Pasaran Kewangan Malaysia Certificate (PKMC) Module IV (Malaysia)

Which of the following best defines market risk in the context of a wholesale bank's trading book?

• AThe risk of financial loss due to adverse movements in market prices, such as interest ra…
• BThe risk that a counterparty fails to perform its contractual obligations, resulting in a…
• CThe risk of loss resulting from inadequate or failed internal processes, people, systems,…
• DThe risk that the bank is unable to meet its cash flow obligations as they fall due witho…

Under the credit risk classification, what is the primary difference between settlement risk and pre-settlement risk?

• ASettlement risk is the risk of loss during the execution stage where one party payments a…
• BSettlement risk refers to long-term loan defaults, while pre-settlement risk is exclusive…
• CSettlement risk is regulated by Bank Negara Malaysia, while pre-settlement risk is regula…
• DSettlement risk only applies to foreign exchange spot trades, while pre-settlement risk a…

A bank is analyzing its interest rate risk exposure. If the bank has a positive interest rate sensitivity gap (RSA > RSL), what is the impact on its Net Interest Income (NII) if interest rates rise?

• ANet Interest Income (NII) will increase because interest-rate-sensitive assets will repri…
• BNet Interest Income (NII) will decrease because liabilities will reprice faster than asse…
• CNet Interest Income (NII) will remain unchanged as the gap has no impact on NII, only aff…
• DNet Interest Income (NII) will automatically fall to zero because the gap indicates a per…

Which of the following is considered an operational risk event in treasury operations?

• AA dealer enters an incorrect trade yield in the trading system, resulting in a mispricing…
• BInterest rates rise, causing the value of a bank's fixed-rate bond portfolio to decline.
• CA counterparty bank goes into liquidation and defaults on a forward FX contract.
• DA sudden downgrade of a sovereign rating causes corporate bond spreads to widen, reducing…

What is the primary focus of Asset Liability Management (ALM) in a commercial bank?

• AManaging the mismatch between assets and liabilities in terms of interest rate repricing…
• BSpeculating on short-term movements in equity prices to maximize proprietary trading prof…
• CSetting the underwriting standards for credit cards and mortgage products.
• DEnsuring that the bank obtains the highest possible credit rating from international rati…

Which type of risk is characterized by the inability of a bank to liquidate a position quickly at a fair market price due to lack of market depth or market disruption?

• AMarket liquidity risk
• BFunding liquidity risk
• CSovereign risk
• DOperational risk

Which of the following represents the correct sequence in the risk management process?

• ARisk Identification, Risk Measurement, Risk Mitigation, Risk Monitoring & Reporting
• BRisk Mitigation, Risk Identification, Risk Reporting, Risk Measurement
• CRisk Measurement, Risk Mitigation, Risk Reporting, Risk Identification
• DRisk Reporting, Risk Measurement, Risk Identification, Risk Mitigation

What is the principal objective of establishing risk limits (e.g., VaR limits, stop-loss limits) in a bank's treasury department?

• ATo restrict treasury risk exposure within the bank's defined risk appetite and prevent ca…
• BTo guarantee that the bank will never experience any trading losses in any financial quar…
• CTo increase transaction processing speeds in the back office.
• DTo satisfy shareholders by showing that treasury is not taking any financial risks whatso…

What does a negative interest rate sensitivity gap (RSA < RSL) imply for a bank when market interest rates fall?

• ANet Interest Income (NII) will increase because the cost of rate-sensitive liabilities wi…
• BNet Interest Income (NII) will decrease because asset yields will fall faster than fundin…
• CNet Interest Income (NII) will remain perfectly flat, but the market value of equity will…
• DThe bank will immediately become insolvent due to capital depletion.

Which of the following best describes country risk or transfer risk in international banking operations?

• AThe risk that a foreign borrower is unable to obtain foreign exchange to service its debt…
• BThe risk of losses due to exchange rate changes when holding foreign currency assets.
• CThe risk that a foreign sovereign government defaults on its own local currency bonds.
• DThe risk that an international settlement system like SWIFT encounters a systemic hardwar…

Which risk mitigation tool is specifically designed to reduce pre-settlement counterparty credit risk in bilateral over-the-counter (OTC) derivative transactions?

• ABilateral collateralization under a Credit Support Annex (CSA) to an ISDA Master Agreement
• BExecuting the transaction through a voice broker to maintain anonymity
• CEntering into a currency swap instead of an interest rate swap
• DExtending the maturity of the derivative contracts to decrease current exposure

Which of the following is a classic indicator of high funding liquidity risk for a banking institution?

• AA significant increase in the bank's reliance on short-term wholesale funding relative to…
• BAn increase in the bank's holdings of unencumbered sovereign debt securities.
• CA widening of the bank's interest rate sensitivity gap toward a flat match.
• DAn increase in the bank's capital adequacy ratio above the regulatory minimum.

How does Value at Risk (VaR) help a treasury department manage market risk?

• AIt estimates the maximum potential loss over a specific time horizon at a given confidenc…
• BIt calculates the exact loss the trading desk will suffer in a worst-case tail event.
• CIt eliminates the need for stress testing by providing a single, perfect risk metric.
• DIt identifies the creditworthiness of corporate counterparties prior to trading.

What is the primary role of a bank's Asset-Liability Committee (ALCO)?

• ATo make strategic decisions regarding balance sheet structure, interest rate and liquidit…
• BTo directly execute daily foreign exchange spot trades on behalf of retail customers.
• CTo investigate and resolve operational back-office settlement discrepancies.
• DTo audit the annual financial statements before submission to Bank Negara Malaysia.

Which of the following describes basis risk under interest rate risk?

• AThe risk arising from assets and liabilities repricing at the same time but referencing d…
• BThe risk of loss due to changes in the slope or shape of the yield curve.
• CThe risk of customers exercising embedded options, such as prepayment of loans.
• DThe risk that a counterparty defaults before the maturity of a derivative contract.

Which of the following describes the buyer of a Forward Rate Agreement (FRA)?

• AThe party that locks in a borrowing rate and receives a settlement payment if the referen…
• BThe party that locks in a lending rate and receives a settlement payment if the contract…
• CThe party that agrees to deliver physically a basket of Treasury Bills at maturity.
• DThe party that receives the interest rate premium from the seller at the start of the tra…

What is the standard interest day-count convention for pricing and calculating settlement amounts on Ringgit (MYR) Forward Rate Agreements (FRAs)?

• AActual/365
• BActual/360
• C30/360
• DActual/Actual

In a '3x6' Forward Rate Agreement, when does the underlying contract period begin and what is its duration?

• AThe period begins in 3 months from today and lasts for a duration of 3 months.
• BThe period begins in 3 months from today and lasts for a duration of 6 months.
• CThe period begins in 6 months from today and lasts for a duration of 3 months.
• DThe period begins today and matures in 6 months.

A bank buys a 3x6 FRA at a contract rate of 3.50% for a notional principal of RM 20,000,000. At the settlement date, the 3-month KLIBOR reference rate is fixed at 4.20%. If there are 91 days in the contract period, what is the cash settlement amount paid to the buyer (rounded to the nearest sen)?

• ARM 34,542.41
• BRM 34,904.11
• CRM 35,017.14
• DRM 33,542.41

A corporation sells a 6x12 FRA at a contract rate of 3.80% for a notional principal of RM 10,000,000. On the settlement date, the 6-month KLIBOR reference rate is fixed at 3.30%. The contract period has 184 days. What is the cash settlement amount and who pays whom?

• ARM 24,792.99, paid by the buyer to the seller
• BRM 25,205.48, paid by the buyer to the seller
• CRM 24,792.99, paid by the seller to the buyer
• DRM 25,205.48, paid by the seller to the buyer

What is the underlying asset of the 3-Month KLIBOR Futures contract traded on Bursa Malaysia Derivatives?

• AA 3-month ringgit interbank deposit with a nominal value of RM 1,000,000.
• BA 3-month ringgit Treasury Bill with a nominal value of RM 100,000.
• CA portfolio of AAA-rated Malaysian corporate bonds with a nominal value of RM 10,000,000.
• DA Bank Negara Malaysia monetary note with a maturity of 91 days.

How is the price of a 3-Month KLIBOR Futures contract quoted on the exchange?

• A100.00 minus the implied annual interest rate
• BThe present value of the RM 1,000,000 deposit discounted at current rates
• C100.00 plus the implied annual interest rate
• DThe price of a corresponding 3-month Malaysian Government Treasury Bill

A trader buys (goes long) 10 contracts of KLIBOR Futures at 96.65. The market closes that day at a price of 96.48. What is the daily mark-to-market loss or gain (assuming a standard tick value where 0.01 tick = RM 25.00)?

• ARM 4,250 loss
• BRM 4,250 gain
• CRM 1,700 loss
• DRM 1,700 gain

The 3-Month KLIBOR Futures (FKB3) contract on Bursa Malaysia Derivatives has a nominal value of RM 1,000,000 and is quoted on a 360-day-year basis. Which calculation explains why the minimum price change (one tick of 0.01%) is worth exactly RM 25.00?

• ARM 1,000,000 * 0.0001 * (90 / 360)
• BRM 1,000,000 * 0.0001 * (180 / 360)
• CRM 1,000,000 * 0.0001 * (30 / 360)
• DRM 1,000,000 * 0.01 * (90 / 360)

A corporate treasurer expects to issue RM 50,000,000 in floating-rate commercial paper in 3 months. The treasurer wants to hedge against a rise in interest rates using 3-Month KLIBOR Futures. What position should the treasurer take?

• ASell (go short) 50 KLIBOR Futures contracts.
• BBuy (go long) 50 KLIBOR Futures contracts.
• CSell (go short) 5 KLIBOR Futures contracts.
• DBuy (go long) 5 KLIBOR Futures contracts.

Which of the following represents a key distinction between Forward Rate Agreements (FRAs) and KLIBOR Futures?

• AFRAs are over-the-counter (OTC) agreements customized between counterparties, whereas KLI…
• BFRAs are subject to daily margin calls at Bursa Malaysia, while futures are settled only…
• CKLIBOR Futures carry significantly higher counterparty credit risk than bilateral FRAs du…
• DFRAs have a standard nominal size of RM 1,000,000 while futures can be customized to any…

In the money market, if the implied forward rate from KLIBOR Futures is significantly higher than the forward rate implied by the cash market yield curve, how would a proprietary trading desk conduct arbitrage?

• ASell KLIBOR futures (implied rate is high, so futures price is low) and lock in a borrowi…
• BBuy KLIBOR futures (implied rate is high, so futures price is low) and borrow cash today…
• CSell KLIBOR futures (implied rate is high, so futures price is low) and invest cash in th…
• DBuy KLIBOR futures (implied rate is high, so futures price is low) and lock in a borrowin…

At the maturity of a 3-Month KLIBOR Futures contract, how is the final settlement price determined by Bursa Malaysia Derivatives?

• A100.00 minus the 3-month KLIBOR reference rate polled by Bank Negara Malaysia on the fina…
• BThe weighted average price of all transactions executed on the final trading day.
• CThe closing price of the 3-month Malaysian Government Treasury Bill.
• DA price declared by the Securities Commission based on the Kuala Lumpur Composite Index.

A bank treasury expects to receive a floating-rate cash inflow in 6 months and wants to lock in a yield to protect against falling interest rates. What position should the bank take in KLIBOR Futures?

• ABuy (go long) KLIBOR Futures contracts.
• BSell (go short) KLIBOR Futures contracts.
• CGo long on currency futures.
• DNo position can hedge this because futures only protect borrowers.

If the spot 90-day KLIBOR rate is 3.20% and the spot 180-day KLIBOR rate is 3.50%, what is the implied 90-day forward rate starting in 90 days (using the standard Actual/365 convention, assuming 90 days in the first period, 90 days in the second period, and 180 days total)?

• A3.77%
• B3.80%
• C3.50%
• D3.10%

In a Forward Rate Agreement, on which date is the cash settlement amount paid?

• AAt the start of the contract period (settlement date).
• BAt the end of the contract period (maturity date).
• CDaily throughout the contract period via margin accounts.
• DAt the inception of the trade.

How is the daily KLIBOR benchmark rate calculated by Bank Negara Malaysia?

• ABy polling active contributor banks, trimming the highest and lowest individual submissio…
• BBy taking the average yield of Malaysian Government Securities (MGS) traded on the exchan…
• CBy taking the actual daily volume-weighted average rate of all overnight interbank money…
• DBy setting the rate administratively based on the Monetary Policy Committee's overnight p…

If a bank has sold a 1x4 FRA at a contract rate of 3.20% and KLIBOR on the settlement date is fixed at 3.00%, which of the following is true?

• AThe bank receives a settlement payment from the buyer.
• BThe bank pays a settlement payment to the buyer.
• CNo payment is made because KLIBOR is below the contract rate.
• DThe contract is automatically rolled over to the next period.

In a 3-Month KLIBOR Futures contract, a price movement from 96.50 to 96.51 represents which of the following?

• AA price increase of one tick, which implies a decrease of 0.01% in the interest rate, ear…
• BA price increase of one tick, which implies an increase of 0.01% in the interest rate, ea…
• CA price decrease of one tick, which implies a decrease of 0.01% in the interest rate, ear…
• DA price increase of one tick, which implies a decrease of 0.01% in the interest rate, ear…

A portfolio manager holds RM 100,000,000 in floating-rate assets with a repricing frequency of 3 months. The assets pay KLIBOR + 1.50%. The manager wants to hedge against falling interest rates using KLIBOR Futures. How many contracts are required?

• ALong 100 contracts
• BShort 100 contracts
• CLong 10 contracts
• DShort 10 contracts

Which of the following describes basis risk in the context of hedging a commercial paper issue referencing the Standardised Base Rate (SBR) using 3-Month KLIBOR Futures?

• AThe risk that the correlation between KLIBOR and the SBR shifts, causing the futures hedg…
• BThe risk that Bursa Malaysia Derivatives defaults on the futures clearing obligations.
• CThe risk that the commercial paper issuer defaults before the maturity date.
• DThe risk that the futures contract is closed out prior to its final settlement date.

If the 3-Month KLIBOR Futures price is currently trading at 97.00, implying a yield of 3.00%, but the cash market forward rate for the same period is 3.50% (implying a cash-equivalent futures price of 96.50), how can a market participant exploit this arbitrage?

• ASell (short) KLIBOR Futures at 97.00 and lock in lending in the cash forward market.
• BBuy (long) KLIBOR Futures at 97.00 and lock in borrowing in the cash forward market.
• CSell (short) KLIBOR Futures at 97.00 and borrow in the cash forward market.
• DBuy (long) KLIBOR Futures at 97.00 and lend in the cash forward market.

In exchange-traded KLIBOR futures, what is the role of variation margin?

• AThe daily cash transfer that settles profit and loss movements on outstanding positions.
• BThe minimum deposit required to open a new futures position.
• CThe collateral posted by clearing members to cover default fund requirements.
• DThe fee paid to Bursa Malaysia for transaction clearing.

What is the primary difference between a strip hedge and a stack hedge using KLIBOR futures?

• AA strip hedge uses a series of futures contracts with different delivery months matching…
• BA strip hedge is executed in the OTC market, while a stack hedge is executed on Bursa Mal…
• CA strip hedge is used exclusively by borrowers, while a stack hedge is used exclusively b…
• DA strip hedge requires daily marking to market, while a stack hedge is exempt from margin…

Why is the interest rate differential in a Forward Rate Agreement (FRA) discounted to determine the cash settlement amount?

• ABecause settlement occurs at the start of the contract period (settlement date), before t…
• BBecause the clearing house requires discounting to cover default probability.
• CBecause the day-count convention of money markets requires a present value adjustment.
• DBecause it is mandated by the Capital Markets and Services Act 2007 to reduce transaction…

Which of the following best describes a plain vanilla Interest Rate Swap (IRS)?

• AAn agreement between counterparties to exchange periodic interest payments based on a sin…
• BAn agreement to exchange principal and interest payments in one currency for principal an…
• CAn option contract that gives the holder the right to enter into a swap on a future date.
• DA transaction involving the exchange of physical bonds at inception and their return at m…

Under a plain vanilla IRS, Bank A pays a fixed rate of 3.60% per annum and receives 3-month KLIBOR from Bank B. The notional amount is RM 50,000,000. On the reset date, 3-month KLIBOR is fixed at 4.10%. The payment period has 92 days. What is the net payment for this period?

• ABank B pays Bank A RM 63,013.70
• BBank A pays Bank B RM 63,013.70
• CBank B pays Bank A RM 62,153.40
• DBank A pays Bank B RM 454,246.58

At inception, what is the theoretical market value of a newly entered plain vanilla Interest Rate Swap?

• AZero, because the fixed swap rate is set such that the present value of the fixed payment…
• BEqual to the first interest payment of the swap.
• CThe notional amount of the swap.
• DA premium value determined by the credit rating of the weaker counterparty.

Which of the following is a key feature of a Cross-Currency Swap (CCS) that distinguishes it from an Interest Rate Swap (IRS)?

• AIt involves the exchange of principal amounts in different currencies at inception and ma…
• BIt is traded exclusively on Bursa Malaysia Derivatives under the CMSA 2007 rules.
• CIt does not involve any exchange of interest payments, only exchange of principal at matu…
• DIt is always valued at zero throughout the life of the contract.

What is the primary difference between a Foreign Exchange (FX) Swap and a Cross-Currency Swap (CCS)?

• AAn FX swap is a short-term liquidity tool consisting of a spot and a forward transaction…
• BAn FX swap is traded on the exchange, while a CCS is exclusively over-the-counter.
• CAn FX swap does not involve exchange of principal, while a CCS does.
• DAn FX swap is used only for hedging, while a CCS is used only for speculative arbitrage.

In the foreign exchange market, what do swap points represent?

• AThe difference between the spot exchange rate and the forward exchange rate, reflecting i…
• BThe transaction fees charged by money brokers to execute a swap.
• CThe credit risk premium added to the swap rate for lower-rated counterparties.
• DThe penalty points assigned by Bank Negara Malaysia for non-compliance with FX limits.

If the USD/MYR spot rate is 4.7000 and the 6-month forward swap points are quoted as '+150 points' (where 1 point = 0.0001), what is the 6-month forward rate?

• A4.7150
• B4.8500
• C4.6850
• D4.7015