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What will be the overall RAROC if the bank acquires the new business?
The retail banking business of BankGamma has an expected P & L of $50 million and a VaR of $100 million. The bank seeks to diversify its revenue, and is considering the opportunity to acquire a credit card business with an expected P & L of $50 million and a...
On January 1, 2010 the TED (treasury-euro dollar) spread was 0.4%, and on January 31, 2010 the TED spread is 0.9%. As a risk manager, how would you interpret this change?
On January 1, 2010 the TED (treasury-euro dollar) spread was 0.4%, and on January 31, 2010 the TED spread is 0.9%. As a risk manager, how would you interpret this change?A . The decrease in the TED spread indicates a decrease in credit risk on interbank loans.B . The decrease...
What could the bank do?
A bank has a large number of auto loans and would prefer to sell them to raise cash for more funding. However, selling individual auto loans is difficult. What could the bank do?A . Package the loans into a securitized vehicle and sell the low risk portion of the portfolio.B...
Which of the following are conclusions that could be drawn from the shape of the statistical distribution of losses that a bank might incur over a future time period?
Which of the following are conclusions that could be drawn from the shape of the statistical distribution of losses that a bank might incur over a future time period? I. In most years a bank would look more profitable than it will be on average. II. Most of the time...
Which of the following statements is a key difference between customer loans and interbank loans?
Which of the following statements is a key difference between customer loans and interbank loans?A . Customers are less credit-worthy than banks on average and hence yields are higher on average for customer loans as compared to interbank loansB . Customer loans are of shorter duration than interbank loansC ....
How could a bank's hedging activities with futures contracts expose it to liquidity risk?
How could a bank's hedging activities with futures contracts expose it to liquidity risk?A . The futures hedge may not work due to the widening of basis which could result in a loss for the bank.B . Prices may move such that a loss results on the hedge.C . Since...
Which one of the following four features is NOT a typical characteristic of futures contracts?
Which one of the following four features is NOT a typical characteristic of futures contracts?A . Fixed notional amount per contractB . Fixed dates for deliveryC . Traded Over-the-counter onlyD . Daily margin callsView AnswerAnswer: C Explanation: Futures contracts have several key characteristics that differentiate them from other types of...
Which one of the following four statements about regulatory capital for a bank is accurate?
Which one of the following four statements about regulatory capital for a bank is accurate?A . Regulatory capital is determined by rules imposed by an outside authority, such as a supervisor or central bank.B . Regulatory capital is the lowest level of economic capital the bank should have to meet...
Modified duration of a bond measures:
Modified duration of a bond measures:A . The change in value of a bond when yields increase by 1 basis point.B . The percentage change in a bond price when yields increase by 1 basis point.C . The present value of the future cash flows of a bond calculated at...
According to a Moody's study, the most important drivers of the loss given default historically have been all of the following EXCEPT:
According to a Moody's study, the most important drivers of the loss given default historically have been all of the following EXCEPT: I. Debt type and seniority II. Macroeconomic environment III. Obligor asset type IV. RecourseA . IB . IIC . I, IID . III, IVView AnswerAnswer: D Explanation: Key...
