You Have Completed: Week3 Banks 1

05/03/2021
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Week3 Banks 1
You scored 8.5/10
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DETAILED RESULTS
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1. ___________ intermediation means that small investors can pool their funds with other
investors to purchase high face value securities.
(1 mark)
You scored 1 / 1 mark
Liquidity
Financial
Denomination
Risk
Response Rationale
Please provide a rationale for your answer.
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No rationale provided.
2. A loan for borrowers who do not qualify for loans at the usual market rate of interest because of
a poor credit rating of because the loan is larger than justified by their income is _________.
(1 mark)
a subprime mortgage
a securitized mortgage
an insured mortgage
a graduated-payment mortgage
Response Rationale
3. A bank that has made floating rate mortgage loans funded by 24-month fixed deposits will
suffer when interest rates increaseif there is no embedded option risk.
(1 mark)
True
False
Response Rationale
Pl id ti l f
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4. Knowing the maturity of a coupon bond is enough to calculate the price volatility of this bond
when interest rate changes.
(1 mark)
True
False
Response Rationale
5. The duration gap analysis solves some but not all of the shortcomings of the gap analysis for
interest risk management.
(1 mark)
True
False
Response Rationale
6.
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Everything else equal, a coupon bond with a 5-year duration has a higher price volatility, when
interest rate changes, than a zero coupon bond whose maturity is 5 years.
(1 mark)
True
False
Response Rationale
7. If a bank's total assets consist of two loans and these two loans have a duration of 2.52 years
and 4.46 years respectively. Which of the following statement is true for this bank's assets
duration?
(1 mark)
The banks' assets duration is equal to 3.49 years.
The banks' assets duration is lower than 3.49 years.
The banks' assets duration is higher than 3.49 years.
The banks' assets duration can be lower than or equal to, but not greater than, 3.49
years.
The banks' assets duration can be higher than or equal to, but not lower than, 3.49 years.
The banks' assets duration can be lower than, equal to, or greater than 3.49 years.
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05/03/2021
Response Rationale
8. Fund ABC is a bond fund and it invests only in the following two bonds:
Bond 1: $1,000 face value, 2 years maturity, 10% coupon rate, paid annually.
Bond 2: $1,000 face value, 3 years maturity, 25% coupon rate, paid annually.
Assume Bond 1 and Bond 2 have the same required return of 10%. What is the duration of
Fund ABC if it invests $200 million Bond 1 and $100 million in Bond 2, at the respective
present value?
(1 mark)
2.11 years
2.16 years
2.26 years
2.33 years
2.50 years
Response Rationale
9. If a bank expects interest rate falls by 100 basis points (1%) in 6 months' time and worries that
its net interest income (NII) falls by $100,000 in that scenario, which statement about the
duration gap is more plausible for this bank?
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(1 mark)
The bank has a positive duration gap.
The bank has a negative duration gap.
Response Rationale
10.
Fill in the blanks
(1 mark)
You scored 0.5 / 1 mark
Since the COVID-19 pandemic, the interest rates in Singapore have become very low. Mr Lau
works in Alpha Bank of Singapore and is a key member of the ALCO. He has been reading
good news about vaccine studies and expects the interest rate in Singapore to start increasing
in August 2021. The interest rate is expected to increase by 15 basis points and the bank's net
interest income would fall by $1.5 million. Mr Lau suggests hedging the risk by using
Singapore T-bills futures.
(1) If there are futures maturing in Jun 2021 or Sep 2021, Alpha bank should choose futures
maturing in 1. Sep (Jun or Sep) 2021 to hedge the interest risk.
(2) Suppose the chosen futures are written on 6-month Singapore T-bills and the discount
yield is 0.3%. Alpha bank should 2. sell (buy or sell) the futures now at a cost of $ 3.
998,500 OR 998500 per contract and the number of contracts is 4. 2,000 OR 2000 .
Enter the correct answer below.
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4
Response Rationale
8/10 QUESTIONS ANSWERED CORRECTLY
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05/03/2021

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You scored 8.5/10

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The banks' assets duration is equal to 3.49 years.

The banks' assets duration is lower than 3.49 years.

The banks' assets duration is higher than 3.49 years.

The bank has a positive duration gap.

The bank has a negative duration gap.

Enter the correct answer below.

8/10 QUESTIONS ANSWERED CORRECTLY

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