Treasury Management Flashcards
7 cards from real Banking Exam practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Treasury Management flashcards as text
What is the primary function of a bank's treasury department?
Answer: Managing liquidity, funding, and interest rate risk
The treasury department manages the bank's overall liquidity position, funding needs, and exposure to interest rate risk on its own balance sheet.
Which instrument is most commonly used by banks for overnight short-term liquidity management?
Answer: Federal funds
Federal funds are overnight borrowings between depository institutions, making them the most common tool for short-term liquidity management.
What does Asset-Liability Management (ALM) primarily seek to manage?
Answer: Interest rate risk and liquidity risk on the bank's balance sheet
ALM coordinates the bank's assets and liabilities to manage both interest rate risk and liquidity risk simultaneously across the balance sheet.
Net Interest Margin (NIM) is calculated as:
Answer: (Interest income minus interest expense) divided by average earning assets
NIM measures the spread between interest earned and interest paid, divided by average earning assets, reflecting the profitability of the bank's core lending activities.
Which regulatory requirement directly impacts a bank's short-term liquidity management under Basel III?
Answer: Liquidity Coverage Ratio (LCR)
The LCR requires banks to hold sufficient high-quality liquid assets to cover net cash outflows over a 30-day stress scenario.
What is a repurchase agreement (repo) in banking treasury operations?
Answer: A short-term borrowing where securities are sold with an agreement to repurchase them
A repurchase agreement involves selling securities with a commitment to buy them back at a specified price, effectively functioning as a short-term collateralized loan.
When market interest rates rise, the market value of fixed-rate bonds held by a bank will:
Answer: Decrease
Bond prices move inversely to interest rates; when rates rise, existing fixed-rate bonds become less attractive relative to new higher-yielding bonds, causing their market value to fall.