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A bank’s core deposits are: a. vault cash. b. stable deposits that are not typically withdrawn over short periods of time. c. the bank’s deposits at the Federal Reserve. d. the most interest rate sensitive liabilities of a bank. e. […]

Venture capital financing that comes in the “later rounds” of financing may take the form of: a. start-up capital loans. b. mezzanine financing. c. automobile financing. d. seed money. e. staff financing. Answer: For a bank that has a positive […]

Which of the following is not true regarding common stock? a. Common stock has no maturity. b. New issues of common stock may dilute existing shareholder equity. c. Common stock is a permanent source of funds. d. Dividends paid are […]

Which of the following is not a weakness of risk-based capital standards? a. They ignore interest rate risk. b. They ignore the value of deposit insurance. c. They ignore changes in the market value of assets. d. They ignore credit […]

As market rates rise, prepayment speed _______, while modified duration _________. a. slows, lengthens b. slows, shortens c. accelerates, lengthens d. accelerates, shortens e. accelerates, is unaffected Answer: Total operating expense is comparable to _________ for a non-financial firm. a. […]

Recoveries refer to: a. the dollar value of loans actually written off as uncollectible. b. the dollar amount of loans that were previously charged-off but now collected. c. net charge-offs. d. loans not currently accruing interest. e. loans that regulators […]

The duration of a liability that does not pay interest must be equal to 0. Answer: The Internet has led to larger spreads for more standardized loan products. Answer: False Periodic GAP analysis compares rate-sensitive assets and rate-sensitive liabilities across […]

What is 1st State’s return on equity? a. 0.6% b. 3.8% c. 5.0% d. 8.2% e. 9.8% Answer: If a bond is selling at par value, then: a. the yield to maturity is less than the coupon rate. b. the […]

Which of the following is not an objective of a bank’s investment portfolio? a. Meeting capital requirements b. Maintaining liquidity c. Diversifying credit risk d. Managing interest rate exposure e. Preserving capital Answer: Which of the following would be considered […]

Which of the following are sources of a bond’s total return? a. Coupon interest b. Reinvestment income c. Capital gains or losses realize at maturity d. All of the above are sources of a bond’s total return e. a. and […]

The Macaulay’s duration of a 10-year, 10% bond with a face value of $1,000 and a market rate of 8%, compounded annually is: a. 10 years b. 11 years c. 12 years d. 13 years e. None of the above […]

Which of the following is not one of the essential issues in evaluating commercial loan requests? a. The structure of the borrower’s board of directors. b. The character of the borrower. c. The use of the loan proceeds. d. The […]

“Locals” trade futures for their own account. Answer: Subordinated bank debt is federally insured. Answer: False Relative to larger banks, smaller banks rely more on non-interest income as a source of revenue. Answer: False When constructing ratios, average balance sheet […]

A bank is going to issue $10,000,000 in 5-year par value bonds that pay a 5% annual coupon. The bank must pay .7% of the face value in floatation costs. What is the bank’s effective cost of borrowing? a. 5.0% […]

Which of the following are lenders prohibited from asking on a credit application? a. The applicant’s income b. If the applicant has a telephone c. If the applicant has declared bankruptcy in the past d. How long the applicant has […]

The Federal Reserve may prevent the formation of a financial holding company if one of its insured depository institution subsidiaries is not well capitalized. Answer: On the cash-based income statement, depreciation is a source of funds. Answer: True Core deposits […]

The “provision for loan and lease losses”: a. are the realized losses from the previous accounting period. b. represents management’s estimate of potential lost revenue from bad loans. c. determined by the Federal Reserve for all banks. d. does not […]

The Federal Reserve directly controls the discount rate. Answer: Credit cards typically provide lower risk-adjusted returns than other types of consumer loans. Answer: False The greater the compounding frequency, the higher the present value, everything else the same. Answer: False […]

Interest rate risk: a. varies inversely with a bank’s GAP. b. can be measured by the volatility of a bank’s net interest income given changes in the level of interest rates. c. can be eliminated by matching fixed rate assets […]

Effective duration considers a security’s embedded options. Answer: In general, bank capital ratios have increased over the last 100 years. Answer: False Speculators focus on avoiding or reducing risk. Answer: False There is a constant relationship between changes in a […]