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Question
In estimating price sensitivity, the RiskMetrics model prefers to use modified duration over the present value of cash flow changes.
Answer
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Related questions
Q:
Suppose that the current spot exchange rate of U.S. dollars for Russian rubles is $0.15/1ruble. The price of Russian-produced goods increases by 8 percent, and the U.S. price index increases by 3 percent.According to PPP, the new exchange rate of Russian rubles to U.S. dollars is A. 0.15.B. 0.1425.C. 0.141.D. 0.1605.E. 0.159.
Q:
Suppose that the current spot exchange rate of U.S. dollars for Russian rubles is $0.15/1ruble. The price of Russian-produced goods increases by 8 percent, and the U.S. price index increases by 3 percent.According to PPP, the 8 percent rise in the price of Russian goods relative to the 3 percent rise in the price of U.S. goods results in a(n) A. depreciation of the Russian ruble by 5 percent.B. depreciation of the Russian ruble by 6 percent.C. appreciation of the Russian ruble by 5 percent.D. appreciation of the Russian ruble by 6 percent.E. depreciation of the Russian ruble by 7 percent.
Q:
Your U.S. bank issues a one-year U.S. CD at 5 percent annual interest to finance a C $1.274 million (Canadian dollar) investment in two-year, fixed rate Canadian bonds selling at par and paying 7 percent annually. You expect to liquidate your position in one year. Currently, spot exchange rates are US $0.78493 per Canadian dollar.If you wanted to hedge your bank's risk exposure, what hedge position would you take?A. A short interest rate hedge to protect against interest rate declines and a short currency hedge to protect against increases in the value of the Canadian dollar with respect to the U.S. dollar.B. A short interest rate hedge to protect against interest rate increases and a short currency hedge to protect against declines in the value of the Canadian dollar with respect to the U.S. dollar.C. A long interest rate hedge to protect against interest rate increases and a long currency hedge to protect against declines in the value of the Canadian dollar with respect to the U.S. dollar.D. A long interest rate hedge to protect against interest rate declines and a long currency hedge to protect against increases in the value of the Canadian dollar with respect to the U.S. dollar.E. A long interest rate hedge to protect against interest rate declines and a short currency hedge to protect against increases in the value of the Canadian dollar with respect to the U.S. dollar.
Q:
A U.S. FI is raising all of its $20 million liabilities in dollars (one-year CDs) but investing 50 percent in U.S. dollar assets (one-year maturity loans) and 50 percent in U.K. pound sterling assets (one-year maturity loans). Suppose the promised one-year U.S. CD rate is 9 percent, to be paid in dollars at the end of the year, and that one-year, credit risk-free loans in the United States are yielding only 10 percent. Credit risk-free one-year loans are yielding 16 percent in the United Kingdom.If the exchange rate had fallen from $1.60/≤1 at the beginning of the year to $1.50/≤1 at the end of the year, the weighted return on the FI's asset portfolio would be A. 13.29%.B. 12.56%.C. 16%.D. 8.75%.E. 9.375%.
Q:
A U.S. FI is raising all of its $20 million liabilities in dollars (one-year CDs) but investing 50 percent in U.S. dollar assets (one-year maturity loans) and 50 percent in U.K. pound sterling assets (one-year maturity loans). Suppose the promised one-year U.S. CD rate is 9 percent, to be paid in dollars at the end of the year, and that one-year, credit risk-free loans in the United States are yielding only 10 percent. Credit risk-free one-year loans are yielding 16 percent in the United Kingdom.If the exchange rate had fallen from $1.60/≤1 at the beginning of the year to $1.50/≤1 at the end of the year when the FI needed to repatriate the principal and interest on the loan. What would the dollar loan revenues at the end of the year be as a return on the original dollar investment? A. 13%.B. 12.55%.C. 16%.D. 8.75%.E. 7.25%.
Q:
A U.S. FI is raising all of its $20 million liabilities in dollars (one-year CDs) but investing 50 percent in U.S. dollar assets (one-year maturity loans) and 50 percent in U.K. pound sterling assets (one-year maturity loans). Suppose the promised one-year U.S. CD rate is 9 percent, to be paid in dollars at the end of the year, and that one-year, credit risk-free loans in the United States are yielding only 10 percent. Credit risk-free one-year loans are yielding 16 percent in the United Kingdom.If the exchange rate had fallen from $1.60/≤1 at the beginning of the year to $1.50/≤1 at the end of the year when the FI needed to repatriate the principal and interest on the loan. What would be the dollar loan amount repatriated at the end of the year? A. $6.25 million.B. $11.6 million.C. $7.25 million.D. $6.625 million.E. $10.875 million.
Q:
The following are the net currency positions of a U.S. FI (stated in U.S. dollars).Note: Net currency positions are foreign exchange bought minus foreign exchange sold restated in U.S. dollar terms.What is the portfolio weight of the Japanese yen in this FI's portfolio of foreign currency? A. +0.18 percent.B. -36.62 percent.C. +75.20 percent.D. -5.47 percent.E. +66.70 percent.
Q:
The following are the net currency positions of a U.S. FI (stated in U.S. dollars).Note: Net currency positions are foreign exchange bought minus foreign exchange sold restated in U.S. dollar terms.How would you characterize the FI's risk exposure to fluctuations in the yen/dollar exchange rate? A. The FI is net short in the yen and therefore faces the risk that the yen will rise in value against the U.S. dollar.B. The FI is net short in the yen and therefore faces the risk that the yen will fall in value against the U.S. dollar.C. The FI is net long in the yen and therefore faces the risk that the yen will fall in value against the U.S. dollar.D. The FI is net long in the yen and therefore faces the risk that the yen will rise in value against the U.S. dollar.E. The FI has a balanced position in the Japanese yen.
Q:
The following are the net currency positions of a U.S. FI (stated in U.S. dollars).Note: Net currency positions are foreign exchange bought minus foreign exchange sold restated in U.S. dollar terms.What is the FI's total FX investment? A. US $671,500.B. US $1,236,700.C. -US $671,500.D. -US $1,236,700.E. 0
Q:
The following are the net currency positions of a U.S. FI (stated in U.S. dollars).What is the FI's net exposure in British pounds? A. -45,400.B. -150,600.C. -196,000.D. +105,200.E. +196,000.
Q:
Which of the following is an example of interest rate parity?
A. The Japanese yen trades at the same exchange rate as the Swiss franc.
B. U.S. dollar rates on one year U.S. Treasury securities equal 1 year Japanese government bond rates.
C. U.S. dollar rates on one year U.S. Treasury securities equal 1 year Japanese government bond rates, restated in dollars.
D. British pound 2 year forward rates equal 2 year Swiss franc forward rates.
E. All currency exchange rates and interest rates move in unison.
Q:
The nominal interest rate is equal to the
A. real interest rate minus the inflation premium.
B. real interest rate minus the trailing inflation rate.
C. real interest rate plus the expected interest rate increase.
D. real interest rate plus the expected inflation rate.
E. real interest rate plus the interest rate volatility.
Q:
Deviations from the international currency parity relationships may occur because of
A. free capital movements across national boundaries.
B. barriers to cross-border financial flows.
C. perfect rationality of market participants.
D. differences in each country's productive capacity.
E. Basel capital regulations.
Q:
Most profits or losses on foreign trading for FIs come from
A. open positions or speculation.
B. market making.
C. acting as agents for retail customers.
D. acting as agents for wholesale customers.
E. hedging activities.
Q:
The decrease in European FX volatility during the last decade has occurred because of
A. the stabilizing force of the euro.
B. reduction in inflation rates in European countries.
C. the reduced volatility in many emerging-market countries.
D. the greater volatilities of Asian currencies.
E. Answers A and B only.
Q:
When purchasing and selling foreign currencies to allow customers to take positions in foreign real and financial investments, the FI
A. acts defensively as a hedger.
B. acts aggressively as a speculator.
C. assumes the FX risk itself.
D. acts as an agent.
E. acts as a market maker.
Q:
The FI is acting as a hedger when it
A. buys or sells currency to balance the FI's net exposure.
B. takes a nonzero net position in a particular currency.
C. processes an exporter's transaction in a foreign currency.
D. makes a market in a currency.
E. advises customers on their international business.
Q:
The average interest earned on the loans is 6 percent and the average cost of deposits is 5 percent. Rising interest rates are expected to reduce the deposits by $3 million. Borrowing more debt will cost the bank 5.5 percent in the short term.What will be the cost of using a strategy of purchased liquidity management to meet the expected decline in deposits? Assume that the bank intends to keep $2 million in cash as liquidity precaution. A. $10,000.B. $15,000.C. $30,000.D. $40,000.E. $50,000.
Q:
The price at which an open-end investment fund stands ready to redeem existing shares is the A. strike price.B. face value.C. book value.D. net asset value.E. net worth.
Q:
Which of the following is NOT included as high-quality liquid assets when computing a liquidity coverage ratio?
A. Sovereign debt.
B. Bank capital.
C. Government guaranteed mortgage-backed securities.
D. Central bank reserves.
E. Cash.
Q:
What are the two major liquidity risk insulation devices available?
A. Deposit insurance and discount window.
B. Liquidity planning and maturity ladder.
C. Scenario analysis and liquidity index.
D. Financing gap and the financing requirement.
E. Secondary credit and seasonal credit.
Q:
What information does the net liquidity statement provide?
A. A long-term focus on liquidity.
B. Sources and uses of liquidity.
C. Net asset value.
D. Liquidity index information.
E. Peer group ratio comparison.
Q:
Which of the following is NOT used as a method of measuring liquidity risk?
A. Liquidity coverage ratio.
B. Liquidity index.
C. Financing gap and financing requirement.
D. Peer group ratio comparison.
E. Current ratio.
Q:
In the event of financial distress, open-ended mutual fund investors
A. have an incentive to cash in their shares quickly since they are paid on a first come, first served basis.
B. have an incentive to avoid a run since that will deplete the fund net asset value.
C. have an incentive to cash in their shares quickly since that will increase the fund's net asset value.
D. will switch into low risk bank deposits.
E. have an incentive to avoid a run since the Federal Reserve guarantees mutual fund holdings.
Q:
What is the asset adjustment to a bank's balance sheet if the bank sold a five-year, 7 percent annual coupon $100,000 bond acquired at par, but now yielding 8 percent? The bond was not in the mark-to-market portfolio.
A. A $96,007 reduction in assets.
B. A $96,007 increase in assets.
C. A $100,000 reduction in assets.
D. A $100,000 increase in assets.
E. A $100,000 increase in liabilities.
Q:
If stored liquidity is used by a DI to fund an exercised loan commitment
A. the balance sheet will decrease by the amount of the new loan.
B. only the asset side of the balance sheet will increase.
C. the balance sheet will increase by the amount of the new loan.
D. only the liability side of the balance sheet will increase.
E. there will be no effect on the balance sheet.
Q:
Open-end mutual funds issue a fixed number of shares as liabilities.
Q:
Where are the contingent items disclosed in the financial statements?
A. On the assets side of the balance sheet.
B. On the liabilities side of the balance sheet.
C. As footnotes to financial statements.
D. In the income statement.
E. In the director's report.
Q:
Fees from derivative products are an increasing component of noninterest income for many FIs.
Q:
To be an affiliate of a holding company, the parent must own at least 50 percent of the shares of the affiliate company.