Pre Exam CICC Day 11

A bank uses the following table to determine its target balance sheet mix of asset and liability categories. If total liabilities equal $250 million, calculate the actual policy limit for long-term debt. Balance Sheet Mix Limits

- Indicative Policy Limits as a % of Total Assets: 100%

Cash and cash equivalent 5%

Trade and other receivables 3%

Loans and leases: 65%

Residential mortgages 30%

Commercial loans 20%

Personal loans 10%

Leases 5%

Financial investments 10%

Other investment 12%

Inventories 2%

Intangible assets 3%

- Liabilities: 100%

Interest bearing deposits: 70%

Term deposits 40%

Demand deposits 20%

Brokered deposits 10%

Short-term debt 5%

Long-term debt 13%

Non-interest bearing liabilities 5%

Trade and other payables 4%

Deferred Revenue 3%

• $325,000

• $3,250,000

• $32,500,000

• $32,500

What is a "flight to quality"?

• A collective demand for depositors' monies.

• Financial system instability caused by particular events.

• Investors moving at-risk capital to safe locations.

• Transferring deposits to investments with higher interest rates.

What is a potential negative side effect of security deposit insurance?

• It enables banks to make risky investments without worrying about depositors.

• It enables banks to charge higher interest rates on loans.

• It enables depositors to recover funds up to the limit in the event of a bank collapse.

• It enables depositors to demand higher interest rates on their funds.

What is the purpose of the normal yield curve?

• To plot returns on bonds with equal interest rates and credit quality.

• To plot returns on bonds with different interest rates and credit quality.

• To plot bond interest rates with equal credit quality but different maturity rates.

• To plot bond interest rates with equal credit quality and maturity rates.

What is the definition of liquidity risk?

• The risk of having excess liquid assets on the balance sheet to meet contractual obligations.

• The risk of having more short-term liabilities than long-term liabilities.

• The risk of having insufficient liquid assets on the balance sheet to meet contractual obligations.

• The risk of having more short-term assets than long-term assets.

What is involved when using risk policy and organisation to manage operational risk?

• Linking risk with performance measurement through capital allocation.

• Using a certain range of qualitative and quantitative tools to assess, measure, and manage operational risk.

• Defining what the bank wants to achieve, and how it will organise itself to reach its objectives.

• Deciding whether to implement internal controls or to execute risk transfer strategies.

What kind of risk can be mitigated by using physical security at working locations?

• Market risk.

• Credit risk.

• Operational risk.

• Cyber risk.

What are the two main risks faced by banks in their role as financial intermediaries?

• Credit risk and interest rate risk.

• Credit risk and market risk.

• Market risk and liquidity risk.

• Systematic risk and market risk.

How are land and land improvements valued on the balance sheet?

• At historical cost with no depreciation.

• At historical cost less depreciation.

• At current market value less depreciation.

• At current open market value with no depreciation.

Which of the following risks is most difficult to manage?

• Systemic risk

• Cyber risk.

• Credit risk.

• Market risk.