Banking Exam Treasury Management 3

Question 1

In bank treasury management, 'Funds Transfer Pricing' (FTP) refers to:

Accepted Answer

An internal rate used to allocate funding costs and credits across business units

Answer

The fee charged for wire transfers between branches

Answer

The price at which the bank buys foreign currency from the central bank

Answer

The spread between bid and ask prices on government securities

Question 2

When a bank hedges interest rate risk using an interest rate swap, it typically:

Accepted Answer

Exchanges fixed-rate payments for floating-rate payments or vice versa

Answer

Eliminates all credit risk in its loan portfolio

Answer

Purchases insurance against bond issuer defaults

Answer

Converts domestic currency loans into foreign currency obligations

Question 3

In fixed-income portfolio management, 'convexity' measures:

Accepted Answer

The curvature of the price-yield relationship, refining duration estimates for large rate moves

Answer

The credit quality distribution across a bond portfolio

Answer

The concentration of bond maturities within the next 90 days

Answer

The geographic diversification of the securities portfolio

Question 4

Under the Basel III framework, Tier 1 capital primarily consists of:

Accepted Answer

Common equity and retained earnings (Common Equity Tier 1 / CET1)

Answer

Subordinated debt and non-cumulative preferred stock

Answer

General loan loss reserves and hybrid capital instruments

Answer

Long-term senior bonds and debentures

Question 5

A bank's 'cost of funds' is best described as:

Accepted Answer

The average interest rate paid on all interest-bearing liabilities

Answer

The total operating expenses of running the bank

Answer

The rate the Federal Reserve charges for discount window borrowing

Answer

The fee paid to credit rating agencies for bank ratings

Question 6

Which of the following treasury activities is prohibited for banks by the Volcker Rule under Dodd-Frank?

Accepted Answer

Proprietary trading for the bank's own speculative profit

Answer

Managing the bank's own investment securities portfolio for liquidity

Answer

Setting internal funds transfer pricing rates for business units

Answer

Hedging interest rate risk with interest rate swaps

Question 7

What is the primary role of the Asset-Liability Committee (ALCO) in a bank?

Accepted Answer

Overseeing the bank's balance sheet structure, interest rate risk, and liquidity policy

Answer

Approving individual loan applications above a set dollar threshold

Answer

Managing day-to-day customer deposit account operations

Answer

Conducting external audits of the bank's financial statements