Question 1

Is there credit risk in an interest rate swap with an intermediary bank serving as the swap dealer? Describe when default losses might arise and which party is at risk. How can credit risk be reduced?

Question 2

What are the conceptual differences between the trend, seasonal, and cyclical components of a banks loans and deposits? Discuss why a bank should examine each component rather than simply look at total loans and deposits.

Question 3

Some analyts believe that the new Basel III minimum capital requirements are excessive and will reduce bank profitability,ceteris paribus.Summarize these arguments.

Question 4

It is said that a microhedge does not totally eliminate risk . Assume that a bank uses financial futures contracts to reduce the risk of rising rates on new borrowings. Identify what type of position the bank should take on hedge.Once a hedge is in place, what risks remain?