FINA 3317 LATEST ALL ANSWERS AND QUESTIONS
SET A+
✔✔A corporate borrower failing to repay a loan on time due to equipment breakdowns
is an example of firm-specific credit risk.
True
False - ✔✔True.
Equipment failure is specific to the borrower, so the resulting default risk is firm-specific
rather than marketwide.
✔✔The subprime crisis is a good example of the credit risk faced by financial
institutions.
True
False - ✔✔True.
The crisis involved widespread failure of borrowers to make promised mortgage
payments, a core form of credit/default risk.
✔✔Breakdowns of ATMs and fraudulent use of information stored on a bank's computer
system are examples of operational risk.
True
False - ✔✔True.
System failures and internal/external fraud involving bank operations are operational
risks.
✔✔Nationalization of private financial institutions is an example of sovereign risk.
True
False - ✔✔True.
, Sovereign risk arises from actions taken by governments, including expropriation or
nationalization.
✔✔Reinvestment risk occurs when an FI holds longer-term assets relative to liabilities
and faces uncertainty about the interest rate at which it can reinvest funds borrowed
over a longer period.
True
False - ✔✔False.
Longer-term assets funded by shorter-term liabilities create refinancing risk.
Reinvestment risk occurs when assets mature before longer-term funding liabilities.
✔✔The risk that an unanticipated increase in liability withdrawals may force an FI to sell
assets at fire-sale prices is:
A. liquidity risk
B. technology risk
C. credit risk
D. sovereign risk
E. interest-rate risk - ✔✔Liquidity risk.
The institution may need immediate cash and be forced to sell assets quickly below fair
value.
✔✔Interest-rate risk is probably greatest at which intermediary?
A. savings institutions
B. pension funds
C. commercial banks
D. life insurers - ✔✔Savings institutions.
Savings institutions often fund long-term mortgages with shorter-term deposits, creating
substantial asset-liability maturity mismatch.
✔✔Second Bank offers web banking. A computer glitch posted all web deposit transfers
to the wrong accounts. This is an example of:
A. technological risk
B. stupidity risk
C. credit risk
D. liquidity risk
E. operational risk - ✔✔Operational risk.
SET A+
✔✔A corporate borrower failing to repay a loan on time due to equipment breakdowns
is an example of firm-specific credit risk.
True
False - ✔✔True.
Equipment failure is specific to the borrower, so the resulting default risk is firm-specific
rather than marketwide.
✔✔The subprime crisis is a good example of the credit risk faced by financial
institutions.
True
False - ✔✔True.
The crisis involved widespread failure of borrowers to make promised mortgage
payments, a core form of credit/default risk.
✔✔Breakdowns of ATMs and fraudulent use of information stored on a bank's computer
system are examples of operational risk.
True
False - ✔✔True.
System failures and internal/external fraud involving bank operations are operational
risks.
✔✔Nationalization of private financial institutions is an example of sovereign risk.
True
False - ✔✔True.
, Sovereign risk arises from actions taken by governments, including expropriation or
nationalization.
✔✔Reinvestment risk occurs when an FI holds longer-term assets relative to liabilities
and faces uncertainty about the interest rate at which it can reinvest funds borrowed
over a longer period.
True
False - ✔✔False.
Longer-term assets funded by shorter-term liabilities create refinancing risk.
Reinvestment risk occurs when assets mature before longer-term funding liabilities.
✔✔The risk that an unanticipated increase in liability withdrawals may force an FI to sell
assets at fire-sale prices is:
A. liquidity risk
B. technology risk
C. credit risk
D. sovereign risk
E. interest-rate risk - ✔✔Liquidity risk.
The institution may need immediate cash and be forced to sell assets quickly below fair
value.
✔✔Interest-rate risk is probably greatest at which intermediary?
A. savings institutions
B. pension funds
C. commercial banks
D. life insurers - ✔✔Savings institutions.
Savings institutions often fund long-term mortgages with shorter-term deposits, creating
substantial asset-liability maturity mismatch.
✔✔Second Bank offers web banking. A computer glitch posted all web deposit transfers
to the wrong accounts. This is an example of:
A. technological risk
B. stupidity risk
C. credit risk
D. liquidity risk
E. operational risk - ✔✔Operational risk.
