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Mock Exam - Mock exam Banking & Finance (+ antwoorden)

Banking & Finance (Arteveldehogeschool)

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Mock Exam

1. A friend shows you an advertisement in which Ford’s affiliate company

“Ford Credit” promotes car loans with an annual interest rate of 1,9%.
What can you tell your friend without being incorrect
o Ford credit is a typical example of a “credit union
o Your friend should pay attention to other hidden coast (e.g. transaction costs,
fees, administrative costs, etc.) other than the interest rate of 1,9% p.a.
o Ford credit acts as a financial intermediary
o Ford credit is a company in the form of a “finance company”

2. Which of the following statements most accurately describes the task of

bas asset management
o Banks seek the highest returns on assets as possible, subject to minimizing risk
and making adequate provisions for liquidity
o Banks seek to have the highest liquidity possible subjects to a positive rate of
return on their operations
o Banks seek to prevent bank failure at all cost; since a failed bank earns no profit,
liquidity needs to supersede the desire for profits
o Banks seek to acquire funds in the least costly way

3. Read the following statements and indicate the correct answer: 1. For a
given amount, the lower the discount rate, the lower the present value.
2. Comparing the values of discounted cash flows is similar to comparing
apples to oranges.
o Both statements are false
o Both statements are true
o Statement 1 is true and statement 2 is false
o Statement 1 is false and statement 2 is true

4. If I believe in the basic principle of a risk-reward relationship, my

conclusion regarding security ratings and yields between an Aaa bond
and a Baa bond would be that:
o The Aaa bond could have the lower yield
o The Aaa bond would have the higher yield
o The Baa bond would have lower default risk
o Default risks would differ but yields would be equal

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5. Read this short article and fill in the missing word(s) by choosing the
most correct option
Charting the markets: Global Stocks Suffer From China’s ……………..
2016 is off to an ugly start. The dollar rose to a new record, while VW’s
market share in Europe dropped
Global stocks are heading for their third consecutive weekly declined.
Some $5,6 trillion has been wiped off the value of equities around the
world in 2016. The MSCI All Country World Index is hovering above its
lowest close since September 2013 as concern persists about the health
of China’s economy, while the price of crude oil languishes at 12-year
lows
Stock in China dropped 20% from a December high. The Shanghai
Composite Index sank 3,6%, taking its weekly run of losses to three, the
longest since October.
o Recession
o Bear market
o Insider trading
o Alibaba IPO

6. Suppose that on January 1, 2016 the price of a one-year Treasury-bill -

with a face value of $1.000,00 – is $942,83. Investors expect that the
inflation rate will be 4% during 2016, but at the end of the year, the
inflation rate turns out to have been 2%. Which statement is true?
o The actual real interest is 2,06%
o The actual real interest rate is 1,06%
o The actual real interest rate is 4,06%
o The actual real interest rate is 6,06%

7. ………….. Are short-term loans in which Treasury bills serve as collateral.

o Repurchase agreements
o Negotiable certificates of deposit
o Federal funds
o U.S. Government agency*securities (*such as: Fannie Mae, Freddy Mac,..)

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8. Suppose a bank has $100.000,00 is deposits and a required (minimum)

reserve ratio of 10%. But at this moment, the bank’s cash reserves
amount to $25.000,000. The whole banking system can potentially make
additional new loans in the amount of:
o $10.000,00
o $15.000,00
o $150.000,00
o $250.000,00

9. The British Banker’s association average of interbank rates for Sterling

short term loans & deposits in the London money market is called the
o Fed Funds rate
o Libor rate
o Euribor rate
o Interbank marginal lending rate

10.An example of the problem of ……. Is when a corporation uses the funds
raised from selling bonds to fund corporate expansion to pay for
Caribbean cruises for all of its employees and their families.
o Adverse selection
o Moral hazard
o Risk sharing
o Credit risk

11. A student makes the following observation: This month, the euro
depreciated sharply against the U.S. dollar. That was good news for
attendance at Disneyland Paris (France) and bad news for attendance at
Walt Disney World in Orlando, Florida (US). Do you agree with the
student (all other things being equal)?
o No, the depreciation of the euro would have no impact on attendance at Walt
Disney World
o No, as the euro depreciates, it becomes ore expensive for US citizens to travel to
Disneyland Paris.
o Yes, as the euro depreciates, it becomes less expensive for US citizens to travel to
Disneyland Paris.
o Uncertain, as more information is required to determine the effect of the
depreciation euro on park attendance

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12.The fact that a bank’s assets tend to be long-term while its liabilities are
short-term creates
o Interest rate risk
o Credit risk
o Strategic banking risk
o Market risk

13.Read this short article and fill in the missing words by choosing an option
ECB stimulus helps prevent deflation
Executive Board member Peter Praet has defended the ……… by the
European Central Bank (ECB), saying in an opinion piece for a German
newspaper that they help to prevent risk deflation and support the
economy. In this article, MR. Preat said the ECB should stick to its
inflation target of just below 2% because a change would damage the
Centrals bank’s credibility. The measures taken by the ECB have
indirectly lowered financing cost for companies and households, the
executive noted.
o Euro appreciation
o Euribor cut
o Asset purchases
o Increases deposit rate

14. A process by which financial intermediaries lend for longer periods of

time that they borrow is called:
o Financial intermediation
o Risk transformation
o Deposit transformation
o Maturity transformation

15.James has invested in a 12-month treasury bill this morning. The future
value (FV) of the T-bill (at maturity date) will be $1000,00. The bond was
sold at an annual discount rate of 5%. The purchase price (PV) that James
paid for the bond is:
o $1050,00
o $952,38
o $950,00
o The PV cannot be calculated from the data above, we need additional
information.

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16. Which bank is the largest in Europe by market capitalization? (2015

figures)
o Banco Santander
o Lloyds Banking Group
o BNP Paribas
o HSBC Group

17. What is SDR?

o A facility (Special Drawing Right) that Greece obtained from Germany in 2011 to
sort out its budget problems and prevent it from falling out the euro.
o A European mechanism (Special Deposit Recovery) to protect financial
consumer’s deposits (= money deposited by consumer at banks) in case a
European commercial bank goes bankrupt.
o Single Directive Regulation: a European mechanism aimed at increasing bank
equity ratios. Minimum requirement is a Risk Asset Ratio (RAR) of 8%. This will
increase to more than 12% by 2019, to make banks balance sheets stronger.
o Special Drawing Rights: a synthetic currency the IMF uses to del with the facilities
of its 188 member countries

18.Which financial instruments below is NOT an example of securitization?

o MBS
o ABS
o CDS
o CDO

19. What is a fat finger trade?

o A deal done by a human trader who hides his/her losses (fraudulent trade), E.g.
Nick Leason, Jerome Kerviel, Bernie Maddoff,….
o A deal done by automated trading algorithms (computer trading), usually at night,
when no human traders are around to correct it.
o A trade don by a human trader who makes a mistake (too many zeroes, timing
error, distraction,…)
o A deal for a (usually large) amount, done by a human trader or a machine
(algorithm), capable of suddenly modifying the market price significantly, in a
very short time-lapse.

20. What is the ESCB?

o A synonym for the ECB
o The ECB + the national central banks (NCBs) of countries which have adopted the
euro
o The ECB + the national central banks (NCBs) of all EU member states
o None of the answers above is correct

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Answers

1 D
2 A
3 A
4 A
5 B
6 C
7 A
8 C
9 B
10 B
11 C
12 A
13 C
14 D
15 C
16 D
17 D
18 C
19 C
20 C

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