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WorksheetsSVB Collpase
Total questions: 20
Worksheet time: 10mins
All the instruments have positive CONVEXITY except :
Fixed Coupon Bonds
Options
Mortgage Backed Security
Zero Coupon Bond
The Silicon Valley Bank collapsed due to :
Insolvency
Asset Liability Mismatch
Bad Loans
Investment in US govt. bonds
A bank run is :
Sudden withdrawal of deposits
Mark to Market Loss on investments
Huge NPAs
Sudden repayment of loans
An Mortgage Backed Security (MBS) is :
Asset backed securities that are formed by pooling together home loans
Asset backed securities that are formed by pooling together vehicle loans
Asset backed securities that are formed by pooling together gold loans
Asset backed securities that are formed by pooling together any loans
The duration of MBS in case of prepayment will:
Increase
Decrease
Unchanged
None of the above
The duration of MBS in case of increase in interest rate will:
Increase
Decrease
Unchanged
None of the above
If a bank starts receiving huge deposits while the credit growth is tepid then the net interest margin of the Bank will:
Increase
Decrease
Unchanged
None of the above
What is the biggest risk faced by investors in MBS backed by high-quality mortgages and/or backed by strong credit enhancement or guarantees :
Credit risk
Default Risk
Prepayment Risk
All
The main purpose of providing credit enhancement to bonds is :
to reduce credit risk
to increase the profitability
to reduce rollover risk
All
Silicon Valley Bank (SVB) prior to its collapse announced its intention to raise capital. The main reason for capital raise by SVB was:
to shore up capital, lost due to MTM loss on its investments
to increase its profitability
to decrease chances of default
None of the above
A Bank is declared insolvent if :
Investments > Loans
Liabilities > Assets
Loans > NPAs
Liabilities = Assets
The Federal Reserve after the collapse of SVB launched a program - BTFP, the main purpose of this program is:
to provide liquidity to the banks
to provide eligible collateral to the banks
to provide US Treasury bonds to the banks
none of the above
After the collapse of SVB the FDIC insured:
entire deposits
deposits till $250k
deposits till $100k
deposits till $1 million
As a bond investor , convexity :
is beneficial for the investor
is not beneficial for the investor
will not impact the returns generated by the bond
none of the above
As interest rates rises the duration of a fixed income bond:
Decreases
Increases
Unchanged
first increases then decreases
Two bonds have the same maturity date but one has a higher coupon than other, given the fact:
Bond with higher coupon has higher convexity
Bond with higher coupon has lower convexity
Bond with lower coupon has lower convexity
no relationship between coupon and convexity
Select the correct option :
A 10 year bond has higher convexity as compared to 5 year bond
A 10 year bond has lower convexity as compared to 5 year bond
A 10 year bond has same convexity as compared to 5 year bond
no relationship between bond maturity and convexity
SVB invested deposits into MBS, thus increase in interest rates lead to losses at SVB, the most likely reason for such losses was:
SVB didn't hedge its interest rate risk
SVB hedged its interest rate risk
SVB should have invested in 20 yr govt. bonds
none of the above
As a bank assume you raise capital at variable rates while extend loans at fixed rates. The instrument that can be used to protect bank balance sheet is:
Interest rate swaps
FX swaps
Options
Futures
Assume that as a bank you have invested in US government fixed income bonds, the most likely transaction to undertake in order to hedge the interest rate risk is:
Receive variable and pay fix
Receive fix and pay fix
Receive variable and pay variable
Receive fix and pay variable
