Question 1

A bank treasurer is seeking to identify the most appropriate investment maturitystrategy to apply considering the status of its balance sheet and the economicconditions it is currently facing. The treasurer gathers the following information:• The bank faces a high interest rate environment with a flat yield curve.• The bank’s asset mix includes a high proportion of US Treasury bondspurchased years ago when interest rates were significantly lower.• The bank has a high proportion of revenues from loans and anticipates arecord high level of profitability this year.Which of the following strategies would be the most appropriate for the bank to takein order to maintain its current level of total income?

Options :

A : A Barbell strategy

B : C Riding the yield curve

C : D Tax swap

D : B Carry trade

Answer: C

Question 2

Which of the following trading instruments would have the most beneficial effect on netting?

Options :

A : Equity options.

B : Futures.

C : Options with up-front premiums.

D : FX options.

Answer: B

Question 3

The Merton model is different from Moody’s-KMV Expected Default Frequency approach in two key areas. Which of the following statements refers to one of those differences?

Options :

A : The Merton model factors the market value of the borrower’s equity, while Moody’s-KMV model uses book value.

B : The Merton model uses the risk-free rate to calculate the distance to default, while Moody’s-KMV model uses a customized value.

C : Moody’s-KMV model uses a default point with short-term debt and half of long term debt, while the Merton model only uses short-term debt.

D : The Merton model uses historical data to derive a distribution of default frequencies, while Moody’s-KMV model uses standardized expectations.

Answer: C

Question 4

Kris Gaines, Treasurer at Palm Air Bank and Trust, is considering ways to meet a funding gap created by greater than expected loan demand. Palm Air is a medium sized bank located in Florida. The funding gap is approximately $850,000. Gaines is choosing between several nondepository funding types. The funds are needed immediately. Which type of funding is most appropriate in this situation?

Options :

A : Federal funds borrowing.

B : Negotiable certificates of deposit (CDs).

C : Commercial paper.

D : Eurodollar deposits.

Answer: A

Question 5

Three and a half months ago, XYZ Manufacturing lost their single largest customer, and the company stopped service of all debt payments to ABC Bank. The bank has seized some collateral, but they are working with XYZ as they form plans to find new customers and build a better future. For now, the loans to XYZ Manufacturing should most likely be classified as:

Options :

A : specially mentioned.

B : substandard.

C : doubtful.

D : loss.

Answer: B

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