QUESTION: 113 Exam Topic: 2 Volume B

James manages a loans portfolio. He has to evaluate a large number of loans to choose which of them he will keep in the bank's books.
Which one of the following four loans would he be most likely to sell to another bank?

Loan to a major customer who is also a director and a large owner.
Loan made to a highly risky borrower that is fully collateralized by the customer's deposits.
Loan to a commercial customer with a good payment history and collateral.
Loan to a borrower who has been delinquent previously, but now is performing as agreed.

Answer(s): C

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QUESTION: 114 Exam Topic: 2 Volume B

Rising TED spread is typically a sign of increase in what type of risk among large banks?

I) Credit risk
II) Market risk
III) Liquidity risk
IV) Operational risk

I only
II only
I and IV
I, II, and III

Answer(s): A

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QUESTION: 115 Exam Topic: 2 Volume B

A multinational bank just bought two bonds each worth $10,000. One of the bonds pays a fixed interest of 5% semi-annually and the other pays LIBOR semi-annually. The six month LIBOR is at 5% currently. The risk manager of the bank is concerned about the sensitivity to interest rates.
Which of the following statements are true?

The price of the bond paying floating interest is more sensitive to interest rates than the bond paying fixed interest.
The price of the bond paying fixed interest is more sensitive to interest rates than the bond paying floating interest.
Both bond prices are equally sensitive to interest rates.
The given information is not enough to determine the sensitivity of the bond prices.

Answer(s): B

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