Banking Exam Treasury Management

Question 1

What is the primary function of a bank's treasury department?

Accepted Answer

Managing liquidity, funding, and interest rate risk

Answer

Originating consumer loans

Answer

Processing customer transactions

Answer

Conducting credit underwriting

Question 2

Which instrument is most commonly used by banks for overnight short-term liquidity management?

Accepted Answer

Federal funds

Answer

30-year Treasury bonds

Answer

Subordinated debt

Answer

Mortgage-backed securities

Question 3

What does Asset-Liability Management (ALM) primarily seek to manage?

Accepted Answer

Interest rate risk and liquidity risk on the bank's balance sheet

Answer

The bank's loan-to-deposit ratio only

Answer

The creditworthiness of individual borrowers

Answer

The bank's equity capital ratio

Question 4

Net Interest Margin (NIM) is calculated as:

Accepted Answer

(Interest income minus interest expense) divided by average earning assets

Answer

Total interest income divided by total assets

Answer

Net income divided by total equity

Answer

Total loans divided by total deposits

Question 5

Which regulatory requirement directly impacts a bank's short-term liquidity management under Basel III?

Accepted Answer

Liquidity Coverage Ratio (LCR)

Answer

Truth in Lending Act (TILA)

Answer

Community Reinvestment Act (CRA)

Answer

Bank Secrecy Act (BSA)

Question 6

What is a repurchase agreement (repo) in banking treasury operations?

Accepted Answer

A short-term borrowing where securities are sold with an agreement to repurchase them

Answer

A long-term bond issued by the government

Answer

A type of credit default swap used to hedge loan losses

Answer

A foreign currency exchange forward contract

Question 7

When market interest rates rise, the market value of fixed-rate bonds held by a bank will:

Accepted Answer

Decrease

Answer

Increase proportionally

Answer

Remain unchanged

Answer

Double in value