Chapter 17: Commercial Bank Operations
KEYWORDS:
Bloom’s: Knowledge
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9. A bank’s sources of funds represent liabilities or equity of the bank.
a.
b.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
10. Money market deposit accounts differ from conventional time deposits in that they
a.
specify a maturity.
b.
offer limited check-writing privileges.
c.
are less liquid.
d.
none of the above
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
11. For any given bank, federal funds ____ represent a(n) ____.
a.
purchased; asset
b.
sold; liability
c.
purchased; liability
d.
A and B
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
12. The federal funds rate is ____ the yield on a Treasury security with a similar term remaining until maturity.
a.
substantially above
b.
substantially below
c.
close to
d.
none of the above; the rate is much higher than the Treasury yield in some periods and much lower than the
Treasury yield in other periods
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
Chapter 17: Commercial Bank Operations
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Page 5
d.
issue NCDs.
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
17. Because U.S. dollars are widely used as an international medium of exchange, the Eurodollar market is very active.
a.
b.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
18. All other things being equal, when banks issue new stock, they
a.
increase reported earnings per share.
b.
decrease their ability to absorb operating losses.
c.
dilute the ownership of the bank.
d.
A and B
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
19. Cash held ____ represents the major portion of a bank’s required reserves.
a.
at other commercial banks
b.
in a bank’s vault
c.
on deposit at the federal funds window
d.
on deposit with the Board of Governors
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
20. The main use of bank funds is for
a.
loans
Chapter 17: Commercial Bank Operations
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Page 6
b.
investment securities.
c.
fixed assets.
d.
repurchase agreements.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
21. ____ loans are primarily used to finance the purchase of fixed assets.
a.
Term
b.
Working capital
c.
Informal line of credit
d.
Revolving credit
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
22. Which of the following is most appropriate for a business that may experience a sudden need for funds but does not
know precisely when?
a.
working capital loan
b.
direct lease loan
c.
term loan
d.
informal line of credit
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
23. A ____ loan may be especially appropriate when a firm wishes to avoid adding more debt to its balance sheet.
a.
term
b.
bullet
c.
direct lease
d.
revolving credit
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
Chapter 17: Commercial Bank Operations
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ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
28. Which of the following types of deposits does not allow any check-writing privileges?
a.
NOW accounts
b.
money market deposit accounts (MMDAs)
c.
retail CDs
d.
All of the above allow checks to be written.
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
29. Banks sometimes need funds and sometimes have excess funds available. Which of the following is commonly a
source of bank funds and a use of bank funds?
a.
MMDAs
b.
federal funds
c.
the discount window
d.
retail CDs
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
30. The bank holding company structure allows more flexibility to borrow funds, issue stock, repurchase the company’s
own stock, and acquire other firms.
a.
b.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
31. Like other market interest rates, the federal funds rate moves in reaction to changes in demand or supply of funds or
both.
Chapter 17: Commercial Bank Operations
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a.
b.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
32. The yield on repurchase agreements is slightly higher than the federal funds rate at any given point in time.
a.
b.
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
33. Bank regulators are concerned that banks may maintain a higher level of capital than they should and have therefore
imposed capital requirements on them.
a.
b.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
34. In a revolving credit loan, the bank typically charges businesses a commitment fee on any unused funds.
a.
b.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
35. Bank rates on credit card balances are usually similar to the rate charged on business loans.
a.
b.
ANSWER:
b
DIFFICULTY:
Moderate
Chapter 17: Commercial Bank Operations
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Page 11
b.
less than
c.
equal to
d.
none of the above
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
40. ____ are the largest bank source of funds as a percentage of total liabilities.
a.
Small-denomination time deposits
b.
Money market deposit accounts (MMDAs)
c.
Transaction deposits
d.
Borrowed funds
e.
Savings deposits (including MMDAs)
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
41. With a _________, a bank agrees to purchase a firm’s __________ if the firm cannot place the issue in the market at
an acceptable interest rate.
a.
note issuance facility; commercial paper
b.
note issuance facility; bonds
c.
paper placement commitment; commercial paper
d.
bond placement commitment; bonds
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
42. A ____ is a type of loan commitment.
a.
standby letter of credit (SLC)
b.
note issuance facility (NIF)
c.
forward contract
d.
swap contract
e.
none of the above
ANSWER:
b
DIFFICULTY:
Easy
Chapter 17: Commercial Bank Operations
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Page 13
c.
primary credit lending rate.
d.
none of the above
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
47. The interest rate charged on loans from the Federal Reserve to banks is commonly referred to as the
a.
federal funds rate.
b.
primary credit lending rate.
c.
repo rate
d.
none of the above
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
48. The primary credit lending rate is determined by
a.
the Federal Reserve.
b.
Congress.
c.
the Treasury.
d.
the President of the United States.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
49. Bank capital represents funds obtained through ____ and through ____.
a.
issuing stock; offering long-term CDs
b.
issuing repurchase agreements; issuing bonds
c.
issuing stock; retaining earnings
d.
offering long-term CDs; issuing bonds
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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Page 14
50. When a bank obtains funds through ____, households are not a common provider of the funds.
a.
NOW accounts
b.
retail CDs
c.
passbook savings accounts
d.
NCDs
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
51. Which of the following is not an off-balance sheet activity?
a.
highly leveraged transactions (HLTs)
b.
standby letters of credit
c.
forward contracts
d.
swap contracts
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
52. A bank’s uses of funds represent liabilities of a bank.
a.
b.
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
53. States may enact _______ to set a maximum on the rate of interest that banks can charge.
a.
leveraged loan laws
b.
credit protection laws
c.
consumer interest laws
d.
usury laws
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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Page 15
54. The five largest banks in the United States account for about one-tenth of all assets in U.S. banks.
a.
b.
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.03
KEYWORDS:
Bloom’s: Knowledge
55. From a bank manager’s perspective, the differential in interest between a bank’s loans and its deposits;
a.
must not exceed the federal funds rate.
b.
is called the primary credit lending rate.
c.
must be sufficient to cover the bank’s other expenses and generate a reasonable profit for the bank’s owners.
d.
must be sufficient to cover the bank’s deposit insurance premiums and its reserve requirements at the Federal
Reserve.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.17.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
56. In a loan participation arrangement, normally all of the participating banks are exposed to credit (default) risk.
a.
b.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
57. Banks will not accept intangible assets, such as patents and brand names, as collateral for commercial loans.
a.
b.
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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Page 16
58. Proprietary trading is generally less risky than a bank’s lending operations.
a.
b.
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
59. When a bank engages in proprietary trading, it:
a.
uses its own funds to make investments.
b.
is not subject to regulations.
c.
lends the funds in the federal funds market.
d.
normally uses the funds to build its capital.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.17.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
60. In a standby letter of credit, a bank agrees to:
a.
charge a fixed interest rate for a line of credit for a specified period.
b.
back a customer’s obligation to a third party.
c.
provide a customer with funds up to a specified maximum amount over a specified period.
d.
service credit card loans originated by another bank
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.17.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
61. A forward contract on currency:
a.
is a way to hedge credit (default) risk.
b.
is used to swap fixed interest payments in euros for variable interest payments in dollars.
c.
is an agreement between a customer and a bank to exchange one currency for another on a specified date at a
specified exchange rate.
d.
is an agreement between a customer and a bank to exchange one currency for another on a specified date at
whatever the exchange rate is on that day.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.17.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
Copyright Cengage Learning. Powered by Cognero.
Page 17
62. Before establishing foreign branches, a U.S. bank must obtain the approval of the:
a.
U.S. Treasury
b.
U.S. Commerce Department.
c.
Federal Deposit Insurance Corporation.
d.
Federal Reserve
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.17.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge