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
In bank treasury management, 'Funds Transfer Pricing' (FTP) refers to:
Answer: An internal rate used to allocate funding costs and credits across business units
FTP is an internal mechanism where the treasury charges business units for the cost of funding their assets and credits them for deposit generation, enabling accurate profitability measurement.
When a bank hedges interest rate risk using an interest rate swap, it typically:
Answer: Exchanges fixed-rate payments for floating-rate payments or vice versa
In an interest rate swap, counterparties exchange fixed-rate and floating-rate payment streams, allowing banks to adjust their effective interest rate exposure without altering underlying balance sheet assets.
In fixed-income portfolio management, 'convexity' measures:
Answer: The curvature of the price-yield relationship, refining duration estimates for large rate moves
Convexity captures the second-order (non-linear) effect of interest rate changes on bond prices, improving on duration alone when interest rate moves are large.
Under the Basel III framework, Tier 1 capital primarily consists of:
Answer: Common equity and retained earnings (Common Equity Tier 1 / CET1)
Common Equity Tier 1 (CET1) capital — primarily common shares and retained earnings — is the highest quality and most loss-absorbing form of capital under the Basel III framework.
A bank's 'cost of funds' is best described as:
Answer: The average interest rate paid on all interest-bearing liabilities
Cost of funds is the average rate a bank pays on deposits and other borrowed money, which directly impacts profitability when compared against the yield earned on assets.
Which of the following treasury activities is prohibited for banks by the Volcker Rule under Dodd-Frank?
Answer: Proprietary trading for the bank's own speculative profit
The Volcker Rule prohibits banks from engaging in proprietary trading (trading for their own account) that is not related to customer facilitation, market-making, or risk hedging.
What is the primary role of the Asset-Liability Committee (ALCO) in a bank?
Answer: Overseeing the bank's balance sheet structure, interest rate risk, and liquidity policy
ALCO is a senior management committee responsible for setting and overseeing the bank's overall balance sheet strategy, including interest rate risk, liquidity risk, and funding policies.