1.

Which of the following is correct?

a. None of the other listed options are correct.

b.While pass-throughs and CMOs remain on banks and building societies balance sheets, mortgage-backed bonds (MBBs) remove mortgages from balance sheets as forms of off-balance-sheet securitisation. c.While pass-throughs and CMOs help banks and building societies remove mortgages from their balance sheets as forms of off-balance-sheet securitisation, mortgage-backed bonds (MBBs) normally remain on the balance sheet. d.Pass-throughs and CMOs are the same as mortgage-backed bonds (MBBs).

2.

Assume a bank makes a loan commitment to the value of $10m at a fixed interest rate of 10 per cent p.a. for a period of one year. Assume the borrower only uses 50 per cent of the provided funds over the course of the year. If the bank charges a back-end fee of 0.5 per cent, what is the additional revenue the bank would generate?

a.None, unless the loan is prepaid early.

b.$2500

c.$5000

d.$25000

3.

A DI has the following assets in its portfolio: $30 million in cash reserves with the Reserve Bank, $20 million in T-notes and $50 million in mortgage loans. If the assets need to be liquidated at short notice, the DI will receive only 99 per cent of the fair market value of the T-notes and 90 per cent of the fair market value of the mortgage loans. Estimate the liquidity index for this portfolio of securities using the above information. (Use 4 decimal point)

a. I = ($20m/$70m)(0.99/1.00) + ($50m/$70m)(0.90/1.00) = 0.9257

b. I = ($20m/$100m)(0.99/1.00) + ($50m/$100m)(0.90/1.00) = 0.7826

c. I = ($30m/$70m)(1.00/1.00) + ($20m/$70m)(0.99/1.00) + ($50m/$70m)(0.90/1.00) = 1.2114

d. I = ($30m/$100m)(1.00/1.00) + ($20m/$100m)(0.99/1.00) + ($50m/$100m)(0.90/1.00) = 0.9480