1) A bank has three assets. It has $75 million invested in consumer loans with a three-year duration, $39 million invested in T-bonds with a 16-year duration, and $39 million in six-month maturity T-bills. What is the duration of the bank's asset portfolio in years?

A) 3.95 years

B) 4.83 years

C) 6.50 years

D) 7.38 years

E) 11.51 years

2) A forward contract

A) is marked to market.

B) has significant default risk.

C) is standardized.

D) is traded over the counter.

E) is highly liquid.

3) A nave hedge is one

A) in which the hedger is not fully informed.

B) in which the hedger attempts to eliminate all of the risk of the underlying spot position.

C) in which the hedger uses microhedges rather than macrohedges to limit risk.

D) in which the hedger unwittingly increases the risk of the FI's position.

E) that does not have to be reported on the FI's financial statements.

4) When calculating the liquidity index, the larger the discount from fair value, the ________ the liquidity index; and the ________ the liquidity risk the FI faces.

A) larger; greater

B) smaller; greater

C) larger; lower

D) smaller; lower

5) With a six-month maturity bucket, a nine-month fixed-rate loan would be considered a ________ asset and a 30-year mortgage with a rate adjustment in three months would be classified as a ________ asset.

A) rate-sensitive; fixed-rate

B) rate-sensitive; rate-sensitive

C) fixed-rate; fixed-rate

D) fixed-rate; rate-sensitive

E) fixed-rate; nonearning