True or False? Banks issue short term liabilities but buy long term assets.

Select one:

True

False

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Banks have sufficient net worth or equity capital to maintain a cushion against bankruptcy or regulatory attention but not so much that the banks are unprofitable . This trade-off is called:

Select one:

a.Liquidity management

b.Capital adequacy management

c.Asset management

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True or False? Credit risk is the chance that a borrower will default on a loan by not fully meeting stipulated payments on time.

Select one:

True

False

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Which of the following is correct?

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a.Assets=Liabilities - Equity

b.Liability= Assets + Equity

c.Assets = Liabilities + Equity

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If interest rates increase 3% and the average duration of a bank's $100 million in assets is 4 years, the value of those assets will fall by:

Select one:

a.$3.000.000

b.$4.000.000

c.$1.000.000

d.$12.000.000

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True or False? A basic interest rate risk reduction strategy when interest rates are expected to fall is to keep the duration of liabilities long and the duration of assets short.

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True

False

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True or False? Off-balance sheet activities help banks manage their interest rate risk.

Select one:

True

False

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True or False? Lobbying is a type of innovation where bankers and other financiers try to change regulations.

Select one:

True

False

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Duration gap is used by banks to:

Select one:

a.measure the credit risk

b.measure the technology risk

c.measure their risk due to changes in the inflation

d.measure their risk due to changes in the interest rates