Banking Treasury Management 2

Question 1

Which instrument is primarily used by a corporate treasury to hedge against rising interest rates on a floating-rate loan?

Accepted Answer

Interest rate swap (pay fixed, receive floating)

Answer

An interest rate swap where the company pays a fixed rate and receives floating converts its floating-rate exposure to a fixed cost, hedging against rate increases.

Question 2

What is the primary purpose of a cash concentration structure in treasury management?

Accepted Answer

To pool subsidiary balances into a master account to maximize investable cash

Answer

Cash concentration (zero-balance or target-balance accounts) sweeps subsidiary funds into a master account, giving treasury centralized control and larger investable balances.

Question 3

A bank's Asset-Liability Committee (ALCO) is most concerned with managing which risk?

Accepted Answer

Net interest margin sensitivity to rate changes

Answer

ALCO focuses on net interest margin (NIM) and the bank's overall interest rate risk exposure arising from mismatches between asset and liability repricing.

Question 4

Under the Basel III Liquidity Coverage Ratio (LCR) framework, what is the required minimum LCR for large internationally active banks?

Accepted Answer

100%

Answer

Basel III requires large banks to maintain an LCR of at least 100%, meaning high-quality liquid assets must cover 30-day net cash outflows under a stress scenario.

Question 5

Which term describes the risk that a counterparty defaults between the trade date and the settlement date of a foreign exchange transaction?

Accepted Answer

Herstatt risk (settlement risk)

Answer

Herstatt risk (also called settlement or delivery risk) arises when one party delivers currency before receiving the reciprocal payment, exposing it to counterparty default.

Banking Practice Test

Banking Practice Test

Banking Treasury Management 2