Q1: The lower the market yield (R) relative to coupon rate:

The lower the duration of a bond

Market yield has no impact on a bond's duration.

market yield and coupon rate have no impact on duration of a bond..

The lower the price of the bond.

The higher the duration of a bond

Q2: Which of the following statements isFALSE?

A financial institution specialises in the reduction of information costs.

A financial institution reduces its risk exposure by diversifying its asset portfolio.

A financial institution may act as a broker to bring together funds deficit and funds surplus units.

A financial institution benefits society by providing a mechanism for payments.

A financial institution acts as a lender of last resort.

Q3: Customer deposits are classified on a depository institution's balance sheet as

liabilities, because the depository institution must meet reserve requirements on customer deposits

liabilities, because the depository institution uses deposits as a source of funds

assets, because the depository institution uses deposit funds to earn profits

assets, because customers view deposits as assets

liabilities, because depository institutions are required to serve depositors.

Q4: Which of the following are the weaknesses of the maturity model ?

The maturity model does not consider over aggregation and book value effects

The maturity model does not consider market value effects and runoffs

The maturity model considers the convexity nature of price-yield relationship and market value effects.

The maturity model does not consider the timing of cash flows (cash flows patterns) of assets and liabilities and the leverage level.

The maturity model considers time to repricing of assets and liabilities as well as book value effects

Q5: Holdings of mortgage loansare classified on a bank's balance sheet as

assets, because the markets for mortgage loans are the most liquid in the world.

assets, because mortgage loans are risky assets.

liabilities, because the bank must borrow in order to be able to lend to mortgage borrowers

assets, because providing mortgage loans represents a use of funds for investment.

liabilities, because the mortgage loans must be pledged as collateral against borrowing.

Q6: The larger a financial institution's absolute leverage adjusted duration gap:

The less exposed the financial institution's equity is to interest rate shocks.

The less exposed the financial institution's net interest income is to interest rate shocks.

The greater the financial institution's equity.

The more exposed the financial institution's net interest income is to interest rate shocks.

The more exposed the financial institution's equity is to interest rate shocks.