchasing 10 September STIRs at 1.50% contract. Interest rate
subsequently rose to 1.75% by September.
What is his profit or loss arising from this position?
Select one:

a. Loss of $6,250

b. Gain of $6,250
Client B bought September STIRs at 98.50
The September STIRs is now at 98.25 (=100 – rates of interest (%))
Tick movement = movement in STIR price / 0.0025 = (98.25 - 98.50) / 0.0025 = -100 ticks
Profit/loss = tick movement * tick value * contract size
= -100 * $6.25 * 10
= -$6,250

c. Loss of $12,500

d. Gain of $12,500
Feedback
Your answer is incorrect.
The correct answer is: Loss of $6,250
Question 15
Correct Mark 1.00 out of 1.00
Question text
Let’s say client B ended up purchase a 1.50% 3-month LIBOR cap for $100m and ended up
paying 0.25% premium. On the rollover date, 3-month LIBOR is 2%.
What is the settlement sum for this rollover?
Select one:

a. $62,500

b. $125,000
Settlement amount = notional * (current rate-strike) * time period

= $100,000,000 * (2% - 1.5%) * 90/360 = $125,000

c. $250,000

d. $500,000
Feedback Your answer is correct.
The correct answer is: $125,000

Question 16
Incorrect Mark 0.00 out of 1.00
Question text
QUESTIONS 16 – 20 ARE BASED ON THE FOLLOWING INFORMATION.
HCCL is the consumer lending division of a multi-national bank. HCCL nearly precipitated the
collapse of the whole bank during the financial crisis of the late 2000s. The company has taken
steps to reduce the division's portfolio since that time, as well as revising its procedures for
assessing potential borrowers. The bank is also carrying out a review of its compliance with the
current consumer credit regulations.
HCCL’s Credit Officer’s Manual states: ‘The ideal customer from the point of view of the Credit
Officer is one who possesses both the capacity to repay their debt and who has a positive
attitude towards repaying their loan obligations and responsibilities. The ‘CAMPARI’ credit risk
assessment model underlies the evaluation of both the capacity of a borrower to repay a debt
and the borrower’s attitude towards their repayment obligations.

Which of the following is generally true in relation to consumer lending compared to

commercial lending?
Select one:

a. They are more profitable with lower default risk.

b. They are more profitable with higher default risk.

c. They are less profitable with lower default risk.

d. They are less profitable with higher default risk.

Overall, consumer loans produce more profits for banks than commercial loans, despite the
higher rate of default. Not surprisingly, consumer loan rates typically exceed commercial loan
rates as a result of this default risk.
Feedback Your answer is incorrect.
The correct answer is: They are more profitable with higher default risk.
Question 17
Correct Mark 1.00 out of 1.00
Question text
In the CAMPARI model, collateral is most relevant to the credit officer’s assessment of:
Select one:

a. Character; Ability; Margin

b. Ability; Margin; Repayment

c. Character; Ability; Insurance

d. Margin; Repayment; Insurance

The agreed margin of advance will typically take into account the quality of collateral provided.
Repayment terms may include security or collateral if the expected repayment fails. Assets
used as collateral can become damaged or destroyed, which raises the issue of adequate
insurance for such assets.
Feedback
Your answer is correct.
The correct answer is: Margin; Repayment; Insurance
Question 18
Correct Mark 1.00 out of 1.00
Question text
The CAMPARI model is a credit decision model that will be based on criteria that have been pre-
approved by the bank’s management. In the CAMPARI model, the percentage of financing that
the bank is willing to extend is most relevant to:
Select one:

a. Ability

b. Margin
In the CAMPARI model, margin relates to the percentage of financing that the bank is willing to
extend.

c. Amount

d. Repayment
Feedback Your answer is correct.
The correct answer is: Margin
Question 19
Correct Mark 1.00 out of 1.00
Question text
Following the financial crisis, HCCL found that many borrowers did not repay loans and failed to
comply with their repayment obligations in order to service their debts. The risk of these
events occurring is:
Select one:

a. credit risk
Credit officers play a crucial role in mitigating credit risk, since they are responsible for
ensuring that loans are based on sound credit decisions

b. market risk

c. operational risk

d. funding risk
Feedback Your answer is correct.
The correct answer is: credit risk
Question 20
Incorrect Mark 0.00 out of 1.00
Question text
HCCL is also reviewing its loan monitoring procedures. Which of the following factors
should NOT normally weaken the integrity of a loan arrangement that has been established
with due skill, care and diligence?
Select one:

a. Expiry of legal documentation provided

b. Insurance claim following damage to a property on which the loan is secured

c. Bankruptcy notice filed against the borrower

d. Borrower becoming unemployed

In a properly established loan arrangement, there should be adequate insurance for secured
assets or collateral, and so an insurance claim should make good any loss in value of these
assets resulting from the damage.

Feedback Your answer is incorrect.

The correct answer is: Insurance claim following damage to a property on which the loan is
secured