CBP Treasury Management and Capital Markets

Question 1

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

Accepted Answer

Managing the bank's liquidity, funding, interest rate risk, and capital markets activities

Answer

The treasury department manages the bank's overall balance sheet, including liquidity management, funding strategy, interest rate risk, and investment portfolio activities.

Question 2

What is the federal funds rate in the US banking system?

Accepted Answer

The interest rate at which depository institutions lend reserve balances to each other overnight

Answer

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.

Question 3

What does 'duration' measure in the context of fixed-income portfolio management?

Accepted Answer

The sensitivity of a bond's price to changes in interest rates

Answer

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.

Question 4

In capital markets, what is a 'repurchase agreement' (repo)?

Accepted Answer

A short-term borrowing arrangement where securities are sold with an agreement to repurchase them at a higher price

Answer

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.

Question 5

What is 'net interest margin' (NIM) and why is it important to bank treasury management?

Accepted Answer

The difference between interest income earned on assets and interest paid on liabilities, expressed as a percentage of earning assets

Answer

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.

(CBP) Certified Banking Professional Practice Test

(CBP) Certified Banking Professional Practice Test

CBP Treasury Management and Capital Markets