BFM- MCQ ON TREASURY & ASSET LIABILITY MANAGEMENT

1 The significance of Treasury operations in Asset Liability management   is:
a) It operates in financial markets  directly.
b) Treasury is a link between core banking functions and market   operations
c) Treasury identifies and monitors the market risk
d) All of these


2_ How the Treasury operations are useful in minimizing Asset Liability   mismatch?
a) Through uses of derivatives
b) Use of new products
c) Through Bridging the liquidity and rate  sensitivity gaps
d) All of these


3 Which of the following statements is  correct?
a) Trading in securities is exposed to market  risk
b) At times the Risks are compensatory in nature and help to minimize the mismatches.
c) Options can be economic only in marketable size
d) All of these


4. Treasury operations also help in effective monitoring and implementation of Asset Liability management process in view of the:
a) Credit instruments can be replaced by Treasury  instruments
b) Treasury products are more liquid.
c) Treasury operations monitor exchange rate and interest rate   movements
d) All of these


5. Which of the following statements is not correct regarding Treasury operations in Asset Liability management process?
a) Derivatives can be widely used in Treasury  operations
b) Derivatives increases liquidity risk
c) The capital requirement for derivative operations is  small.
d) Derivatives replicate market Movements.


6. Asset Liability mismatches can be reduced through use of derivatives in Treasury operations because:
a) Derivatives can be used to hedge high value   transactions
b) It can also minimize aggregate risk in Asset liability   mismatches
c) (a) and (b) both
d) None of these


7. Suppose a Bank is funding medium term loan of 3 years with deposits having
average maturity of 3 months as short term deposits or borrowings are cheaper than
3 years deposits. what would be the consequences and what a bank should do?
a) Bank would resort to short term resources to increase the   spread.
b) The (a) above will have liquidity  risk
c) This will also have interest Risk since every time the deposits would be priced.
d) The Bank should swap 3 month interest rate into a fixed rate for 3 years.


8. Suppose a Bank prices the 3 month deposit at 91 day T-Bill + 1% and swap rate of the loan yield T-Bill+3%. What is the impact?
a) Fixed interest of the loan is swapped into floating   rate
b) Bank has a spread of  2%
c) The Risk is protected during the period of loan.
d) All of these


9. Suppose a Bank borrows US dollars at 3% and lends in domestic market at 8.5%.  The Bank pays forward premium of 1.5% to cover exchange Risk. What is the overall impact?
a) The Bank earns a spread of 2% without any exchange Risk.
b) A bank through Treasury operations can supplement domestic liquidity.
c) The above process is known as arbitrage.
d) All of these


10. A Bank under the Treasury operations can buy call options to protect foreign currency obligations as under:
a) This will help the Bank to protect rupee value of    foreign currency receipts and payments
b) The Bank will gain if the spot rate of call option on the exercise date is more favourable than the strike price of the  option.
c) (a) and (b) both
d) none of the above

11. Which of the followings is relevant when interest rate is linked to the rate of inflation?
a) Index linked Bonds
b) Treasury Bonds
c) Corporate Debt Instruments
d) All of these


12. The significance of index linked bonds  is:
a) It provides protection against inflation rate  rise.
b) It is inbuilt in the  process.
c) (a) and (b) both
d) None of these


13. Suppose a Bank- issues 7 year Bond with a put option at the end of 31-6 year. What does it signify?
a) It is as good as 3 year   investment
b) The investment becomes more  liquid
c) (a) and (b) both
d) None of these


14. The limitations of Derivatives  are:
a) If interest rate on deposits and loans are not based on benchmar-k rates interest rate swaps may not be that useful.
b) The product prices may not move in line with market rates.
c) The Treasury operations may not provide perfect hedge.
d) All of these


15. Which of the followings is  correct?
a) Treasury operations are concerned with market  risk
b) Treasury operations has no link with the credit  risk
c) Credit risk in Treasury operations are contained by exposure limits
d) All the above


16. Why the corporate prefer to issue debt paper than to Bank credit?
a) The cost of debt paper is much  lower
b) The procedure is easy
c) (a) and (b) both
d) None of these

17. A Bank may prefer to invest in corporate Bonds because:
a) Bbnd is more liquid  Asset
b) Bond has an easy  exit
c) Bond can be sold at discount
d) All of these

18. Which of the following is not credit  substitute?
a) Commercial paper
b) Mortgage loan
c) Corporate bond
d) Certificate of Deposit


19. The difference between a Bond and loan  is:
a) The loan has normally fixed rate of interest. Bond price is dependent on Market interest rate movements.
b)Bonds are more liquid
c)Yield to maturity value can be known easily in  a bond
d) All of these


22. Which of the following loans cannot be  securitized?
a) Long term loans
b) Short term loans
c) Medium term loans
d) Retail loans


23. Which of the followings is  true?
a) Surplus funds with the banks can be invested in pass through certificates
b) This will be indirect expansion of credit portfolio
c) (a) and (b) both
d) None of these


24. The features of credit derivatives  are:
a) It segregates credit Risk from  loan
b) The Risk is transferred from the owner of the Asset to another person for a fee.
c) The instrument is known as credit  linked certificates
d) All of these


25. The constituents of a credit Derivatives  are:
a) Protection Buyer
b) Protection Seller
c) Reference Asset
d) All of these


26. The process of credit Derivative  involves:
a) The protection seller guarantees payment of principal and interest or both of the Asset owned by the protection Buyer in case of credit default.
b) The protection Buyer pays a premium to the protection Seller
c) (a) and (b) both
d) None of these


27. The advantages of credit Derivatives  are:
a) It helps the issuer to diversity the credit risk
b) The capital can be used more  efficiently
c) Credit Derivative is a transferable instrument
d) All of these


28. What is transfer pricing under Treasury  operations?
a) It is the process of fixing the cost of resources and return on Assets of a Bank in rational manner.
b) The Treasury buys and sells deposits and loans of Bank.   -
c) The price fixed by the treasury becomes the basis for assessing profitability of a Bank
d) All the above


29. The parameters for fixing price by a Treasury  are:
a) Market interest rate
b) Cost of hedging market  Risk
c) Cost of maintaining reserve assets of the Bank
d) All of these


30. Which of the following statements is correct regarding transfer pricing under Treasury operations?
a) If Bank procures deposit at 7% but the Treasury buys at a lower cost, the difference being the cost would be borne by the Bank.
b) If the Bank lends at higher rate and sells the loan to Treasury at lower rate, the Balance being risk premium would be the income for the   Bank.
c) (a) and (b) both
d) None of these


31. An integrated Risk management policy under Asset Liability management should focus on:
a) Risk measurement and monitoring
b) Risk Neutralisation
c) Product pricing
d) All of  these


32. Liquidity policy survival prescribe:
a) Minimum liquidity to be maintained
b) Funding of Reserve Assets
c) Exposure limit to money market 
d) All of these


33. The derivative Policy should  consist:
a) Capital Allocation
b) Restrictions on Derivative Trading
c) Exposure limits
d) All of these


34. The investment policy should contain:
a) Permissible investments
b) SLR and non SLR investments
c) Private placement
d) All of these


35. The investment policy need not contain:
a) Derivative Trading
b) Trading in Securities and  Repos
c) Valuation and Accounting policy
d) Classification of  Investments


36. The composite Risk policy under Treasury operations should include the following:
a) Norms for Merchant and Trading positions
b) Securities Trading
c) Exposure limits
d) All of these


37. Composite Risk policy should also contain the following:
a) Intra-day and overnight positions
b) Stop loss limits
c) Valuation of Trading positions
d) All of these


38. Transfer pricing policy shduld prescribe:
a) Spread to be retained by the Treasury
b) Segregation of Administrative and Hedging  cost
c) Allocation of cost
d) All of these


39. According to RBI, policy of Investment and Risk should be supplemented with:
a) Prevention of money laundering  policy
b) Hedging policy for customer Risk_
c) (a) and (b)
d) None of these


40. Which of the following are essential requirements for formulation of policy guidelines?
a) It should be approved by the  Board
b) It should comply with the guidelines of RBI and SEBI
c) It should follow current market practices
d) All of these


41. Which of the followings is correct?
a) All policies should be reviewed  annually
b) A copy of the policy guidelines needs to be filed with RBI
c) (a) and (b) both
d) None of above


42. A Run of the Bank signifies:
a) A situation where depositors lose confidence and start withdrawing their balances.
b) A Bank running in continuous  loss
c) A Bank where non-performing Assets level is high.
d) All of these


43. Liquefiable securities are:
a) Securities that can be readily sold in the secondary   market.
b) Securities that have easy  liquidity
c) Short term securities
d) All of these


44. What is Sensitivity Ratio?
a) Extent of interest sensitive  Assets
b) Ratio of interest rate sensitive Assets to interest rate sensitive Liabilities
c) (a) and (b) both
d) All of these


45. Risk appetite is:
a) The capacity and willingness to absorb losses on account of market Risk.
b) The extent of Risk involved  in securities
c) (a) & (b)
d) All of  these


46. Which of the followings is correct?
a) Special purpose vehicle is formed exclusively to handle securities paper on behalf of sponsoring Bank.
b) Hedging policy is a document which specifies extent of coverage of foreign currency obligations.
c) Self regulatory organizations formulate market related code of   conduct
d) All of the above


47. Liquidity policy of a Bank should contain:
a) Contingent funding
b) Inter-Bank committed credit lines
c) (a) and (b) both
d) All of these

ANSWER SHEET-

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31	C	32	D	33	D	34	D	35	D	36	D	37	D	38	D	39	C	40	D
41	C	42	A	43	A	44	B	45	A	46	B	47	C