Most loans and deposits in the interbank market have a maturity of:

• A. More than 10 years
• B. Less than one year
• C. More than 5 years but less than 10 years
• D. More than 3 years but less than 5 years

Alpha Bank, a small bank,has a long position with larger BetaBank and has an identical short position with another larger bank GammaBank. Each large bank requires a 20% initial collateral to support the trade. As prices fluctuate in either direction, one large bank will require additional collateral from the small bank, while the risk of loss to the other large bank will increase. By running the trades through a clearinghouse, the small bank can achieve all of the following objectives EXCEPT:

• A. Mitigating option hedging risks and altering margin requirement
• B. Eliminating the collateral requirement
• C. Protecting against the risk of the failure of one of the large banks
• D. Protecting itself against increases in future collateral demands

ThetaBank has extended substantial financing to two mortgage companies, which these mortgage lenders use to finance their own lending. Individually, each of the mortgage companies have an exposure at default (EAD) of $20 million, with a loss given default (LGD) of 100%, and a probability of default of 10%.
ThetaBank's risk department predicts the joint probability of default at 5%. If the default risk of these mortgage companies were modeled as independent risks, the actual probability would be underestimated by:

• A. 1%
• B. 4%
• C. 2%
• D. 3%

Which of the following statements explains how securitization makes retail assets highly liquid and the balance sheet easier to manage?
I. The bank can raise capital by selling the securitized bonds.
II. Any need to diversify credit risk can be achieved by selling the bank's own securitized bonds and buying other bonds that increase diversification.
III. The value of the securitization is linked to the credit rating of the bank and hence is easy to include in medium-term financial plans.
IV. Securitizations can be used to hedge credit risk by using limited market instruments.

• A. I, II
• B. I, II, III
• C. I, IV
• D. I, III, IV

Which one of the following four statements correctly describes an American call option?

• A. An American call option gives the buyer of that call option the right to buy the underlying instrument on any date up to and including the expiry date.
• B. An American call option gives the buyer of that call option the right to sell the underlying instrument on the expiry date.
• C. An American call option gives the buyer of that call option the right to buy the underlying instrument on the expiry date.
• D. An American call option gives the buyer of that call option the right to sell the underlying instrument on any date up to and including the expiry date.