Banking Exam Treasury Management

Question 1

What is the primary function of a bank's treasury department?

Accepted Answer

Managing liquidity, funding, and interest rate risk

Answer

The treasury department manages the bank's overall liquidity position, funding needs, and exposure to interest rate risk on its own balance sheet.

Question 2

Which instrument is most commonly used by banks for overnight short-term liquidity management?

Accepted Answer

Federal funds

Answer

Federal funds are overnight borrowings between depository institutions, making them the most common tool for short-term liquidity management.

Question 3

What does Asset-Liability Management (ALM) primarily seek to manage?

Accepted Answer

Interest rate risk and liquidity risk on the bank's balance sheet

Answer

ALM coordinates the bank's assets and liabilities to manage both interest rate risk and liquidity risk simultaneously across the balance sheet.

Question 4

Net Interest Margin (NIM) is calculated as:

Accepted Answer

(Interest income minus interest expense) divided by average earning assets

Answer

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.

Question 5

Which regulatory requirement directly impacts a bank's short-term liquidity management under Basel III?

Accepted Answer

Liquidity Coverage Ratio (LCR)

Answer

The LCR requires banks to hold sufficient high-quality liquid assets to cover net cash outflows over a 30-day stress scenario.

Banking Exam Practice Test

Banking Exam Practice Test

Banking Exam Treasury Management