TEAM WORK IS DREAM WORK

Questions from exams of financial markets

correct answers are in green
the one in red are missing (8,13,15,18)
please if someone can put formulas and calculations for the exercises it would be great :)

1. A bank can increase its ROE by:

decreasing its financial
leverage increasing its equity
capital
increasing its financial
leverage decreasing the
money multiplier

2. Investment banking is traditionally focused on: public adm, offers to

customers usually represented by large companies ( but also by public entities)
highly specialised services in the field of securities brokerage and corporate
finance. Issue new sec+placement and underwriting. Leverage by outs
(acquisition of co by debt). Management by out(management x financing).

3. If a mature industrial company is subject to restructuring it could be

treated by selling shares acquired via stock listing

4. A bank is classified as
significant if: it is an
investment bank
it is established outside the Euro area
the total value of its assets exceeds 30 bln
it is a commercial bank

5. A firm with a high Z-score has low: insolvency risk

6. Assume the modified duration of a bond is 3.2, the interest rate change is
0,10% and the bond price is 110. Determine the change of the bond price
due to that of interest rate change:
0.0032
-0.0005
0.35
-0.35
DeltaP/P = - DurMod x DeltarAnnual
DurMod = 3,2
Deltar= 0,10%
P =110
7. Credit scoring models are lending technologies based
mainly on: market data and socio-demographic
features of borrowers socio-demographic features of
borrowers
accounting data and socio-demographic features of
borrowers only on accounting data (penso)
8. Bank OBS activities are primarily aimed to generate:
fees (i think)
dividends
interest
operating costs

9. Bank screening of loans applicants aimed to: reduce risk of default\

evaluate the credit worthiness.

10. The members of ECB’S executive board are appointed by the . They
are appointed for anyear term not renewable.
European Council; 8
European Parliament; 8
European Council; 4
European Council; ? (we’re missing the number)

11.The expected loss can be considered as a measure to lose money due to

risk of default or delays in the payments and risk of deterioration of the
credit risk. Which of the following characteristics is not true:
diversification covered by equity

12.You wish to invest 60’000 in a mutual fund with NAV of 38,2 the fund
charges an exit fee of 4.50%. How many fund shares will you recieve?
1570 - 60000/38.2 - id say this
1500
60K*0,045=2700→ (60k-2700)/38.2=1500 - we don’t use the exit fee
because we are not exiting
1300
1400

13.A bond with 2 years maturity, 10% yield to maturity (rate of discount),
9% coupon and face value equal to 100 has (Anyone know what the
question is asking here?????) duration i think

14.All other things being equal, if stock A has g= 5% and stock

B g=9%: stock A is riskier
stock A will have a lower PEG ratio
stock A is desirable for growth
investors stock B is desirable for
growth investors

15.The actual rate for a 1 year bond is 2%, the rate is 3.25% for a 2
year bond. Determine the expected rate one year in one year and
round the result to two decimals: formula?
16.A bank holds a portfolio of floating rate mortgage loans financed with
fixed rate bonds. If the bank fears a fall in interest rate, what type of
hedging strategy can it employ?
the bank can buy a put option on government bonds
the bank enters an interest rate swap by paying the floating rate and receiving
the fixed rate
the bank buys an interest rate cap and sells an interest rate floor
the bank enters an interest rate swap by paying the fixed rate and
receiving the floating rate.

17.The ECB’s standing facilities include the following operations: the

overnight deposit to the central bank, they are very important to inject
temporary liquidity or to deposit and absorb liquidity to the central bank (they
are not using that money to finance the economy).

18.Which of the following tasks is outside the scope of the following

operations? (we’re missing the options) :(

19.Which is the formula for the expected

loss? EAD*LGD*PD
EAD*GGO(?)*PD
EAD*RR*PD
EAD*(1-PD)\LGD

20.Which of the following definitions does refer to absolute rationing?

rationing is absolute when the bank avoids granting credit to certain
debtors, whatever the interest rate they are willing to pay
rationing is absolute when the bank grants credit up to a given loan to
value ratio
rationing is absolute when the bank grants credit to
everybody rationing is absolute when the expected loss
is zero

21.On which of the following bank liabilities is the mandatory reserve

requirement determined monthly?
deposit and other liabilities with agreed maturity up to 3 years
deposit and other liabilities with remaining maturity up to 3 years
deposit and other liabilities with agreed maturity up to 2 years
deposit and other liabilities with agreed maturity up to 10 years

22.The minimum reserve requirement has a coefficient

equal to: 5%
1%
2%
10%
23.Which of the following tasks is not an ECB’s supervisory tasks?
the promotion of the sound operation of the payment systems
the conduct of on site inspections and investigations
on banks the imposition of corrective measures and
sanctions on banks the granting or withdrawal of
banking licences

24.Bank lending can be said to be part of the so

called: hybrid channels of financing
indirect channels of
financing direct channels
of financing
sponsored channels of financing

25.Which Italian Supervisory authority is in charge with the protection of

investors in the aspects of fairness and transparency with regard to
financial instruments and issuers, financial intermediaries and markets?
consob
ivass
bank of
italy eiopa

26.Which of the following is not a depository institution? commercial

banks, saving banks, credit unions, cooperative banks.

27.What roles are played by the financial markets among the following:
allocation of savings, payment instruments and system, transmission of
monetary policy impulses

28.The repricing gap model measures the effects of interest rate

changes on: on the interest earned
the net interest
income on the net
income
on the equity capital

29.The effect of interest rate changes on the market value of equity or

net worth of a bank depends among the others on:
all the assets and liabilities
held the size of the bank
the interbank activity of the
bank the net interest income of
the bank

30.The clean price of a bond is 102.00. The investor buys the bond on 25
June. The bond coupon is 4% annually on 31 May. Determine round the
result to 2 decimals:
102.27
101.73
6.27
 100.27

31.If you compound a lump sum at constant 1% per annum for 5 years on a
semi annual basis:
it means the underlying term structure is downward sloping
under uet liquidity premia are growing at a constant rate
its compounded value will be smaller than if compounded on a
quarterly basis its compounded value will be larger than that if
compounded on a monthly
basis

32. the YTM of convertible bonds:

is higher than that of non convertible bonds because its investors are
effectively selling a call option
none of the answer
is higher than that of a callable bond because its investors are
effectively selling a call option
is higher than that of a non-convertible bond because its investors
are buying a call option

33.Aggressive buy-back strategies:

will boost the net cash position of
the co will boost the co’s total
earnings
will benefit investors whose tax rate is higher for dividend
returns none of the above maybe this one

34.By pursuing systematic buy back

strategies: the dividend yield will
not increase
co will benefit their senior-debt holders over preference-shares
investors the P\EPS ratio will increase
co will tend to favour investors advocating value investing strategies.

35.In concept, the RAROC measure indicates a loan is acceptable if the raroc
is greater than: lender’s ROE

36.Suppose your company enters into an interest rate swap (IRS) to cover a
fixed liability, exposed to failing interest rates. The fixed rate liability
pays 3$. The floating rate leg of the IRS is equal to 6 months Euribor +
320 bps, while the floated leg is equal to 3.10%; the six month euribor is
equal to -0,25%. Calculate the synthetic position from the combination
of the fixed rate liability with the IRS.
2,85% calculations??? :))
3%
3,10%
2,95%
37.Business will tend to shift rightwards the supply-side loanable funds
curve when: there is a higher supply of funds at the same level of
interest rate. so none of the answers.
38.Which of the following intermediaries belong to the so-called
shadow banking? investment banks\funds

39.Derivative securities are: 1. swap 2. corporate bond, 3. listed option,

4. stock, 5. commercial papers
1 and 3
2-4-5
4
2

40.Financial intermediaries can offer savers a safer, more liquid investments

than capital market security, event though the FI invest in risky illiquid
instruments because:
the government closely monitors the riskiness of their asset
FI can diversify away some of their risk and closely monitor the
riskiness of their asset maybe this one
FI can diversify away some of their risk and the federal government
requires them to do so
the government requires them to do so

41.The price-yield
relationship: is
linear
Is tangent to the convexity
point is upward sloping
is linear under the assumption of duration-modeled estimate

42.Which of the following statements is

wrong? credit risk is a financial
risk
Banks are exposed to credit risk when the promised cash flows from
loans and securities held may not be paid in full
Screening and monitoring of loan applicants are made only by large
corporations
Exposure to credit risk is incorporated into the interest rates applied
to debtors.

43.A Dutch bank lends 150 mln when the euro\dollar exchange rate is 1.05.
The interest rate is fixed at 3% and the loan is for 3 months. If, at
maturity, the exchange
rate is 1.10:
the bank will have a loss from the exchange rate rise that is
 fully compensated by the interest rate charged
none
 the bank will have profit from the exchange rate
rise the bank will have loss from the exchange
rate rise
(similar)A French bank lends $50 million when the €/$ exchange rate is
1.10. The
interest rate is fixed at 5% and the loan is for three months. If, at maturity,
the exchange rate is 1.05… the bank will profit from the drop in the
exchange rate

44.Within the non-performing loans, past due exposure

are those: past due by more than 360 days
more than 60
days more than
90 days more
than 45 days

45.The custody of financial securities are on behalf of the customer as

a part of: off balance sheet activities
total bank assets
on balance sheet
activities none

46.Which are the major sources of liquidity risk for a bank? 1. unanticipated
net deposit drain, 2. unanticipated loan demand, 3. unanticipated
exercise of loan commitment
1 and 2
only all
1 and 3
only none

47.If the year is based on 365, on dec 31 the interim accrual factor for a debt
instrument with accrual coupon .. on jan 2nd is:
-0,9918
1,0027
0,0055
0,9973
If someone is able to solve this can you show the calculations please
:)

48.The provision of portfolio

management is offered by
banks only
is offered only by investment banks
is part of the so called investment services (penso sia
 questa) is remunerated by interests

49.Operational risk includes as a causal

factor the increase of inflation
the decrease of market
liquidity the volatility of
market prices
 legal and compliance disputes

50.Which of the following statements is correct?

internationalization limits the exploitation of economies
of scale limits the risk of diversification opportunities for
banks
exposes banks to increasing information\monitoring costs of
foreign borrowers
limits regulatory avoidance opportunities for banks

51.An investor holds a 100 american style puts on alfa stocks with strike
price equal to 2 euro expiring in 1 month. Suppose the market price of
alfa stock is 2.10. The premium paid at inception is 0.25 per put option.
Determine the intrinsic value of the options and consider that the time
value is equal to 0,05. Then determine the potential gain\loss should the
investors decide to liquidate the puts held.
10-20
0-20
0- -20
0- -5
Intr = 2-2,10 = 0 (out of the money)
New Premium = Intrinsic value + Time value =
0.05 Loss Gain = 0.05 - 0.25 = -0,2 x 100 = -20

52.Which one of the following fund types is likely to have the lowest
annual expense ratio?
equity funds
convertible bond
fund hedge funds
ETF (because it is a passive fund)

53.Main refinancing operations can be used by the ECB to temporarily

inject liquidity through:
repos like transactions with which the ECB purchases eligible
securities which are…
outright transactions with which the ECB purchases securities
from banks outright transactions with which the ECB sells
securities to banks
repos like transactions with which the ECB sells eligible securities
which are...

54.The maturity of the ECB’s standing

facilities is overnight
1 year
1 week
3 months
55.The ECB’s governing council consists of
 the six members of the executive board plus governors of the central
bank of the…
the six members of the executive board
the six members of the executive board plus governors of the central
bank of the 19
the governors of the central banks of the 27 euro-area countries

56.A bank that has a positive repricing gap and estimates that the spread
between RSAs and RSL will move directly with interest rates. if interest
rates fall, the bank’s overall NII will
rise
unchanged
none
fall

57.How much is the actual deposit insurance offered to italian bank

depositors? 200,000 euro
1,000,000 euro
250,000 euro
100,000 euro

58.Which of the following is the correct definition of shadow banking?

any form of credit intermediation involving entities or activities
completely outside the...
any form of intermediation involving entities or activities partially or
completely outside the…
any form of credit intermediation involving entities or activities
partially or completely outside the traditional banking system…
any form of bank intermediation involving entities or activities
inside the traditional….

59.Significant banks in the Euro zone are

supervised by the ECB
the ESMA
the national central
bank the EBA

60.The current 3 year bond rate is 1% and the expected rate 12 months
from now is 1.40%. According to (..) which is the current rate for a 4
year bond?
1.40%
1.10%
3.45%
2.40%
60. Which is the correct form of shadow banking?
“any form of credit intermediation involving entities or activities partially or completely
outside the traditional banking system”

62. Which of the following tasks is not a ECB’s supervisory

task The promotion of the sound operation of the payment
systems

63. For most business

loans All above

64. The clean price of a bond is 100.50. The investor buys the bond on September 3, the
bond coupon is 5% paid annually on 31 july. Determine the dirty price of the bond using the
calendar year convention
100.97
Clean price = Dirty Price - Accrued Interest
Accrued Interest = Coupon rate x Number of days from last payment/Number of days in
coupon rate x 100

65. Suppose your company enters into an interest rate swap to cover a floating rate
liability. The floating rate liability pays Euribor six months +100 bps. The paid fixed leg of
the IRS is equal to 1.10%, while the received floating leg is equal to six months Euribor
+115 bps, the six months Euribor is equal to -0.25%. Calculate the synthetic position
resulting from the combination of the floating rate liability with the IRS. 1.55%
66. A company announces a stock split whereby 1 old share with face value 5$
corresponds to 10 new shares with a face value of 50 cents. This implies that
the company increased its share capital
the liquidity of the shares increased (credo)
the company's reserves fell
the company’s P/E has changed

67. Assume the P/E of stock A is 20 while its PEG is 2. How much is the earning growth
rate? PEG = P/E / Annual EPS Growth → 20/2 = 10%
Questions and answers from previous exams

1. By performing aggressive buy backs: the amount of dividend per share will increase
if b is unchanged
2. Company XYZ has b:69%: 537,63

3. Suppose your company enters into an interest rate swap (IRS) to cover a
floating rate liability, exposed to rising interest rates. The floating liability pays
Euribor six months+ 150bps. The paid fixed leg of the IRS is qual to 1.40% while
the received floating leg is equal to..: 1,55%

4. You have to invest 60,000 in a mutual fund with a NAV of 38,2. The fund
charges a front end

load of 4,50%: 1500

5. A bank has a negative duration gap. Which one of the following statements is
most correct? If all interest rates are projected to decrease, to limit a net
value decline before rates fall, the bank should increase the amount of long-
term loans on the balance sheet

6. Foreclosure is the process of taking possession of the mortgaged property

to satisfy the debt in the event of failure to repay the mortgage and
foregoing claim to any deficiency

7. An increasingly positive financing gap can indicate

liquidity risk because it may indicate deposits and/or rising loan
commitments. Increasing, decreasing

8. Which one of the following situations creates the most liquidity risk? Long
term assets funded by short term liabilities

9. For large interest rate declines, duration the increases in the

bond's price, and for large interest rate decreases, it the
decline in the bond's price. underpredicts; overpredicts

10. A bank has a positive repricing gap and estimates that the spread between
RSAs and RSLs will move directly with interest rates. If interest rates fall, the
bank's overall NII will Some RSA's are financed by fixed-rate liabilities
 11. According to the Basel regulatory authorities, which of the following is not
a causal operational risk factor? Deterioration of bank’s reputation

June 2020 exam

1. Which of the following is not an advantage of a mutual fund? No default risk

2. Secondary Stock Markets are instrumental to: Get Order-Driven orders executed
by the exchange ranking lowest-to-highest BID and highest-to-lowest ASK quotes

3. Which of the following is not a causal factor of systematic credit risk?

Borrowers' moral hazard

4. A French bank lends $50 million when the €/$ exchange rate is 1.10. The interest
rate is fixed at 5% and the loan is for three months. If, at maturity, the exchange rate
is 1.05… the bank will profit from the drop in the exchange rate

5. Main refinancing operations can be used by the ECB to temporarily inject

liquidity through repos

6. Which of the following intermediaries is not part of the OFIs according to the
classification provided by the Financial Stability Board? Pension funds (&
insurance companies)

7. The ECB's Governing Council consists of the six members of the Executive Board
plus the governors of the central banks of the 19 euro-area countries

8. Which one of the following fund types is likely to have the highest annual
expense ratio? Equity funds

9. Which of the following risks are chiefly shadow banks exposed to? Liquidity risk

10. Which of the following tasks is outside the scope of the ECB's conduct of
monetary policy? The conduct of foreign exchange operation

11. Seniority: Can be referred to Debt and Equity Instruments

12. Which institutions can have access to the ECB's standing facilities? Only
those subject to the minimum reserve requirement

13. Company ABC has P/E=25, stock price = 20$ and b=75%. Its Dividend per Share is:

14. Mutual fund managers must specify their fund's investment objectives in
the prospectus which:
 15. A Zero-Coupon debt Instrument:

16. We can comfortably state that:

Quizlet

1. With a six-month maturity bucket, a nine-month fixed-rate loan would be

considered a asset and a 30-year mortgage with a rate adjustment in three
months would be classified as a asset a. fixed-rate; rate-sensitive

2. The repricing gap fails to consider how the value of fixed income accounts
will change when rates change TRUE

3. The duration gap model is a more complete measure of interest rate risk than
the repricing model TRUE

4. If a bank has a negative repricing gap, falling interest rates increase profitability TRUE

5. A bank has a positive repricing gap and estimates that the spread between RSAs
and RSLs will move directly with interest rates. If interest rates fall, the bank's
overall NII will c. fall

6. The structure of a bank's balance sheet as evidenced by its repricing gap and its
duration gap affects a bank's sensitivity to interest rate changes. Which one of the
following statements about the two types of gaps is true? d. The duration gap
considers all cash flows up to and including maturity, whereas the repricing gap
really only considers how cash flows will change within the maturity bucket

7. Weaknesses of the repricing model include the fact that I, II, III only (I.it ignores
changes in present values caused by changes in interest rates. II. it ignores
different cash flow sensitivities within a maturity bucket. III. it fails to account for
runoffs and prepayments.)

8. For a bank with a positive duration gap, an increase in interest rates will c.
increase the likelihood of insolvency

9. A bank has a positive repricing gap. This implies that Select one: c.some RSAs
are financed by fixed-rate liabilities Correct

10. A bank's balance sheet is characterized by long-term fixed-rate assets funded by

short-term variable-rate liabilities. Most likely the bank has a b. negative
repricing gap and a positive duration gap

Two Main methods to measure Interest rate exposure

1. Repricing model (funding gap model)

2. Duration Model

Repricing Model (Funding gap Model)- Examines impact of interest rate changes on net
interest income (NII)

Other questions

1. For fixed-coupon debt instruments Low Fixed-coupon ones suffer bigger changes
in price for any given change in Market Rates

2. Which of the following intermediaries is not part of the OFIs according to

the classification provided by the Financial Stability Board? Pension Fund

3. Suppose your company enters into an interest rate swap to cover a floating rate
liability, exposed to rising interest rates. The floating rate liability pays Euribor six
months+ 150bps. The paid fixed leg of the IRS is equal to 1.40%, while the received
floating leg is equal to six months Euribor +135bps; the six months Euribor is
actually equal to -0.25%. Calculate the synthetic position resulting from the
combination of the floating rate liability with the IRS 1,55%

4. A bank meets a deposit withdrawal with one of the following alternatives. Which
one of the following is an example of using stored liquidity to meet a deposit
withdrawal? Selling the bank’s holdings of T-bills

5. The managerial efficiency of a banks is measured through the cost to income

ratio which is calculated as Relationship between operating costs and operating
income

6. Common Stock, Are the most Junior funding mean for a Corporation

7. Within Equity Capital, Common Stock are Junior to Preference Shares

8. In concept, the RAROC measure indicated a loan is acceptable if the RAROC is

greater than the Lender’s ROE

9. Seniority, Can be referred to Debt and Equity Instruments

10. Amongst Debt Instrument, low rated of return are more likely to be found: All of
the Answers

11. The maturity of the ECB’s standing facilities is Overnight

12. Which of the following tasks is not an ECB’s supervisory task The promotion of
the sound operation of the payment systems
13. The concept of Purchasing Power All of the answers

14. A bank is facing a forecast of rising interest rates. How should it set the repricing
and duration gap? Positive repricing gap and negative duration gap

15. Why do FI’s exist? All of the information

16. An open-end mutual fund owns 1,500 shares of Krispy Kreme priced at $12.

The fund also owns 1,000 shares of Ben & Jerry’s priced at $43, and 2,000 shares of
Pepis priced at $50.The fund itself has 3,500 of its own shares outstanding. What is
the NAV of a fund’s share? $46

17. You have $15000 to invest in a mutual fund. You choose a fund with a 3.5
percent front load and a 1.75 percent management fee. Fees are charged against
average assets for the year. The gross annual return on the fund’s shares was
12.5 percent. What was your net annual rate of return to the nearest basis point?
6,77%

18. Which of the following is not a casual factor of systematic credit risk?
Borrowers’ moral hazard

19. The managerial efficiency of a bank is measured through the cost to income ratio
which is calculated as Relationship between operating costs and operating
income

20. Assume that a bank’s ROA is 2% and a total asset of 100 billion euros. Determine
the equity multiplier knowing that the bank’s equity is equal to 100 million euros.
1000

21. T.I.P.S. investors are implicitly, None of the answers

22. An upward looping term structure, Mandates U.E.T. term structure is upward-sloping

23. A zero-coupon debt instrument, If an Italian bill, it will not necessarily carry
an upfront with-holding tax rate of 12.5%

24. A bank has a positive repricing gap and estimated that the spread between RSA
and RSL will move directly with interest rates. If interest rates fall, the bank’s
overall NII will: fall

25. For an investor the concept of contractually pre-determined temporal

performance Is referred to subordinated debt instrument

26. A firm with an high Z-score has a low Insolvency risk

27. Within the equity capital, Common stock are junior to preference shares

28. Customers’ deposit with banks are insured in order To prevent bank run phenomena
29. When a European bank is considered significant, it is supervised by The
European central banks

30. Why do FIs exist? They provide economies of scale on transaction costs, provision
of liquidity services, risk sharing provision, reduce asymmetric information

31. Which of the following is outside the scope of the ECB’s conduct of monetary
policy? The conduct of supervisory reviews, including stress tests on banks

32. Which of the following is not an advantage of a mutual fund No default risk

33. Pursuant to the European Banking Authorities’ criteria, past due exposure are
those that are past due by more than 90days

34. Suppose your company enter into an interest rate swap to cover a floating rate
liability, exposed to rising interest rates. The floating rate liability pays Euribor +
200bps. The fixed leg paid is equal to 2.10%, while the floating leg received is equal
to Euribor + 210bps. Calculate the synthetic position resulting from the
combination of the floating rate liability with the IRS, 2.00%

35. The process of stripping, Allows for the creation of a fitted Term Structure that
fills the gaps between Tenors

36. Yield on debt instrument, Can be referred to as discount yield in the case of
money market debt instrument

37. Quote-Driven Orders, When referred to stocks they allow Buyers and Sellers to
freely exchange quantities even by-passing Market Makers and Dealers.

38. with b= 83.7%, P/E=26, E=$991664, how many of the 397698 outstanding
shares does Company ABC need to buy-back to get Dividend Per Share form
$0.4064 to
$0.4877? 79559

39. Which of the following intermediaries belong to the so called shadow

banking Investment funds

40. Deposit insurance is a tool part of the Safety net toolkit

41. IBM creates and sells additional stock to the investment bank Goldman Sachs.
Goldman then resell the issue to the U.S. public through its mutual funds. The
initial transaction is an example of Asset transformation by Goldman Sachs
42. IBM creates and sells additional stock to the investment bank Goldman Sachs.
Goldman then resell the issue to the U.S. public through its mutual funds.
Goldman Sachs is acting as a(n), Asset broker

43. A German bank raises $500 million by issuing short-term debt when the €/$
exchange rate is 1.00. If at maturity, the exchange rate is 0.95, The banks will suffer
a loss form the € depreciation

44. A German bank raises $500 million by issuing short-term debt when the €/$
exchange rate is 1.00. If at maturity, the exchange rate is 1.10, The bank will
gain from the € appreciation

45. By looking at the flow of Fund account, It’s possible to identify Surplus and
Deficit Units

46. When nominal interest rates are declining, None of the answer

47. An investor holds a 100 American style calls on Beta stocks with strike equal to € 5
expiring in 3 months. Suppose the market price of Beta stock is € 5,10. The
premium paid at inception is €0.90 per call option. 1) Determine the intrinsic value
of the options and consider that the time value is equal to € 0.75; 2) Determine the
potential gain/loss should the investor decide to liquidate the calls held. 1) €10 2)-€5

48. When you decide to immunize the return on your fixed-income debt holding, If
market rates rise you will see the sell price of your bond fall as much as the
increase in reinvested coupons

49. Main refinancing operations used by the ECB via standard tenders have the
following maturities, 1 week and 3 months

49. The ECB’s executive board consists of Six members

50. In a mortgage loan application the bank decides to approve in function of the
Total Debt Service. What kind of information does it provide? It is equal to total
accommodation expenses plus all other debt service payments divided by gross
income.

51. It measures the ability to maintain mortgage payments.

52. Security A is more Senior than Security B. As such (all else equal): Holder of
Security B is more likely to lose his money
53. A bank is facing a forecast of falling interest rates. How should it set the
repricing and duration gap? Negative repricing gap and positive duration gap

54. Which are the main weaknesses of storing liquidity?

i) conservative approach

ii) it requires to maintain substantial stocks of cask and near-cash assets with low rates
of return

iii) it is a drag on profitability and ROE

iv) it helps in case of unexpected interest rate changes

i) ,ii) and iii) only

55. Assume that a bank's ROA is 2.5% and a total asset of 150 billion euros.
Determine the equity multiplier knowing that the bank's equity is equal to 900
million euros, 167

56. Which of the following statements is correct?

The net interest income is calculated as the difference between interest income and
interest expenses

57. You have $50,000 to invest in a mutual fund. You choose a fund with a 4 percent
front load and a 1.75 percent management fee. Fees are charged against average
assets for the year. The gross annual return on the fund's shares was 12.50
percent. What was your net annual rate of return to the nearest basis point?
6,21%

58. An open-end mutual fund owns 1,500 shares of Walt Disney priced at $20. The fund
also owns 1,000 shares of Cannondale priced at $50, and 2,000 shares of Pepsi
priced at $40.

The fund itself has 4000 of its own shares outstanding.

59. What is the NAV of a fund's share? $40

60. The managerial efficiency of a bank is measured through the cost to income
ratio which is calculated as

relationship between operating costs and operating income

61. Assume that a bank's ROA is 2% and a total asset of 100 billion euros. Determine
the equity multiplier knowing that the bank's equity is equal to 100 million euros.
1000

62. T.I.P.S. Investors are implicitly None of the Answers

63. An upward-sloping Term Structure:

Mandates U.E.T. Term Structure is upward-sloping

64. A Zero-Coupon debt Instrument: If an Italian Bill, it will not necessarily carry
an upfront with-holding tax rate of 12.5%

65. A bank has a positive repricing gap and estimates that the spread between RSAs
and RSLs will move directly with interest rates. If interest rates fall, the bank's
overall NII will fall

66. For an Investor, the concept of contractually pre-determined Temporal

Performance: Is referred to Subordinated Debt Instrument

67. A firm with a high Z-score has low insolvency risk.

68. A bank lends $50 million when the €/$ exchange rate is 1.10. The interest rate is
fixed at 5% and the loan is for three months. If, at maturity, the exchange rate is
1.05 the bank will profit from the drop in the exchange rate

69. A Ducth bank lends $150 million when the €/$ exchange rate is 1.05. The interest
rate is fixed at 3% and the loan is for three months. If, at maturity, the exchange
rate is 1.10

the bank will have a loss from the exchange rate rise

70. Within Equity Capital:

Common Stocks are Junior to Preference Shares

71. Company ABC has P/E=25, stock price = 20$ and b=75%. Its Dividend per Share
is: 0.2$

72. Customers' deposits with banks are insured in order to prevent bank
run phenomena

73. When a European bank is considered significant, it is supervised by the

European Central Bank

74. Suppose your company enters into an interest rate swap (IRS) to cover a floating
rate liability, exposed to rising interest rates. The floating rate liability pays Euribor
six months + 150 bps. The paid fixed leg of the IRS is equal to 1.40%, while the
received floating leg is equal to six months Euribor + 135 bps; the six months Euribor
is actually equal to -0.25%. Calculate the synthetic position resulting from the
combination of the floating rate liability with the IRS. 1,55%
75. A financial intermediary has two assets in its investment portfolio. It has 35
percent of its security portfolio invested in one-month Treasury bills and 65
percent in real estate loans. If it liquidated the bills today, the bank would receive
$98 per hundred of face value. If the real estate loans were sold today, they would
be worth $85 per 100 of face value. In one month, the real estate loans could be
liquidated at $94 per 100 of face value. What is the intermediary's one-month
liquidity index? 0.93

76. Why do FIs exist? All of the above

They provide economies of scale on transaction costs - Provision of liquidity services -

Risk sharing provision - Reduce asymmetric information

77. For Fixed-Coupon Debt Instruments:

Low Fixed-Coupon ones suffer bigger changes in Price for any given change in Market
Rates

78. On which of the following bank liabilities is the mandatory reserve

requirement determined monthly?

Deposits and other liabilities with agreed maturity up to 2 years

79. Which of the following tasks is outside the scope of the ECB's conduct of
monetary policy?

The conduct of supervisory reviews, including stress tests on banks

80. The gross annual return on the fund's shares was 12.50 percent. What was your
net annual rate of return to the nearest basis point? 6.77%

81. Which of the following is not an advantage of a mutual fund? No default risk

82. A bank is facing a forecast of falling interest rates. How should it set the
repricing and duration gap? Negative repricing gap and positive duration gap

83. Secondary markets support primary markets because secondary markets I. offer
primary market purchasers liquidity for their holdings. I, II, and III (update the price
or value of the primary market claims. reduce the cost of trading the primary
market claims.)

84. Financial intermediaries (FIs) can offer savers a safer, more liquid investment than
a capital market security, even though the intermediary invests in risky illiquid
instruments because

FIs can diversify away some of their risk and closely monitor the riskiness of their assets.
85. Stock Splits:

Will not boost issuing Company's Net Equity Capital Position

86. By looking at the flow of Funds account:

It's possible to identify Surplus and Deficit Units

87. Which of the following statements is wrong? Foreign Participants tend drain
U.S. loanable funds

88. Security A is more Senior than Security B. As such (all else equal): Holder of
Security B is more likely to lose his money

89. A bank holds a portfolio of fixed rate mortgage loans financed with floating rate
bonds. If the bank fears a rise in interest rates, what type of hedging strategy can
it employ?

The bank can enter into an interest rate cap

90. A bond with 7yrs maturity, 10% YTM and 15% Coupon has (round to the
2nd decimal):

5.02 Y Duration

91. Assume that a bank has 5% ROE, total assets equal to 1 billion euros and net
profits of 10 million euros. Determine the bank's equity multiplier. 5

92. Which of the following statements is correct?

The net interest income is calculated as the difference between interest income and
interest expenses

93. A corporate loan applicant has had a growing cash account for the last three years,
but cash flow from operations has been negative in every year. Would this concern
you if you were the loan officer charged with approving the loan? This would be a
concern because it indicates cash growth is being generated by borrowing, new
equity issued, or by selling assets. None of these are sustainable sources of
financing.

94. Equity Funds consist of common and preferred stocks

95. High water mark is All-time high of the NAV

96. Which of the following bank liabilities are excluded from the monthly calculation
of mandatory reserve requirement?
Deposits and other liabilities with agreed maturity above 2 years

97. The maturity of the ECB's standing facilities is Overnight

98. Investment banks operate mainly with--------------------------and offer

large companies; services related to financial markets

99. A financial intermediary has two assets in its investment portfolio. It has 40
percent of its security portfolio invested in three-months BOT and 60 percent in
corporate bonds.

If it liquidated the BOTs today, the bank would receive €98 per hundred of face value.

If the corporate bonds were sold today, they would be worth €85 per 100 of face
value. In one month, the corporate bonds could be liquidated at $94 per 100 of
face value and the BOT at €99. What is the intermediary's one-month liquidity
index? 94

100. A German bank raises $500 million by issuing short-term debt when the
€/$ exchange rate is 1.00. If, at maturity, the exchange rate is 0.95. the bank will
suffer a loss from the € depreciation

101. An Italian bank lends $100 million when the €/$ exchange rate is 1.10. If,
at maturity, the exchange rate is 1.25 the bank will lose from the € appreciation

102. By performing aggressive Buy-Backs:

The amount of Dividend per Share will increase if b is unchanged

103. When Nominal Interest Rates are declining: None of the Answers

104. AA-rated Debt Issuers:

Are more likely than CCC-rated debt issuers to issue Commercial Paper

105. Which of the following statements is wrong?

Causal factors of operational and financial risks only determine exposure to losses

106. Which of the following is a causal factor of systematic credit

risk? Macroeconomic downturn

107. A bank has DA = 2.4 years and DL= 0.9 years.

108. The bank has total equity of $82 million and total assets of $850 million.
Interest rates are at 6 percent.If interest rates increase 100 basis points, the predicted
dollar change in equity value will equal to -$12,724,528

109. For Fixed-Coupon Callable Debt Instrument Investors:

Falling Interest Rates imply lower chances of the bond not being early-redeemed

110. The members of the ECB's executive board are appointed for an---------year
term not renewable. 8

111. The ECB's standing facilities include the marginal lending facility

112. When you decide to immunize the return on your fixed-income debt holding:

If market rates rise you will see the sell price of your bond fall as much as the increase
in reinvested coupons

113. A financial intermediary has two assets in its investment portfolio. It has
40 percent of its security portfolio invested in three-months BOT and 60 percent in
corporate bonds.

If it liquidated the BOTs today, the bank would receive €98 per hundred of face value.

If the corporate bonds were sold today, they would be worth €85 per 100 of face
value. In one month, the corporate bonds could be liquidated at $94 per 100 of
face value and the BOT at €99.

What is the intermediary's one-month liquidity

index? MANCA RISPOSTA

114. Which one of the following fund types is likely to have the highest
annual expense ratio?

Equity funds

115. The cost to income ratio is calculated as the ratio of operating costs
to operating income

116. Assume that a bank has 5% ROE, total assets equal to 1 billion euros and
net profits of 10 million euros. Determine the bank's equity multiplier. 5

117. A bank has a base loan rate of 4.75 percent and for the loan
under consideration it would apply a 2 percent risk premium.
The bank also requires compensating balances (noninterest-bearing) equal to 5 percent
of the loan amount. The bank's reserve requirements are 10 percent.

The bank charges 1 percent of the loan amount as an origination fee. The borrower is
asking for a $500,000 loan.

Calculate the gross rate of return on the loan. 8,115%

118. The bank's reserve requirements are 10 percent. The bank charges 1 percent
of the loan amount as an origination fee. The borrower is asking for a $500,000
loan.

MANCA RISPOSTA

119. Secondary markets support primary markets because secondary markets

I. offer primary market purchasers liquidity for their holdings. I, II, and III (update
the price or value of the primary market claims. reduce the cost of trading the
primary market claims.)

120. Financial intermediaries (FIs) can offer savers a safer, more liquid
investment than a capital market security,even though the intermediary invests in
risky illiquid instruments because

FIs can diversify away some of their risk and closely monitor the riskiness of their assets.

121. An open-end mutual fund owns 1,500 shares of Walt Disney priced at
$20. The fund also owns 1,000 shares of Cannondale priced at $50, and 2,000
shares of Pepsi priced at $40.

The fund itself has 4000 of its own shares outstanding.

122. What is the NAV of a fund's share? $40

123. Equity Funds consist

of common and preferred

stocks

124. Quote-Driven orders:

When referred to stocks they allow Buyers and Sellers to freely exchange quantities
even by-passing Market Makers and Dealers

125. Scrip Issues:

Will dilute ownership share of Shareholders who sell them away

126. If a bank finances short-term fixed rate financial assets with long-
term financial liabilities

it is exposed to the risk that a decrease in interest rates negatively impacts its
net interest margin

127. Which of the following is a causal factor of systematic credit

risk? Macroeconomic downturn

128. Which of the following statements is wrong? Foreign Participants tend drain
U.S. loanable funds

129. Which of the following bank liabilities are excluded from the
monthly calculation of mandatory reserve requirement?

Deposits and other liabilities with agreed maturity above 2 years

130. Which of the following intermediaries is part of the OFIs according to the
classification provided by the Financial Stability Board? Financial companies
granting consumer credit

131. Which of the following can create liquidity risk for a life insurer? I.II. and III.
(Unexpectedly high number of policy surrenders - Unexpectedly low number of
new policies sold - Unexpectedly high insurance claims filed by policyholders)

132. In concept, the RAROC measure indicates a loan is not acceptable if

the RAROC is lower than the lender's ROE.

133. Convexity in bond prices is caused by the curvature around the bond
price yield relationship.

134. Within non-performing loans, past-due exposures are those past due
by more than 90 days

135. Among the interest bearing liabilities, banks may hold Bonds

136. Suppose your company enters into a interest rate swap (IRS) to cover a
fixed rate liability, exposed to falling interest rates. The fixed rate liability pays 3%.
The floating rate leg of the IRS is equal to 6 months Euribor + 320 bps, while the
fixed leg is equal to 3.10%; the six months Euribor is actually equal to -0.25%.
Calculate the synthetic position resulting from the combination of the fixed rate
liability with the IRS. 2.85%

137. By performing aggressive Buy-Backs:

The amount of Dividend per Share will increase if b is unchanged

138. Scrip Issues:

Will dilute ownership share of Shareholders who sell them away

139. 135. When calculating the liquidity index, the larger the discount from
fair value, the the liquidity index; and the the
liquidity risk the FI faces. smaller; greater

140. Which of the following statements is wrong?

Screening and monitoring of loan applicants are made only for large corporations

141. If year is base 360 (act/360), on June 29th the interim accrual factor for
a Debt Instrument with quarterly coupon issued on March 2nd is: 0.075

142. How are money market mutual funds and bank deposits? Both are safe
and earn fairly low rates of return

143. Which one of the following fund types is likely to have the highest
annual expense ratio?

Equity funds

144. Which of the following tasks is an ECB's monetary policy task? The
promotion of the sound operation of the payment systems

145. For Fixed-Coupon Callable Debt Instrument Investors:

Falling Interest Rates imply lower chances of the bond not being early-redeemed

146. The cost to income ratio is calculated as the ratio of operating costs
to operating income

147. Which of the following statements is correct?

The net interest income is calculated as the difference between interest income and
interest expenses

148. One of the main feature of the so called stakeholder oriented banks is
their not for profit orientation

149. Which of the following statements is correct?

Internationalization exposes banks to increasing information/monitoring costs of foreign
borrowers

150. When the duration is not an accurate measure of the interest rate risk?
For large interest rate changes.

151. When Nominal Interest Rates are declining: All of the Answers

152. When Nominal Interest Rates are declining: None of the Answers

153. The Expected Loss (EL) can be considered as a measure to loose money
due to risk of default or of delays in the payments and risk of deterioration of the
credit risk. Which of the following characteristics is not true?

EL can be reduced through diversification and it has to be covered through equity

154. The following activities are included in the secondary market making
carried out by investment banks:

Brokerage and dealer related trading of already existing securities

155. Which of the following intermediaries belong to the so called

shadow banking? Investment funds

156. Convexity in bond prices is caused by the curvature around the bond
price yield relationship

157. Scrip Issues:

Will dilute ownership share of Shareholders who sell them away

158. Stock Splits:

Will not boost issuing Company's Net Equity Capital Position

159. IBM creates and sells additional stock to the investment bank Goldman
Sachs. Goldman Sachs then resells the issue to the U.S. public through its mutual
funds. The initial transaction is an example of a(n) asset transformation by
Goldman

160. A depository institution is

a financial institution such as a savings bank, commercial bank, savings and loan
associations, or credit unions that is legally allowed to accept monetary deposits
from consumers.
161. You have $50,000 to invest in a mutual fund. You choose a fund with a 4
percent front load and a 1.75 percent management fee. Fees are charged
against average assets for the year.

The gross annual return on the fund's shares was 12.50 percent. What was your net
annual rate of return to the nearest basis point. 6,21%

162. You wish to invest $60,000 in a mutual fund with a NAV of $38,2 The
fund charges a front-end load of 4.50 percent. How many fund shares will you
receive? 1500

163. Which of the following is the formula of the money multiplier? (1 + c)/(c+br)

164. A Belgian bank raises $200 million by issuing short-term debt when the
€/$ exchange rate is 1.00. If, at maturity, the exchange rate is 1.10

the bank will gain from the € appreciation

165. A Spanish bank lends $500 million when the €/$ exchange rate is 1.00. If,
at maturity, the exchange rate is 0.95

the bank will profit from the US $ appreciation

166. For Fixed-Coupon Callable Debt Instrument Investors:

Falling Interest Rates imply lower chances of the bond not being early-redeemed

167. Yields on Debt Instruments:

Can be referred to as Discount Yields in the case of Money Market debt instruments

168. The Expected Loss (EL) can be considered as a measure to loose money
due to risk of default or of delays in the payments and risk of deterioration of the
credit risk. Which of the following characteristics is not true?

EL can be reduced through diversification and it has to be covered through equity

169. When calculating the liquidity index, the larger the discount from fair
value, the the liquidity
index; and the the liquidity risk the FI faces. Smaller ; greater

170. Suppose your company enters into a interest rate swap (IRS) to cover a
fixed rate liability, exposed to falling interest rates. The fixed rate liability pays 3%.
The floating rate leg of the IRS is equal to 6 months Euribor + 320 bps, while the
fixed leg is equal to 3.10%; the six months Euribor is actually equal to -0.25%.
Calculate the
 synthetic position resulting from the combination of the fixed rate liability with the
IRS. 2,85%

171. When Nominal Interest Rates are declining: None of the Answers

172. When Nominal Interest Rates are declining: All of the Answers

173. The custody of financial securities on behalf of customers are part of

Off balance sheet activities

174. Assume that a bank’s ROA is 1% and a total asset of 1 billion euros.
Determine the equity multiplier knowing that the bank’s equity is equal to 50
million euros. 20

175. In a mortgage loan application the bank decides to approve in function of

the Total Debt Service. What kind of information does it provide? It is equal to total
accommodation expenses plus all other debt service payments divided by gross
income. It measures the ability to maintain mortgage payments.

176. Among the interest bearing liabilities, banks may hold Bonds

177. If a bank finances short-term fixed rate financial assets with long-term
financial liabilities it is exposed to the risk that a decrease in interest rates
negatively impacts its net interest margin

178. When Nominal Interest Rates are declining: None of the Answers

179. Investment banks operate mainly with--------------------------and offer

-----------------------------large companies; services related to financial markets

180. Bank off-balance sheet activities include, among the others

Loan commitments to customers

181. How are hedge fund expenses different from mutual fund expenses?

Performance fees calculated above a hurdle rate (in many cases in the form of high water
mark)

182. High water mark is All-time high of the NAV

183. IPOs are more likely to happen: None of the answers

184. StockSplits:

Will not boost issuing Company's Net Equity Capital Position

185. When the duration is not an accurate measure of the interest rate risk?
For large interest rate changes.

186. If a bank finances short-term fixed rate financial assets with long-term
financial liabilities it is exposed to the risk that a decrease in interest rates
negatively impacts its net interest margin

187. Which of the following intermediaries is part of the OFIs according to the
classification provided by the Financial Stability Board? Financial companies
granting consumer credit

188. Which one of the following fund types is likely to have the lowest
annual expense ratio? ETF

189. Which of the following statements is wrong?

Foreign Participants tend drain U.S. loanable funds

190. A bank run can occur when:

- there are concerns about the depositary institution's solvency;

- there is the failure of a related depositary institution (contagion effect);

- sudden changes in investor preferences regarding financial assets. What is the
consequence for the depositary institution? There is a sudden and unexpected
increase in deposit withdrawals

191. When you decide to immunize the return on your fixed-income debt holding:

If market rates rise you will see the sell price of your bond fall as much as the increase
in reinvested coupons

192. Within non-performing loans, past-due exposures are those past due
by more than 90 days

193. The custody of financial securities on behalf of customers are part of

Off balance sheet activities

194. Financial intermediaries (FIs) can offer savers a safer, more liquid investment
than a capital market security, even though the intermediary invests in risky illiquid
instruments because FIs can diversify away some of their risk and closely monitor
the riskiness of their assets.

195. The members of the ECB's executive board are appointed for an---------year
term not renewable. 8
196. A corporate loan applicant has had a growing cash account for the last three
years, but cash flow from operations has been negative in every year. Would this
concern you if you were the loan officer charged with approving the loan? This
would be a concern because it indicates cash growth is being generated by
borrowing, new equity issued, or by selling assets. None of these are sustainable
sources of financing.

197. By performing aggressive Buy-Backs:

The amount of Dividend per Share will increase if b is unchanged

198. AA-rated Debt Issuers:

Are more likely than CCC-rated debt issuers to issue Commercial Paper

199. We can comfortably state that: Levels of Total Debt Capital raised into
U.S. Primary Market structurally exceed Equity’s.

200. Mutual fund managers must specify their fund's investment objectives in
the prospectus which: all the above
i) holds list of securities invested by the fund

ii) contains historical return information

iii) show historical fees and the effect of those fees on the investments over time

iv) information on risk

v) prospectus to be written in a legal language

201. Main refinancing operations can be used by the ECB to temporarily

inject liquidity through:

repos like transactions with which the ECB purchases eligible securities which are

subsequently resold to banks

202. Secondary Stock Markets are instrumental to: ranked from highest-to-
lowest Bid and lowest- to-highest Ask

203. The ECB's Governing Council consists of: the six members of the
Executive Board plus

the governors of the central banks of the 19 euro-area countries

204. Which of the following risks are chiefly shadow banks exposed to?
Liquidity risk
 205. Which of the following is not a causal factor of systematic credit
risk? Liquidity risk

206. Which institutions can have access to the ECB's standing facilities? Only
those subject to the minimum reserve requirement

Exams 31 August

1. A $40,000 one-year loan with a 1 percent origination fee and a 7.50 percent
interest rate is funded with money on which the bank owes 3 percent. What is the
expected pretax dollar spread on the loan? $ 2,200

2. A bond with 10yrs maturity, 1% YTM and 5% Coupon has: 137.89% Price

3. Credit Risk: Once defined by the Rating Agency, can still change through the life of
a Debt Instrument

4. BTPs, BOTs, CTZs, Commercial Paper and Banker's Acceptances: Belong to

Debt Market

5. The Dividend Yield for Company A with b=100% and P=$1 and g=5% is: (1-b)/P

6. If Stock A has g=5% and Stock B g=9%, Stock B is desirable for Value Investors

7. If the Term-Structure of yields of BBB-rated Debt Instruments is steeper than that

of AAA-rated ones: Among other things, the Default Risk Premia of the AAA-rated
increase through time slower than those of the BBB-rated one

8. If you compound a lump sum @ constant 1% per annum for 5 years on semiannual
basis: Its compounded value will be smaller than that if compounded on a
quarterly basis

9. Money markets. Markets that trade debt securities with maturities of one year
or less (e.g., U.S. and Italian Treasury bills)
I) Where there is little or no risk of capital loss, but low returns

II) Where there is substantial risk of capital loss, but higher promised return
III) Where there is always an equity risk premium
I) and II) only

10. Primary markets: are markets where financial instruments are traded
among investors

11. Which of the following statements is wrong? Causal factors of operational

and financial risks only determine exposure to losses
12. The interest rate risk is exclusively due to the asynchrony between the maturities
of the financial assets and liabilities held by FIs. This statement is not true because
the interest rate volatility also exposes FIs to interest rate risk

13. The following activities are included in the primary market making carried out
by investment banks: Origination, underwriting and distribution of new
securities

14. An investor holds a 100 American style puts on Alfa stocks with strike equal to €
2 expiring in 1 month. Suppose the market price of Alfa stock is € 2,10. The
premium paid at inception is €0.2 5 per put option. 1) Determine the intrinsic
value of the options and consider that the time value is equal to € 0.05; 2)
Determine the potential gain/loss should the investor decide to liquidate the puts
held. 1) €0; 2) -
€20

15. Assume that a bank's ROA is 2% and a total asset of 100 billion euros.
Determine the equity multiplier knowing that the bank's equity is equal to 100
million euros. 1000

16. Which of the following one is not to be considered as a hedge fund strategy?
plain vanilla long only fixed income

17. Households are increasingly likely to both directly purchase securities (perhaps via
a broker) and also place some money with a bank to meet different needs.

Match up the given investor's desire with the appropriate intermediary or direct security.

I. Money likely to be needed within six months

II. Money to be set aside for college in 10 years

III. Money to provide supplemental retirement income

IV. Money to be used to provide for children in the event of death

1. Depository institutions
2. Insurer

3. Pension fund

4. Stocks or bonds
Answer:
1,4,3,2

18. What is indirect finance? Borrowers borrow indirectly from lenders via financial
intermediaries by issuing financial instruments which are claims on the
borrower’s future income or assets
19. Consider Tax rate on Capital Gains (TAX_CG) and Tax rate on Dividend Returns
(TAX_DIV): If (TAX_CG) > (TAX_DIV), Corporations will not tend to pursue
buyback strategies more aggressively

20. If the Term-Structure of yields of BBB-rated Debt Instruments is steeper than that
of AAA-rated ones: Among other things, the Default Risk Premia of the AAA-rated
increase through time slower than those of the BBB-rated one

21. A bank holds a portfolio of floating rate mortgage loans financed with fixed rate
bonds. If the bank fears a fall in interest rates, what type of hedging strategy can
it employ? The bank enters an interest rate swap by paying the floating rate and
receiving the fixed rate

22. Retail banks operate mainly with--------------------------and offer

-----------------------------households and Smes; mass financial products

23. Migration Risk: Refers to the fact that a BBB-rated Issuer is more likely than not
to see its credit worthiness going up through time

24. Bills: Are issued into Primary Market

25. A bank has a base loan rate of 4.75 percent and for the loan under consideration

it would apply a 2 percent risk premium. The bank also requires compensating
balances (noninterest-bearing) equal to 5 percent of the loan amount. The bank's
reserve requirements are 10 percent. The bank charges 1 percent of the loan
amount as an origination fee.

The borrower is asking for a $500,000 loan. Calculate the gross rate of return on the
loan. 8,115%

26. If a bank finances long-term fixed rate financial assets with short-term financial
liabilities it is exposed the risk that an increase in interest rates negatively impacts
its net interest margin

27. By pursuing systematic Buy-back Strategies Corporations will tend to favour

Investors advocating Value-Investing strategies

28. Hybrid Funds consist 1. of both stock and bond securities

29. Suppose your company enters into a interest rate swap (IRS) to cover a fixed
rate liability, exposed to falling interest rates.

The fixed rate liability pays 3%. The floating rate leg of the IRS is equal to 6 months
Euribor + 320 bps, while the fixed leg is equal to 3.10%; the six months Euribor is
 actually equal to -0.25%. Calculate the synthetic position resulting from the
combination of the fixed rate liability with the IRS. 2.85%

30. The Covid-19 Pandemic is most likely to: Shift rightwards the "Y-axis: Interest
Rate"; "X-axis: Quantity" Loanable Funds Demand Curve

31. If a bank relies solely on purchased liquidity, the bank will likely 3. be required
to borrow money at short notice.

32. As a business lender, you would prefer that the borrower have stable or
growing cash flows resulting from which part of the statement of cash flows? 3.
Operating cash flows

33. The YTM of Convertible Bonds: None of the Answers

34. The following activities are included in the secondary market making carried out
by investment banks: Financial companies granting consumer credit

35. Which of the following bank liabilities are excluded from the monthly calculation of
mandatory reserve requirement? Deposits and other liabilities with agreed
maturity above 2 years

36. Which institutions can have access to the ECB's standing facilities? Only
those subject to the minimum reserve requirement

37. The Price-Yield relationship: Is linear under the assumption of the duration-
modeled estimate

38. Interest bearing liabilities include among the others Deposits from banks
and customers and securities issued

39. Assume that a bank has 10% ROE, total assets equal to 10 billion euros and
net profits of 10 million euros. Determine the bank's equity multiplier. 100

40. The structure of a bank's balance sheet as evidenced by its repricing gap and its
duration gap affects a bank's sensitivity to interest rate changes.Which one of the
following statements about the two types of gaps is true? The duration gap
considers all cash flows up to and including maturity, whereas the repricing gap
really only considers how cash flows will change within the maturity bucket.

41. By pursuing systematic Buy-back Strategies: Publicly listed Corporations do

not infuse liquidity into their common shares

42. Credit Risk: Once defined by the Rating Agency, can still change through the life of
a Debt Instrument
43. Interest bearing liabilities include among the others Deposits from banks
and customers and securities issued

44. On which of the following bank liabilities is the mandatory reserve requirement
determined monthly? Deposits and other liabilities with agreed maturity up to
2 years

45. Which of the following intermediaries is part of the OFIs according to the
classification provided by the Financial Stability Board? Financial companies
granting consumer credit

46. Which of the following statements is wrong? Liquidity risk only affects banks

47. High levels of Savings: Tend to increase the subsequent level of Nominal
Interest rates as Households Net Supply of funds Decreases

48. For most business loans

i) growing earnings are important to grant a loan

ii) collateral is still important because economic conditions can change over the life
of the loan

iii) the lender must also evaluate how sensitive the borrower's earnings are to economic
conditions iv) the lender will be more concerned about sources and uses of cash
than about earnings. All the above

49. Businesses will tend to shift rightwards the Supply-side Loanable Funds Curve:
None of the Answers

50. Off balance sheet operations typically generate Fees and commissions

51. Suppose your company enters into a interest rate swap (IRS) to cover a fixed
rate liability, exposed to falling interest rates.

The fixed rate liability pays 3%. The floating rate leg of the IRS is equal to 6 months
Euribor + 320 bps, while the fixed leg is equal to 3.10%; the six months Euribor is
actually equal to -0.25%. Calculate the synthetic position resulting from the
combination of the fixed rate liability with the IRS. 2.85%

52. If year is base 365 (act/365), on December 31st the interim accrual factor for a
Debt Instrument with annual coupon issued on January 2nd is: 0.9973

53. Select the derivative securities: i) Swap

ii) Corporate bond

iii) Listed option

iv) Stock

v) Commercial Paper i)
and iii)

54. You have $20,000 to invest and you are considering investing in a fund.

The fund charges a front-end load of 6 percent and an annual expense fee of 1.5
percent of the average asset value over the year.

You believe the fund's gross rate of return will be 15 percent per year.

If you make the investment, what should your investment be worth in one year?
$21,316.85

55. In economic terms, what are the consequences of exposure to credit risk?
Provisions and chargeoffs are the economic consequences of the exposure to credit
risk

56. A financial intermediary has two assets in its investment portfolio.

It has 40 percent of its security portfolio invested in three-months BOT and 60 percent in
corporate bonds. If it liquidated the BOTs today, the bank would receive €98 per
hundred of face value.

If the corporate bonds were sold today, they would be worth €85 per 100 of face
value. In one month, the corporate bonds could be liquidated at $94 per 100 of
face value and the BOT at €99. What is the intermediary's one-month liquidity
index? 94

57. Aggressive Buy-Back strategies: Will benefit Investors whose Tax Rate is higher
for Dividend returns

58. In order to hedge against interest rate risk, banks can perform an
immunization strategy by matching the maturities of the assets and liabilities
held

59. The Covid-19 Pandemic is most likely to: Shift rightwards the "Y-axis: Interest
Rate"; "X-axis: Quantity" Loanable Funds Demand Curve

60. Junk bonds usually yield returns than investment-grade bonds due to
their speculative feature. higher

61. The ECB's standing facilities include the following operations Marginal
lending facility and deposit facility
62. An FI's balance sheet is characterized by long-term fixed-rate assets funded
by short-term

variable-rate securities. Most likely the bank has a negative repricing gap and a positive
duration gap.

63. You choose a fund with a 3.5 percent front load and a 1.75 percent management
fee. Fees are charged against average assets for the year. The gross annual return
on the fund's shares was 12.50 percent. What was your net annual rate of return to
the nearest basis point? 6,77%

64. Assume that a bank's ROA is 2% and a total asset of 100 billion euros. Determine
the equity multiplier knowing that the bank's equity is equal to 100 million euros
1000

65. Convexity: All of the Answers (is directly proportional to the Coupon rate of
the Bond)

66. In concept, the RAROC measure indicates a loan is acceptable if the RAROC is
greater than the lender's ROE.

67. Imagine a 4-years only Term Structure with L1=1%; L2=0.75%; L3=0.50% and
L4=0.25%. This means that: The shape of the resulting LPT Term Structure
will certainly be closing in onto the UET's

68. By pursuing systematic Buy-back Strategies: Corporations will tend to

favour Investors advocating Value- Investing strategies

69. A financial intermediary has two assets in its investment portfolio. It has 40 percent
of its security portfolio invested in three-months BOT and 60 percent in corporate
bonds. If it liquidated the BOTs today, the bank would receive €98 per hundred of
face value. If the corporate bonds were sold today, they would be worth €85 per
100 of face value. In one month, the corporate bonds could be liquidated at $94 per
100 of face value and the BOT at €99. What is the intermediary's one-month
liquidity index? 94

70. Financial portfolio management activities on behalf of customers fall under

Off balance sheet activities

71. If Stock A has g=5% and Stock B g=9% Stock B is desirable for Value Investors

72. One of the recent trading abuses in the mutual fund industry was allowing
selected investors to rapidly trade in and out of a mutual fund in order to profit on
stale prices. This practice is called market timing.

73. Which are the major sources of liquidity risk for a bank?
74. Convexity: All of the Answers

75. With b=83.7% , P/E=26 and E=$991664, how many of the 397698 outstanding
shares does Company ABC need to buy-back to get Dividend Per Share from $0.4064
to
$0.4877? 79559

76. IBM creates and sells additional stock to the investment bank Goldman Sachs.
Goldman Sachs then resells the issue to the U.S. public through its mutual
funds. Goldman Sachs is acting as a(n) asset broker