Question

The Federal Financial Institutions Examination Council (FFIEC) has suggested that regulated institutions should engage in scenario planning and undertake stress tests to determine the impact of a series of possible changes in market interest rates. If the institution did a test for basis risk, they would be dealing with:A. instantaneous and significant changes in the levels of interest rates.B. changes in the relationship between key market interest rates.C. changes in the shape and slope of the yield curve.D. substantial changes in interest rates over time.

Answer 1

B. changes in the relationship between key market interest rates.

Step-by-step explanation:

Bank Stress Tests work using simulations focused on key areas as credit risk or market risk. If the institution did a test for basis risk it would be run on a set of basic scenarios to determine if they have enough capital to set changes in the relationship between key market interest rates and how they would be affected by implementing them.