ICBRR Online Practice Questions and Answers

Which one of the following statements about futures contracts is correct?

A. Futures contracts are subject to the same risks as the underlying instruments.

II. Futures contracts have additional interest rate risk die to the future delivery date.

III. Futures contracts traded in a clearinghouse system are exposed to credit risk with numerous counterparties.

B. I

C. I, III

D. II, III

E. I, II, III

An options trader for a large institutional investor takes a long equity option position. Which of the following risks need to be considered when taking this position?

A. All the risks of underlying equities

II. Perceived volatility changes

III. Future dividends yields

IV. Risk-free interest rates

B. I, II

C. II, III

D. III, IV

E. I, II, III, IV

In the United States, stock investors must comply with the Regulation T of the Federal Reserve Bank and may borrow up to ___ of the value of the securities from their brokers.

A. 30%

B. 40%

C. 50%

D. 60%

A multinational bank just bought two bonds each worth $10,000. One of the bonds pays a fixed interest of 5% semi-annually and the other pays LIBOR semi-annually. The six month LIBOR is at 5% currently. The risk manager of the bank is concerned about the sensitivity to interest rates. Which of the following statements are true?

A. The price of the bond paying floating interest is more sensitive to interest rates than the bond paying fixed interest.

B. The price of the bond paying fixed interest is more sensitive to interest rates than the bond paying floating interest.

C. Both bond prices are equally sensitive to interest rates.

D. The given information is not enough to determine the sensitivity of the bond prices.

James Johnson bought a 3-year plain vanilla bond that has yield of 4.7% and 4% coupon paid annually, for $87,139. Macauley's duration of the bond is 2.94 years. Rate volatility is 20% of the yield. The bond's annualized volatility is therefore:

A. 3.15%.

B. 2.90%.

C. 2.81%.

D. 2.64%.

To hedge equity exposure without buying or selling shares of stock or otherwise rebalancing the portfolio, a risk manager could initiate

A. A short total return swap position.

B. A long total return swap position.

C. A short debt-for-equity swap.

D. A long debt-for-equity swap.

A bank customer expecting to pay its Brazilian supplier BRL 100 million asks Alpha Bank to buy Australian dollars and sell Brazilian reals. Alpha bank does not hold reals so it asks for aquote to buy Brazilian reals in the market. The market rate is 100. The bank quotes a selling rate of 101 to its customer and sells the real at this quoted price. Then the bank immediately buys the real at the market rate and completes foreign exchange matched transaction. What is the impact of this transaction on the bank's risk profile?

A. This transaction eliminates credit risk.

B. This transaction eliminates counterparty risk.

C. This transaction eliminates market risk.

D. This transaction eliminates operational risk.

Which of the following statements explain how securitization makes the retail assets highly liquid and the balance sheet easier to manage?

A. By securitizing assets any lack of capital can be accommodated by selling the securitized bonds.

II. Any need to diversify credit risk can be achieved by selling bank's own securitized bonds and buying other bonds that increase diversification.

III. Securitization could be used to promote hedging by using limited market instruments.

B. I, II

C. I, II, III

D. II, III

E. II

Which one of the following four statements about regulatory capital for a bank is accurate?

A. Regulatory capital is determined by rules imposed by an outside authority, such as a supervisor or central bank.

B. Regulatory capital is the lowest level of economic capital the bank should have to meet regulatory requirement.

C. Regulatory capital reflects the economic tradeoffs of the bank as accurately as the bank can represent them.

D. Regulatory capital is less than the regulatory capital requirement.

Which one of the following four regulatory drivers for operational risk management includes risk and control requirements for financial statements in the United States?

A. Basel II Accord

B. Solvency II

C. The Markets in Financial Instruments Directive

D. The Sarbanes-Oxley Act