1. The ratio of a banks interest income from its loans and security investments less interest
expenses on debt issued, divided by total earning assets measures a banks:
A. net operating margin.
B. net return before special transactions.
C. net interest margin.
D. return on assets.
E. None of the options is correct
2. ROE for a bank is calculated by:
A. dividing net after-tax income by total equity capital.
B. dividing total operating revenue less operating expenses by total assets.
C. dividing net pre-tax income by total equity capital.
D. noninterest income less noninterest expenses divided by total earning assets.
E. None of the options is correct.
3. The employee productivity ratio for a bank is equal to:
A. net operating revenue less total interest expenses per employee.
B. total interest and noninterest expense per employee.
C. net operating income per full-time-equivalent employee.
D. total operating earnings less salaries and wages expense per employee.
E. None of the options is correct.
4. A banks stock price will tend to rise if the:
A. value of the stream of future stockholder dividends is expected to increase.
B. banking organizations perceived level of risk increases.
C. expected dividends decrease.
D. All of the options are correct.
E. None of the options is correct.
5. The tax-management efficiency ratio consists of:
A. total tax liabilities over net income.
B. tax-exempt assets over taxable assets.
C. net income over pre-tax net operating income.
D. taxes owed over total liabilities of a bank.
E. None of the options is correct.
6. Which of the following ratios can be used to measure a banks credit risk?
A. Net loans duration/Total assets
B. Interest sensitive assets/Interest sensitive liabilities
C. Total assets/Number of full time employees
D. Nonperforming assets/Total loans and leases
E. Cash and equivalents/Total loans and leases
7. Which of the following would be the best example of a ratio used to examine the cost of
one of a banks liabilities?
A. Demand deposits/Total assets
B. Interest on time deposits/Total time deposits
C. Interest on real estate loans/Total real estate loans
D. Interest sensitive assets/Interest sensitive liabilities
E. Interest on business loans/Total business loans
8. Following is the information listed below for Carter State Bank. What is the banks
ROA?
A. 8.46 percent
B. 16.03 percent
C. 15.71 percent
D. 1.36 percent
E. None of the options is correct
9. Operational risk includes which of the following?
A. Failure of banks computer system
B. Closure of a bank for three months due to flooding from a major hurricane
C. Embezzlement of funds of a bank by a teller of the bank
D. Closure of a bank for two weeks due to a fire from a lightning strike
E. All of the options are correct.
10. Which of the following is an indicator of increasing capital risk in a bank?
A. Rise in the market yields on debt issued by a bank and market yields on government
securities of similar maturities
B. Fall in the ratio of stock price per share to earnings per share
C. Decline in the ratio of equity capital to total assets
D. Increase in purchased funds as a percentage of total liabilities
E. All of the options are correct.
Part II 20 Points
1. A bank is asset-sensitive if its:
A. loans and securities are affected by changes in interest rates.
B. interest-sensitive assets exceed its interest-sensitive liabilities.
C. interest-sensitive liabilities exceed its interest-sensitive assets.
D. deposits and borrowings are affected by changes in interest rates.
E. None of the options is correct.
2. The net interest margin of a bank is influenced by:
A. changes in the level of interest rates.
B. changes in the volume of interest-bearing assets and interest-bearing liabilities.
C. changes in interest income from loans and investments.
D. changes in interest expense on deposits and other borrowed funds.
E. All of the options are correct.
3. The fact that a consumer who purchases a particular basket of goods for $100 today has
to pay $105 next year for the same basket of goods is an example of which of the
following risks?
A. Inflation risk
B. Default risk
C. Liquidity risk
D. Price risk
E. Maturity risk
4. If a bank has a positive interest-sensitive gap, one of the possible management responses
would be to:
A. wait for the interest rates to rise or be stable.
B. shorten asset maturities.
C. decrease interest-sensitive liabilities.
D. increase interest-sensitive assets.
E. extend liability maturities.
5. If a bank has a negative interest-sensitive gap, one of the possible management
responses would be to:
A. lengthen asset maturities.
B. shorten liability maturities.
C. increase interest-sensitive liabilities.
D. decrease interest-sensitive assets.
E. wait for the interest rates to fall or be stable.
6. U.S. banks tend to fare best when the yield curve is:
A. horizontal.
B. downward-sloping.
C. vertical.
D. upward-sloping.
E. None of the options is correct.
7. Havoc State Bank has a loan that it fears will not be repaid because the company is
going into bankruptcy. What type of risk would this be an example of?
A. Default risk
B. Inflation risk
C. Liquidity risk
D. Call risk
E. Basis risk
8. Carolina National Bank knows that the interest rate on its loans change faster and by a
larger amount than the interest rate on its deposits. What type of risk is this an example of?
A. Default risk
B. Inflation risk
