Which of the following statements is correct?

With liquidity transfer pricing (LTP) banks attribute the costs, benefits and risks of liquidity to respective business units within a bank
With liquidity transfer pricing (LTP) banks are monitoring and diversifying their funding base
With liquidity transfer pricing (LTP) banks are agreeing with external liquidity providers on the fair market price of funds
Liquidity transfer pricing charges providers of funds for the cost of liquidity and users of funds for the benefit of liquidity

Answer(s): A

The Liquidity Coverage Ratio imposed by Basel III requires a bank:

to keep enough highly liquid assets to cover its net liabilities for the next 10 days to guard against severe liquidity stress
to keep enough highly liquid assets to cover its net liabilities for the next 30 days to guard against severe liquidity stress
to keep enough highly liquid assets to cover its net liabilities for the next 60 days to guard against severe liquidity stress
to retain enough liquidity to cover its assets against severe default risk

Answer(s): B

Does the slope of the interest yield curve typically have a substantial impact on a bank’s net interest margin?

No, it doesn’t, since the slope of the yield cure is unrelated to the spread between short-term and long-term interest rates.
No, it doesn’t. There isn’t any link at all between the slope of the interest yield curve and a bank’s net interest margin.
Yes it does. In banking, long-term rates usually apply to bank deposits and money market borrowings whereas short-term interest rates are attached to loans and securities.
Yes it does. Long-term rates usually apply to a bank’s assets (loans, securities, etc.) and the short term interest rates are generally attached to liabilities (deposits, money market borrowings, etc.).

Answer(s): D

A purchased 3X6 FRA should be reported in a gap report as

a given deposit with a term of six months
a taken deposit with a term of three months
a given deposit with a term of three months and a taken deposit with a term of six months D. a taken deposit with a term of three months and a given deposit with a term of six months

Answer(s): C

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