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QUESTION: 126 Exam Topic: 2 Volume B

A portfolio consists of two floating rate bonds and one fixed rate bond.

Based on the information below, modified duration of this portfolio is

2.64
3.00
4.28
4.44

Answer(s): A

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QUESTION: 127 Exam Topic: 2 Volume B

Banks duration match their assets and liabilities to manage their interest risk in their banking book. A bank has $100 million in interest rate sensitive assets and $100 million in interest rate sensitive liabilities. Currently the bank's assets have a duration of 5 and its liabilities have a duration of 2. The asset-liability management committee of the bank is in the process of duration-matching.
Which of the following actions would best match the durations?

Increase the duration of liabilities by 2 and increase the duration of assets by 1.
Increase the duration of liabilities by 2 and decrease the duration of assets by 1.
Decrease the duration of liabilities by 1 and increase the duration of assets by 1.
Decrease the duration of liabilities by 1 and decrease the duration of assets by 1.

Answer(s): B

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QUESTION: 128 Exam Topic: 2 Volume B

Forward rate agreements (FRA) are:

Exchange traded derivative contracts that allow banks to take positions in forward interest rates.
OTC derivative contracts that allow banks and customers to obtain the risk/reward profile of long-term interest rates by relying on long-term funding.
Exchange traded derivative contracts that allow banks to take positions in future exchange rates.
OTC derivative contracts that allow banks to take positions in forward interest rates.

Answer(s): D

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QUESTION: 129 Exam Topic: 2 Volume B

Interest rate swaps are:

Exchange traded derivative contracts that allow banks to take positions in future interest rates.
OTC derivative contracts that allow banks and customers to obtain the risk/reward profile of long-term interest rates without relying on long-term funding.
Exchange traded derivative contracts that allow banks and customers to obtain the risk/reward profile of long-term interest rates without having to use long-term funding.
OTC derivative contracts that allow banks to take positions in series of future exchange rates.

Answer(s): B

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