Treasury Management Flashcards
7 cards from real Banking 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
A company with significant EUR receivables due in 90 days and no EUR payables uses a EUR/USD forward contract to sell EUR forward. This strategy is an example of:
Answer: A transaction hedge
Selling EUR forward to cover specific anticipated EUR receivables is a transaction hedge, directly offsetting a known foreign currency cash flow with a matching derivative.
Which Basel III metric requires banks to fund long-term illiquid assets with stable funding sources over a one-year horizon?
Answer: Net Stable Funding Ratio (NSFR)
The NSFR requires that available stable funding (ASF) equals or exceeds required stable funding (RSF), ensuring banks maintain a stable funding profile over a 12-month horizon.
A pension fund manager wants to extend the duration of a bond portfolio without buying or selling bonds. The most efficient approach is to:
Answer: Enter a receive-fixed interest rate swap on a notional amount
Receiving fixed in an interest rate swap increases the portfolio's duration synthetically, as rising rates decrease swap value similarly to long-duration bonds, without requiring physical bond transactions.
What is the main purpose of a Funds Transfer Pricing (FTP) system within a bank?
Answer: To allocate funding costs and benefits to individual business units based on their asset/liability mix
FTP allocates the bank's central cost of funds to each business line, ensuring that units originating assets or liabilities are charged or credited the appropriate marginal funding cost.
A repurchase agreement (repo) is best described as:
Answer: A sale of securities with an agreement to repurchase them at a specified price and date
In a repo, one party sells securities (typically government bonds) and simultaneously agrees to repurchase them at a higher price on a future date, effectively creating a secured short-term loan.
A corporate treasurer observes that the three-month SOFR futures rate is trading below the expected spot SOFR. This difference is known as:
Answer: Convexity adjustment
Because futures are marked to market daily while FRAs settle once, a convexity adjustment is needed to reconcile the futures-implied rate with the true forward rate.
Which of the following best describes a 'laddered' investment portfolio strategy used in treasury management?
Answer: Distributing investments evenly across multiple maturity dates to manage reinvestment risk
A laddered portfolio staggers maturities across different time horizons, so that as short-term securities mature and are reinvested, the portfolio maintains consistent exposure and reduces reinvestment risk.