QUESTION 1

1. How can liquidity help avoid bankruptcy?

   	a.	Because liquidity means you have plenty of assets at your disposal
   	b.	Funding liquidity gives potential creditors more confidence
   	c.	Cash in the vaults is part of a bank's reserves
   	d.	Liquidity reduces the necessity to engage in asset fire sales

10 points

QUESTION 2

1. A shadow banks sole assets comprise $10bn cash (electronic bank deposits) and $200bn securities. The securities act as collateral for an overnight repo (currently attracting a zero haircut) which is the shadow banks only debt. The following day the securities lose 10% of their value and this prompts the creditor to impose a 10% haircut on a fresh repo. Which of the following statements best describes the shadow bank's new situation?

   	a.	it has enough capital and cash liquidity to stay out of trouble
   	b.	it remains balance sheet solvent but has insufficient cash to pay off its debt
   	c.	it can avoid default since cash assets are adequate but is technically balance sheet insolvent
   	d.	it has inadequate cash liquidity and is balance sheet insolvent

10 points

QUESTION 3

1. Farrago Bank reports a price-book ratio of 0.7. Which of the following statements best describes the bank's situation?

   	a.	Equity investors have sold their shares back to the bank too cheaply
   	b.	Market investors have doubts about the bank's future profitability
   	c.	The bank's latest profits update has been exceptionally well received by investors
   	d.	The bank is clearly very close to insolvency

10 points

QUESTION 4

1. Golden Sax Bank has loan loss reserves of $15bn, equity (capital) of $35bn and non-performing loans of $55bn. What is its Texas Ratio?

   	a.	110%
   	b.	100%
   	c.	91%
   	d.	157%

10 points

QUESTION 5

1. According to the European Banking Authoritys Risk Dashboard report, which Eurozone (EMU) members banking system had the highest RoA in Sep 2019? Please use the EBA Risk Dashboard Q3 2019 report that is available on the web

   	a.	Hungary
   	b.	Romania
   	c.	Slovakia
   	d.	Slovenia

10 points

QUESTION 6

1. A commercial bank calculates that the duration of its liabilities (excluding net worth) averages one year while the duration of its assets averages 5 years. Assume that this bank has $100mn of assets and $25mn of capital. Also assume that assets and liabilities (excluding net worth) are interest rate sensitive and enter the balance sheet at market value (marked to market).

   If interest rates rose by 200bp what would be the impact on this banks leverage ratio?

   	a.	falls to 20% exactly
   	b.	rises to 27% exactly
   	c.	falls to just over 18%
   	d.	rises to just over 26%

10 points

QUESTION 7

1. Further to Question 6, if the bank had wanted to neutralise (immunise) the balance sheet impact of any interest rate shifts through the futures market, what would be the best strategy?

   	a.	Buy 1200 Treasury Bond futures contracts
   	b.	Sell 1700 3mth Eurodollar futures contracts
   	c.	Buy 850 3mth Eurodollar futures contracts
   	d.	Sell 1250 6mth Euroyen futures contracts

10 points

QUESTION 8

1. Which of the following features differentiate pre-crisis shadow banking from traditional Jimmy Stewart banking? (click all that apply)

   	a.	shadow banking had shorter intermediation chains
   	b.	shadow banking involved more transparency and was less complex
   	c.	shadow banking enjoyed explicit public backstops
   	d.	shadow banking was primarily funded through wholesale money markets
   	e.	traditional banking was more heavily regulated

10 points

QUESTION 9

1. SPV's financed their purchases of mortgage pools primarily by,

   	a.	Deposits
   	b.	Loans from traditional banks
   	c.	Regular commercial paper
   	d.	Asset-backed commercial paper

10 points

QUESTION 10

1. Why would an investor typically prefer a mortgage backed security rather than an individual mortgage loan? (click all that apply)

   	a.	to enjoy GSE agency guarantees
   	b.	to achieve a higher promised yield
   	c.	to acquire more tailored cash flows from MBS issuers
   	d.	to benefit from secondary market liquidity