68. Matching the book is intended to protect the FI from
69. When the assets and liabilities of an FI are not equal in size, efficient hedging of interest rate risk can be
achieved by
70. Unanticipated diseconomies of scope are a result of
71. An FI that finances a euro loan with U.S. dollar deposits is exposed to
72. Matching the foreign currency book does not protect the FI from
73. The potential exercise of unanticipated contingencies can result in
74. The asymmetric return distribution on risky debt exposes the FI to
75. The major source of risk exposure resulting from issuance of standby letters of credit is
76. Politically motivated limitations on payments of foreign currency may expose an FI to
77. The risk that a debt security’s price will fall, subjecting the investor to a potential capital loss is
78. The risk that interest income will increase at a slower rate than interest expense is
79. The risk that borrowers are unable to repay their loans on time is
80. The risk that many borrowers in a particular country fail to repay their loans is
81. The risk that many depositors withdraw their funds at once is
82. The risk that foreign governments may devalue their exchange rates is:
83. As commercial banks move from their traditional banking activities of deposit taking and lending and shift
more of their activities to trading, they are more subject to
84. An advantage FIs have over individual household investors is that they are able to diversify away credit risk
by holding a large portfolio of loans to different entities. This reduces
85. A U.S. bank has €40 million in assets and €50 million in CDs. All other assets and liabilities are in U.S.
dollars. This bank is
86. Risk management for financial intermediaries deals with
87. The U.S. dollar’s decline against European currencies is
88. In which of the following situations would an FI be considered net long in foreign assets if it has 100
million in loans?
89. With regard to market value risk, rising interest rates
90. Which of the following situations pose a refinancing risk for an FI?
91. Which term refers to the risk that the cost of rolling over or re-borrowing funds will rise above the returns
being earned on asset investments?
92. Which term refers to the risk that interest income will decrease as maturing assets are replaced with new,
more current assets?
93. Which of the following would you typically find in the trading portfolio of an FI?
94. The increased opportunity for a bank to securitize loans into liquid and tradable assets is likely to affect
which type of risk?
95. This risk of default is associated with general economy-wide or macro conditions affecting all borrowers.
96. Which of the following observations is NOT true of a letter of credit?
97. The BIS definition: “the risk of loss resulting from inadequate or failed internal processes, people, and
systems or from external events,” encompasses which of the following risks?
98. Which of the following refers to an FI’s ability to generate cost synergies by producing more than one
output with the same inputs?
99. The risk that an FI may not have enough capital to offset a sudden decline in the value of its assets relative
to its liabilities is referred to as
100. Which of the following may occur when a sufficient number of borrowers are unable to repay interest and
principal on loans, thus causing an FI’s equity to approach zero?
101. For an FI investing in risky loans or bonds, the probability is relatively less for which of the following
occurrences?
102. Economies of scale refer to an FI’s ability to
103. To what risk is the bank exposed?
104. What is the bank’s net interest income for the current year?
105. What is the bank’s net interest income in dollars in year 3, after it refinances all of its liabilities at a rate of
6 percent?
106. What is the bank’s net interest income in dollars in year 3, after it refinances all of its liabilities at a rate of
8 percent?
107. What is the maximum interest rate that it can refinance its $4 million liability and still break even on its net
interest income in dollars?
108. What is the net interest income in dollars if the spot prices at the end of the year are $1.50/ and €1.65/$?
109. What is the net interest income in dollars if the spot prices at the end of the year are $1.35/ and €1.35/$
and the liabilities instead cost 7 percent instead of 8 percent?
110. What is the maximum that the € can appreciate and the bank still maintain a zero profit?