Question 1

Which one of the following four variables of the Black-Scholes model is typically NOT known at a point in time?

Options :

A : The underlying relevant exchange rates

B : The underlying interest rates

C : The future volatility of the exchange rates

D : The time to maturity

Answer: C

Question 2

US based Alpha Bank holds European corporate bonds and US inflation–indexed Treasury

notes in its investment portfolio. This investment portfolio is not exposed to changes in

which of the following?

Options :

A : Foreign exchange rates

B : Credit spread on the corporate bonds

C : Equity values

D : European interest rates

Answer: C

Question 3

US based Alpha Bank holds European corporate bonds and US inflation–indexed Treasurynotes in its investment portfolio. This investment portfolio is not exposed to changes inwhich of the following?

Options :

A : Foreign exchange rates

B : Credit spread on the corporate bonds

C : Equity values

D : European interest rates

Answer: C

Question 4

Which among the following are shortfalls of the static liquidity ladder model?

I. The static model gives a liquidity estimate only after the bank faces the liquidity problem.

II. The static model can only make projections over a few days.

III. The static model does not incorporate uncertainty in the analysis.

Options :

A : I, II

B : I, III

C : I, II, III

D : III

Answer: C

Question 5

Mega Bank has $100 million in deposits on which it pays 3% interest, and $20 million inequity on which it pays no interest. The loan portfolio of $120 million earns an average rateof 10%. If the rates remain the same, what is the net interest income of Mega Bank?

Options :

A : $2 million per year

B : $5 million per year

C : $9 million per year

D : $12 million per year

Answer: C

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