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| 1 | |
In the mid-2000s, a number of banks lost billions of dollars on failing mortgage loans. The risk of such occurrences would be categorized as: |
| | A) | off balance sheet risk |
| | B) | operational risk |
| | C) | credit risk |
| | D) | technology risk |
| | E) | country or sovereign risk |
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| 2 | |
In October of 2005, the Bankruptcy Reform Act was passed, which made: |
| | A) | made it more difficult for consumers to declare bankruptcy. |
| | B) | called for a moratorium on consumer bankruptcies. |
| | C) | called for a moratorium on collections of past-due loans. |
| | D) | made it easier for consumers to declare bankruptcy. |
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| 3 | |
When a bank tries to make a wide variety of loans, to various kinds of borrowers, it is hoping to reap the benefit of: |
| | A) | guaranteed income |
| | B) | diversification |
| | C) | more firm-specific risk exposure |
| | D) | reduced operational risk |
| | E) | reduced off balance sheet risk |
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| 4 | |
The risk of "insolvency" is basically the risk of: |
| | A) | borrowers not paying off lenders in a timely fashion. |
| | B) | machinery breakdowns |
| | C) | not being able to find a buyer for an asset |
| | D) | asset value falling below liability value |
| | E) | human resource costs, in a tight labor market |
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| 5 | |
Suppose that machinery used by Bank-Twenty for sorting and clearing checks breaks down. This is a manifestation of: |
| | A) | Credit risk |
| | B) | Insolvency risk |
| | C) | Operational risk |
| | D) | Liquidity risk |
| | E) | Market risk |
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| 6 | |
Bank-X's outstanding loans all have fixed interest rates, with maturities in excess of two years. The bank's deposit liabilities all have maturities of no more than six months. Bank-X most obviously is facing: |
| | A) | Credit risk |
| | B) | Insolvency risk |
| | C) | Liquidity risk |
| | D) | Operational risk |
| | E) | Interest rate risk |
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| 7 | |
Anatol Bank manages a portfolio of bonds. It actively trades, seeking to enhance the portfolio's profitability. Which of the following is Anatol Bank most obviously exposed to? |
| | A) | Market risk |
| | B) | Operational risk |
| | C) | Technology risk |
| | D) | Insolvency risk |
| | E) | Country risk |
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| 8 | |
A portfolio manager who diversifies his/her portfolio can reduce which of the following? |
| | A) | Technology risk |
| | B) | Systematic risk |
| | C) | Firm specific risk |
| | D) | Off balance sheet risk |
| | E) | Operational risk |
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| 9 | |
For securities issued across international borders, changes in the legal and governmental environment can make it difficult for the investor to collect. Such a risk would be termed: |
| | A) | Credit risk |
| | B) | Sovereign risk |
| | C) | Off balance sheet risk |
| | D) | Insolvency risk |
| | E) | Interest rate risk |
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| 10 | |
Which of the following would bring about "off balance sheet" risk for a financial institution? |
| | A) | A bank issues a letter of credit |
| | B) | An insurance company buys some corporate bonds |
| | C) | A credit union receives a savings deposit |
| | D) | A pension fund invests in some common stock |
| | E) | A bank makes a business loan |
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| 11 | |
A U.S. bank, Stateside Bank, makes some cross-border loans denominated in the euro. Fluctuations in the dollar value of the euro will give rise to: |
| | A) | credit risk |
| | B) | off balance sheet risk |
| | C) | operational risk |
| | D) | foreign exchange risk |
| | E) | country risk |
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| 12 | |
Credit risk that is related to pervasive, economy-wide factors, would be termed: |
| | A) | off balance sheet risk |
| | B) | country risk |
| | C) | systematic risk |
| | D) | firm specific risk |
| | E) | reinvestment risk |
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| 13 | |
Suppose a bank is holding a portfolio of long-maturity assets, and has financed it with short-maturity liabilities. Which of the following risks is most obvious? |
| | A) | Refinancing risk |
| | B) | Operational risk |
| | C) | Default risk |
| | D) | Liquidity risk |
| | E) | Sovereign risk |
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| 14 | |
"Off balance sheet activities" would include: |
| | A) | A letters of credit |
| | B) | A loan commitment |
| | C) | Purchase of a futures contract |
| | D) | A position in an interest rate swap |
| | E) | All of the above |
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| 15 | |
In 2005, Argentina offered its creditors 30 cents on the dollar for a sizeable amount of its outstanding debt. The offer was nonnegotiable. Clearly, Argentina's creditors were exposed to ______________risk. |
| | A) | sovereign |
| | B) | operational |
| | C) | technology |
| | D) | interest rate |
| | E) | (b) and (c) |
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| 16 | |
In 2007, it was discovered that millions of credit card numbers had been stolen from TJX Company, due to a breach in computer network security. This episode provides an example of: |
| | A) | credit risk |
| | B) | operational risk |
| | C) | sovereign risk |
| | D) | interest rate risk |
| | E) | liquidity risk |
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