3I0-012

3I0-012 practice questions, page 27 of 30, with answer review and explanations.

Question 131

Which of the following statements about leverage ratios under Basel III is correct?

  1. The leverage ratio is the ratio of the bank’s Tier 1 Capital to total assets of the bank, excluding its off- balance sheet exposures and derivatives.
  2. The purpose of introducing a leverage ratio is to avoid the build-up of excess leverage that could potentially lead to a “credit crunch” in stressed conditions.
  3. The leverage ratio under Basel III must be higher than 4%.
  4. The leverage ratio is the ratio of the bank’s Tier 1 and Tier 2 Capital to total assets of the bank, including its off-balance sheet exposures and derivatives.

Question 132

Complete the following sentence. If a bank has an asset repricing in 6 months funded by a liability repriced in 3 months:

  1. the bank would benefit from higher interest rates
  2. the bank could hedge this interest rate risk with a 3x6 derivative
  3. the bank will make mark-to-market losses if rates decrease
  4. the bank could hedge this interest rate risk by selling a 6x9 derivative

Question 133

The Liquidity Coverage Ratio (LCR) in Basel III:

  1. is a new rule that compares liquid asset levels in banks to their available equity capital
  2. spells out a modernized system for calculating the required minimum reserve that banks must hold at the central bank
  3. compares liquid and reliably liquidating assets to expected cash outflows from specified run-off rates for various liability classes under a short-term stress scenario
  4. tied directly into the internal ratings-based approach for determining the liquidity of credit-counterparties

Question 134

What is interest rate immunization in the context of bank gap management?

  1. the strategy of holding more interest rate sensitive assets than interest rate sensitive liabilities
  2. the strategy of holding fewer interest rate sensitive assets than interest rate sensitive liabilities
  3. reducing the size of the balance sheet
  4. structuring a bank’s portfolio so that its net interest revenue and/or the market value of its portfolio will not be adversely affected by changes in interest rates

Question 135

The weighted average duration of liabilities can be increased by:

  1. buying additional 30-year German Government bonds
  2. selling futures contracts on 30-year German Government bonds
  3. buying futures contracts on 10-year German Government bonds
  4. exercising an early repayment option on a long-term senior borrowing