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
Which metric measures the sensitivity of a bank's net interest income to changes in interest rates?
Answer: Interest Rate Sensitivity Gap
The interest rate sensitivity gap measures the difference between rate-sensitive assets and rate-sensitive liabilities, indicating how NII will change when rates move.
The Federal Open Market Committee (FOMC) primarily influences bank treasury operations by:
Answer: Setting the federal funds rate target
The FOMC sets the federal funds rate target, which directly drives short-term borrowing costs and the broader interest rate environment that bank treasuries must navigate.
In treasury management, 'duration' is best defined as:
Answer: A measure of a bond's price sensitivity to interest rate changes
Duration quantifies how much a bond's price will change for a given change in interest rates, serving as the primary risk metric for managing fixed-income portfolios.
Which of the following qualifies as a Level 1 High-Quality Liquid Asset (HQLA) under Basel III?
Answer: U.S. Treasury securities
U.S. Treasury securities are Level 1 HQLA under Basel III because they can be quickly converted to cash with minimal loss of value even under stressed market conditions.
A bank with more rate-sensitive liabilities than rate-sensitive assets is described as:
Answer: Negatively gapped (liability-sensitive)
A liability-sensitive or negative gap position means liabilities reprice faster than assets, so rising interest rates will compress net interest income.
The primary purpose of the Net Stable Funding Ratio (NSFR) under Basel III is to:
Answer: Require banks to fund long-term assets with stable, long-term funding sources
The NSFR requires banks to maintain a stable funding profile relative to their asset composition over a one-year horizon, reducing structural liquidity risk.
What is the primary purpose of a bank's investment securities portfolio in treasury management?
Answer: To provide liquidity, earn interest income, and manage interest rate risk
Banks hold investment securities as a secondary liquidity reserve, to earn interest income, and to adjust the overall duration and interest rate sensitivity of the balance sheet.