Treasury Management and Capital Markets Flashcards
6 cards from real CBP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Treasury Management and Capital Markets flashcards as text
What is the primary function of a bank's treasury department?
Answer: Managing the bank's liquidity, funding, interest rate risk, and capital markets activities
The treasury department manages the bank's overall balance sheet, including liquidity management, funding strategy, interest rate risk, and investment portfolio activities.
What is the federal funds rate in the US banking system?
Answer: The interest rate at which depository institutions lend reserve balances to each other overnight
The federal funds rate is the target interest rate set by the FOMC at which commercial banks borrow and lend their excess reserve balances to each other on an overnight basis.
What does 'duration' measure in the context of fixed-income portfolio management?
Answer: The sensitivity of a bond's price to changes in interest rates
Duration measures a bond's price sensitivity to interest rate changes; a higher duration means greater price volatility when rates move, making it a key risk metric for fixed-income portfolios.
In capital markets, what is a 'repurchase agreement' (repo)?
Answer: A short-term borrowing arrangement where securities are sold with an agreement to repurchase them at a higher price
A repurchase agreement (repo) is a short-term secured lending transaction where one party sells securities and agrees to buy them back at a slightly higher price, effectively borrowing cash using the securities as collateral.
What is 'net interest margin' (NIM) and why is it important to bank treasury management?
Answer: The difference between interest income earned on assets and interest paid on liabilities, expressed as a percentage of earning assets
Net interest margin (NIM) measures the profitability of the bank's lending and investing activities versus its cost of funds, and is a key indicator of the bank's core earnings power.
Which market serves as a primary venue for banks to issue and trade short-term debt instruments with maturities of one year or less?
Answer: Money market
The money market is the financial market for short-term debt instruments (maturities of one year or less), including Treasury bills, commercial paper, and certificates of deposit.