Free 2016-FRR Exam Braindumps (page: 38)

Page 38 of 86

What is a difference between currency swaps and interest rate swaps?

  1. Currency swaps do not require the exchange of notional principal on maturity.
  2. Currency swaps allow banks and customers to obtain the risk/reward profile of long-term interest rates without having to use long-term funding.
  3. Currency swaps are OTC derivative contracts.
  4. Currency swaps generate foreign exchange rate risk in addition to interest rate risk.

Answer(s): D



Unico Bank, concerned with managing the risk of its trading strategies, wants to implement the trading strategy that exposes the bank to the lowest market risk.
Which one of the following four strategies should Unico take to limit its risk exposure?

  1. A matched book strategy that allows the trading desk to match all customer positions immediately with an equal and opposite position by trading internally or with another bank.
  2. A covering strategy that manages positions in the product by executing covering deals or hedging deal at the discretion of the trading des.
  3. A passive hedging strategy that allows the traders to price transactions with customers and other banks, at the relevant bid price on the market.
  4. A market-maker strategy that allows the traders to quote a buy and sell price to customers and other banks and to trade at the relevant price on the sell side of the market.

Answer(s): A



Which one of the following four interest rate related yield curves is used to revalue loan and deposit positions in banks?

  1. Derivative
  2. Bond
  3. Cash
  4. Basis

Answer(s): C



Which one of the following statements describes Macauley's duration?

  1. The change in value of a bond when yields increase by 1 basis point.
  2. The weighted average life of the bond payments.
  3. The present value of the future cash flows of a bond calculated at a yield equal to 1%.
  4. The percentage change in a bond price when the yields change by 1%.

Answer(s): B



Page 38 of 86



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