Banking Exam Treasury Management 2

Question 1

Which metric measures the sensitivity of a bank's net interest income to changes in interest rates?

Accepted Answer

Interest Rate Sensitivity Gap

Answer

The interest rate sensitivity gap measures the difference between rate-sensitive assets and rate-sensitive liabilities, indicating how NII will change when rates move.

Question 2

The Federal Open Market Committee (FOMC) primarily influences bank treasury operations by:

Accepted Answer

Setting the federal funds rate target

Answer

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.

Question 3

In treasury management, 'duration' is best defined as:

Accepted Answer

A measure of a bond's price sensitivity to interest rate changes

Answer

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.

Question 4

Which of the following qualifies as a Level 1 High-Quality Liquid Asset (HQLA) under Basel III?

Accepted Answer

U.S. Treasury securities

Answer

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.

Question 5

A bank with more rate-sensitive liabilities than rate-sensitive assets is described as:

Accepted Answer

Negatively gapped (liability-sensitive)

Answer

A liability-sensitive or negative gap position means liabilities reprice faster than assets, so rising interest rates will compress net interest income.

Banking Exam Practice Test

Banking Exam Practice Test

Banking Exam Treasury Management 2