What would be the strategy for a bank if it is unable to speculate on interest rates and/or unable to absorb market risk?

to run a zero gap
to hold more interest rate sensitive assets than interest rate sensitive liabilities
to reduce the size of the balance sheet
to hold fewer interest rate sensitive assets than interest rate sensitive liabilities

Answer(s): A

Net funding requirements in liquidity management are determined by means of:

adding up expected vault cash outflows, ATMs and other cash points operated by the institution across all branches
establishing a forward cash flow plan that takes account of all contractual and behavioral cash flows related to assets and liabilities
the net cash flow from investment activities in the IFRS consolidated Statement of Cash Flows for prior periods
subtracting short-term liabilities from short-term assets

Answer(s): B

Which one of the following statements is incorrect under Basel III?

Instruments qualifying for recognition as Tier 1 or Tier 2 capital will be substantially restricted.
Basel III does not include Tier 3 capital
There is a distinction between upper Tier 2 and lower Tier 2 capital
New non-common equity Tier 1 and Tier 2 instruments are more loss-absorbing than previously

Answer(s): C

Which one of the following statements regarding the variance-covariance method for calculating value-at-risk is true?

The volatilities of the underlying assets are normally distributed and the prices remain constant.
The risk factors are normally distributed and volatilities of risk factors and correlations between risk factors are constant.
The prices of underlying assets are normally distributed, the volatilities of risk factors follow a GARCH process and correlations between risk factors are constant.
The returns of underlying assets are normally distributed and volatilities of risk factors and correlations between risk factors are constant.

Answer(s): D

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