Week 5 Bank Management

Question 1

When does a credit event occur in banking?

Accepted Answer

All of the above

Question 2

The risk management strategy that requires a bank to ask a high-risk customer for collateral is referred to as?

Accepted Answer

Risk reduction

Question 3

Company-specific risk in the stock market can be managed via?

Accepted Answer

Diversification

Question 4

A bank’s primary activity is to:

Accepted Answer

Mobilize deposits and advance credits

Question 5

The recovery rate depends on?

Accepted Answer

Value of collateral

Question 6

What determines the structure of a bank’s balance sheet?

Accepted Answer

The business model

Question 7

In the event of a default, the total loss to the bank depends on?

Accepted Answer

Recovery rate and total exposure

Question 8

The risk that a borrower defaults and does not honour its obligation to service debt is referred to as:

Accepted Answer

Credit risk

Question 9

Risk avoidance means that the bank avoids all risk

Accepted Answer

False

Question 10

What are the two types of risk facing a European bank that invests in US stock market?

Accepted Answer

Equity risk and exchange rate risk

Question 11

The two main reasons why financial institutions take positions in the financial markets are?

Accepted Answer

To hedge and invest

Question 12

The risk management process comprises the following?

Accepted Answer

All of the above

Question 13

The risk that the returns on funds to be reinvested will fall below the cost of those funds is referred to as?

Accepted Answer

Reinvestment risk

Question 14

The two methods of assessing default risks are?

Accepted Answer

Internal credit scoring model, External credit rating agency

Question 15

The three Primary Risks that banks are exposed to in the course of their businesses are (choose any three)

Accepted Answer

Operational risk, Market risk, Credit risk

Question 16

What does the equity risk on a bank’s portfolio represents?

Accepted Answer

Possible downward price movement

Question 17

When is currency risk present?

Accepted Answer

When making investments in different currencies

Question 18

The following except one is NOT a method that banks use to raise funds

Accepted Answer

Advancing loans

Question 19

How can a bank with limited historical data measure identified sources of risks? (choose any 2)

Accepted Answer

Apply expert knowledge, Develop theoretical models

Question 20

Some of the sources of market risk are fluctuations in

Accepted Answer

All of the above

Questions 20