Banking Treasury Management 4

Question 1

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:

Accepted Answer

A transaction hedge

Answer

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.

Question 2

Which Basel III metric requires banks to fund long-term illiquid assets with stable funding sources over a one-year horizon?

Accepted Answer

Net Stable Funding Ratio (NSFR)

Answer

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.

Question 3

A pension fund manager wants to extend the duration of a bond portfolio without buying or selling bonds. The most efficient approach is to:

Accepted Answer

Enter a receive-fixed interest rate swap on a notional amount

Answer

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.

Question 4

What is the main purpose of a Funds Transfer Pricing (FTP) system within a bank?

Accepted Answer

To allocate funding costs and benefits to individual business units based on their asset/liability mix

Answer

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.

Question 5

A repurchase agreement (repo) is best described as:

Accepted Answer

A sale of securities with an agreement to repurchase them at a specified price and date

Answer

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.

Banking Practice Test

Banking Practice Test

Banking Treasury Management 4