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"NAB Exam Study Guide: Stan Mucinic Exam 1 with Verified Solutions"
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"NAB Exam Study Guide: Stan Mucinic Exam 1 with Verified Solutions"
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1. Which regulation governs the minimum capital requirements forAustralian banks?
A. Basel III
B. National Credit Code
C. Australian Prudential Regulation Authority (APRA) Guidelines
D. Reserve Bank of Australia Act
Answer: a) Basel III
Rationale: Basel III is a global regulatory framework introduced to
strengthen regulation, supervision, and risk management within the
banking sector, including capital requirements.
2. What is the purpose of a bank's 'capital adequacy ratio'?
A. To determine the level of interest rates a bank can charge
B. To measure the bank's profitability relative to its assets
C. To ensure the bank has enough capital to cover potential losses
D. To assess the risk profile of a bank’s loan portfolio
Answer: c) To ensure the bank has enough capital to cover potential
losses
Rationale: The capital adequacy ratio measures a bank’s available
capital as a percentage of its risk-weighted assets, ensuring it can
absorb potential losses and maintain solvency.
,3. In the context of banking, what is 'capital adequacy' important for?
A. Protecting against operational risks
B. Ensuring a bank can absorb losses
C. Maximizing shareholder profit
D. Reducing the cost of capital
Answer: b) Ensuring a bank can absorb losses
Rationale: Capital adequacy refers to the amount of capital a bank must
hold to absorb potential losses and continue operations without
collapsing, protecting depositors and the financial system.
4. The 'official cash rate' in Australia refers to:
A. The interest rate charged on loans between banks
B. The rate set by the Reserve Bank of Australia to influence overall
economic activity
C. The rate at which banks lend to individuals for mortgages
D. The rate at which financial institutions lend to the government
Answer: b) The rate set by the Reserve Bank of Australia to influence
overall economic activity
Rationale: The official cash rate is set by the RBA and influences
borrowing costs, consumer spending, and overall economic growth.
5. What is 'credit risk' in banking?
, A. The risk of losing value in securities
B. The risk of default on a loan by a borrower
C. The risk of fluctuating interest rates
D. The risk of a bank's customers withdrawing large amounts of money
Answer: b) The risk of default on a loan by a borrower
Rationale: Credit risk refers to the possibility that a borrower will fail
to repay a loan as agreed, resulting in financial loss to the lender.
6. What does 'market risk' refer to in financial institutions?
A. The risk of a borrower defaulting on a loan
B. The risk of a bank losing money due to changes in market conditions
C. The risk of a bank’s customers withdrawing large amounts of funds
D. The risk of financial institutions being undercapitalized
Answer: b) The risk of a bank losing money due to changes in market
conditions
Rationale: Market risk involves the possibility of financial losses
resulting from fluctuations in market prices, such as stock prices,
interest rates, or foreign exchange rates.
7. What is 'interest rate risk' for a bank?
A. The risk that interest rates will increase, lowering the value of the
bank’s assets
B. The risk that borrowers will default on loans
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