Question

Investment securities portfolio help to offset credit risk exposure means: a. High-quality securities can be purchased and held to balance out the risk from loans. b. Their price can never go down. c. They will never default. d. They are protected against interest rates change. 13. Function(s) of a bank's security portfolio is (are) to: a. Increase tax exposure. b. Increase credit risk exposure. c. Provide a back-up source of liquidity. d. All of the above. 14. When interest rates fall: a. Longest-term bonds suffer the greatest risk. b. There is no effect on bond prices. c. Shortest-term bonds suffer the greatest gains. d. Longest-term bonds generate the greatest gains. 15. Money market instruments: a. Are noted for lower expected return. b. Have higher expected rate of return. c. Have lower capital gains potential. d. Both (a) and (c).

Answer 1

12. Answer is a) high-quality securities can be purchased and held to balance out the risk from loans

In question, it states about the investment securities portfolio which is high quality securities.

Help to offset means to balance. Credit risk exposure means loans.

13. Answer is c) provide a back up source of liquidity

Banks security portfolio reduces the tax exposure and offset credit risk exposure in bank loans portfolio. This portfolio might contain different stocks,bonds and shares which can be liquidated easily when a need arrives)

14. Answer is d) longest-term bonds generate the greatest gains because interest and bonds have a inverse relation.

15. Answer is d) beacuse it is usually noted for lower expect returns and have lower capital gain potential

that is, investors are getting 2% or 3% as profit even an annual fee can affect the profit which they earned through it.