Chapter 19: Bank Management
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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5. During a period of rising interest rates, a bank’s net interest margin will likely ____ if its liabilities are ____ its assets.
a.
increase; more rate sensitive than
b.
decrease; more rate sensitive than
c.
increase; equally rate sensitive as
d.
decrease; equally rate sensitive as
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
6. If a bank expects interest rates to consistently ____ over time, it will consider allocating most funds to rate-____ assets.
a.
decrease; sensitive
b.
decrease; insensitive
c.
increase; insensitive
d.
none of the above
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
7. Petri Bank had interest revenues of $70 million last year and $30 million in interest expenses. About $300 million of
Petri’s $800 million in assets are rate sensitive, while $600 million of its liabilities are rate sensitive. Petri Bank’s net
interest margin is ____ percent.
a.
4.0
b.
3.6
c.
6.7
d.
5.0
ANSWER:
d
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Application
8. The measure of interest rate risk that uses the difference between rate-sensitive assets and rate-sensitive liabilities is
called
a.
gap measurement.
b.
duration measurement.
c.
duration ratio.
d.
gap ratio.
ANSWER:
a
LEARNING OBJECTIVES:
FMAI.MADU.15.19.06
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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9. A gap ratio of less than one suggests that
a.
rate-sensitive assets exceed rate-sensitive liabilities.
b.
an increase in interest rates would increase the bank’s net interest margin.
c.
rate-sensitive liabilities exceed rate-sensitive assets.
d.
a decrease in interest rates would decrease the bank’s net interest margin.
e.
B and D
ANSWER:
c
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
10. Each bank may have its own classification system of interest rate sensitivity, because there is no perfect measurement
of the gap.
a.
True
b.
False
ANSWER:
a
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
11. The duration of zero-coupon bonds will be ____ the duration of coupon bonds with the same maturity.
a.
lower than
b.
higher than
c.
the same as
d.
A or B, depending on the size of the coupon payment
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
12. Other things being equal, assets with shorter maturities have ____ durations. Assets that generate more frequent
coupon payments have ____ durations.
a.
shorter; longer
b.
shorter; shorter
c.
longer; shorter
d.
longer; longer
ANSWER:
b
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ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
17. Floating-rate loans cannot completely eliminate interest rate risk; if the cost of funds is changing more frequently than
the rate on assets, the bank’s net interest margin is still affected by interest rate fluctuations.
a.
True
b.
False
ANSWER:
a
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
18. The ____ of interest rate futures ____ the potential adverse effect of rising interest rates on a bank’s interest expenses.
a.
sale; increases
b.
sale; reduces
c.
purchase; reduces
d.
both A and C are correct
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
19. Which of the following financial institutions would be most willing to swap variable-rate payments for fixed-rate
payments in order to reduce exposure to interest rate risk?
a.
one whose assets and liabilities are equally interest-rate sensitive
b.
one whose assets are more interest-rate sensitive than its liabilities
c.
one whose liabilities are more interest-rate sensitive than its assets
d.
one whose gap ratio is equal to 1.0
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
20. Banks increase their risk by increasing their capital as a percentage of assets
a.
True
b.
False
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.06
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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21. Banks generally ____ loans and ____ their purchases of low-risk securities when the economy is weak.
a.
increase; increase
b.
reduce; reduce
c.
increase; reduce
d.
reduce; increase
ANSWER:
d
LEARNING OBJECTIVES:
FMAI.MADU.15.19.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
22. Banks tend to focus their loans in one industry so that they can specialize on that industry and reduce the credit risk of
their loan portfolio.
a.
True
b.
False
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
23. Most loan sales enable the bank originating the loan to continue servicing the loan.
a.
True
b.
False
ANSWER:
a
LEARNING OBJECTIVES:
FMAI.MADU.15.19.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
24. ROE is defined as
a.
b.
c.
d.
ANSWER:
c
LEARNING OBJECTIVES:
FMAI.MADU.15.19.06
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d.
.896
e.
none of the above
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Application
28. If Bank A has a negative gap and Bank B has a positive gap, which of the following is true?
a.
Bank A is more favorably affected by rising interest rates.
b.
Bank B is more favorably affected by falling interest rates.
c.
Bank A is adversely affected by falling interest rates.
d.
none of the above
ANSWER:
d
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Application
29. Which of the following is a measure for banks to use to assess their exposure to interest rate risk?
a.
capital ratio
b.
leverage measure
c.
duration measurement
d.
gap ratio
e.
C and D
ANSWER:
a
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
30. If a bank sells interest rate futures, it ____ of rising interest rates and ____ of declining interest rates on its interest
expenses.
a.
reduces the potential adverse effect; reduces the potential favorable effect
b.
increases the potential adverse effect; increases the potential favorable effect
c.
decreases the potential adverse effect; increases the potential favorable effect
d.
increases the potential adverse effect; decreases the potential favorable effect
ANSWER:
a
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
31. Banks can improve their liquidity position by restructuring their asset portfolio to contain fewer ____ and more ____.
a.
excess reserves; Treasury bills
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b.
Treasury bonds; corporate bonds
c.
loans; Treasury bills
d.
none of the above
ANSWER:
c
LEARNING OBJECTIVES:
FMAI.MADU.15.19.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
32. Banks would reduce their liquidity by restructuring their asset portfolio to contain fewer ____ and more ____.
a.
Treasury securities; excess reserves
b.
loans; Treasury securities
c.
corporate bonds; Treasury securities
d.
none of the above
ANSWER:
d
LEARNING OBJECTIVES:
FMAI.MADU.15.19.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
33. Banks can reduce their credit risk by restructuring their asset portfolio to contain fewer ____ and more ____.
a.
Treasury bonds; corporate bonds
b.
Treasury bonds; municipal bonds
c.
Treasury bonds; commercial loans
d.
none of the above
ANSWER:
d
LEARNING OBJECTIVES:
FMAI.MADU.15.19.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
34. Banks can increase their potential interest revenues by restructuring their asset portfolio to contain fewer ____ and
more ____.
a.
Treasury bonds; commercial loans
b.
Treasury bonds; excess reserves
c.
consumer loans; Treasury bills
d.
none of the above
ANSWER:
a
LEARNING OBJECTIVES:
FMAI.MADU.15.19.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
35. If a bank desires to maximize its net interest margin, it would best achieve its goal by attempting to obtain most of its
funds through ____ and use most of its funds for ____ (assuming that all loans will be repaid).
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a.
traditional demand deposits; commercial loans
b.
traditional demand deposits; consumer loans
c.
NOW accounts; consumer loans
d.
NOW accounts; commercial loans
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
36. When measuring exposure to market risk, banks commonly use the ________.
a.
value-at-risk method
b.
operating leverage measure
c.
matching maturity method
d.
forward rate method
ANSWER:
a
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
37. A bank’s net interest margin is commonly defined as
a.
interest revenues minus interest expenses.
b.
(interest revenues minus interest expenses)/total assets.
c.
(interest revenues minus interest expenses)/total liabilities.
d.
(interest revenues minus interest expenses)/capital.
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
38. A common method for banks to reduce their credit risk is to
a.
specialize in loans to just one or a few particular industries in which they have expertise in assessing
creditworthiness.
b.
specialize in loans to companies whose earnings patterns are quite similar over time.
c.
A and B
d.
none of the above
ANSWER:
d
LEARNING OBJECTIVES:
FMAI.MADU.15.19.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
39. International diversification of loans can best reduce a bank’s overall credit risk if
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a.
the countries where loans are given are clustered together in a single continent.
b.
the countries where loans are given have economic cycles that do not move together over time.
c.
A and B
d.
none of the above
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
40. During a period of rising interest rates, a bank’s net interest margin will likely decline if it has a large amount of
a.
rate-sensitive assets and no rate-sensitive liabilities.
b.
rate-sensitive liabilities and no rate-sensitive assets.
c.
loans to technology firms.
d.
real estate loans.
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
41. When a bank makes an international loan containing a clause that allows repayment in a foreign currency, the bank is
exposed to
a.
loan settlement risk.
b.
exchange rate risk.
c.
global exchange risk.
d.
currency transaction risk.
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
42. Bank A has interest revenues of $4 million, interest expenses of $5 million, and assets totaling $20 million. Bank A’s
net interest margin is
a.
$1 million.
b.
−$1 million.
c.
−5 percent.
d.
5 percent.
ANSWER:
c
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Application
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c.
adversely affected if euro interest rates increase and U.S. rates decrease.
d.
adversely affected if U.S. interest rates increase and euro rates decrease.
e.
A and B
ANSWER:
c
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
51. If a bank has assets and liabilities in dollars and euros, its exposure to interest rate risk can best be minimized if the
a.
currency mix of assets is similar to that of liabilities.
b.
overall rate sensitivity of assets and liabilities is similar.
c.
rate sensitivity of assets and liabilities is matched for each currency.
d.
A and B
ANSWER:
c
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
52. The risk of a loss due to closing out a transaction is referred to as ____ risk.
a.
credit
b.
settlement
c.
interest rate
d.
exchange rate
e.
none of the above
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
53. The Sarbanes-Oxley Act has had little impact on the monitoring conducted by the board members of commercial
banks.
a.
True
b.
False
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
54. Whether a bank has a temporary or a permanent need for funds, the decision should be to borrow in the federal funds
market.
a.
True
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b.
False
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
55. A positive gap (or gap ratio of more than 1.00) suggests that rate-sensitive liabilities exceed rate-sensitive assets.
a.
True
b.
False
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
56. For most banks, the average duration of liabilities exceeds the average duration of assets, so the duration gap is
positive.
a.
True
b.
False
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
57. Floating-rate loans completely eliminate interest rate risk.
a.
True
b.
False
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
58. A bank can usually simultaneously maximize its return on assets and minimize credit risk.
a.
True
b.
False
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
59. If the duration of all banks assets with a maturity of greater than one year is similar to that of its liabilities with a
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maturity greater than one year, , interest rate risk is nonexistent.
a.
True
b.
False
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
60. Macon Bank has interest revenues of $4 million, interest expenses of $5 million, and assets totaling $20 million.
Macon Bank’s net interest margin is
a.
$1 million.
b.
−$1 million.
c.
5 percent.
d.
−5 percent.
ANSWER:
d
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Application
61. ____ is not a method used to assess interest rate risk.
a.
Gap analysis
b.
Ratio analysis
c.
Duration analysis
d.
Regression analysis
e.
All of the above are methods to assess interest rate risk.
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
62. The say on pay rules require all decisions about executive compensation to be made only by outside directors.
a.
True
b.
False
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
63. Crazer Bank has a profit after taxes of $2 million, total assets of $100 million, and shareholder’s equity of $10 million.
Crazer’s return on equity (ROE) is ____ percent.
a.
18
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b.
210
c.
15
d.
20
e.
none of the above
ANSWER:
d
LEARNING OBJECTIVES:
FMAI.MADU.15.19.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Application
64. If a bank expects interest rates to consistently ____ over time, it will consider allocating most of its funds to rate-____
assets.
a.
decrease; sensitive
b.
increase; insensitive
c.
increase; sensitive
d.
answers A and B are correct
e.
none of the above
ANSWER:
c
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
65. During a period of ____ interest rates, a bank’s net interest margin will likely ____ if its liabilities are more rate
sensitive than its assets
a.
decreasing; decrease
b.
increasing; increase
c.
decreasing; increase
d.
increasing; decrease
e.
answers C and D are correct
ANSWER:
a
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
66. If interest rates ____, banks with ____ duration gaps will be ____ affected.
a.
rise; positive; positively
b.
rise; positive; adversely
c.
decrease; positive; adversely
d.
decrease; negative; positively
e.
none of the above
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
Chapter 19: Bank Management
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Page 19
d.
higher; decrease
e.
none of the above
ANSWER:
c
LEARNING OBJECTIVES:
FMAI.MADU.15.19.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
71. When determining the appropriate interest rate to charge on a loan, a bank uses the Federal Reserve’s primary credit
lending rate as a benchmark and adds a premium to this rate for less creditworthy customers.
a.
True
b.
False
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
72. An effective way to align bank managers’ interests with shareholders’ goal of higher returns is to compensate the
managers with fixed salaries without a bonus.
a.
True
b.
False
ANSWER:
b
LEARNING OBJECTIVES:
FMAI.MADU.15.19.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
73. Which of the following is not a function of a bank’s board of directors?
a.
overseeing acquisitions
b.
determining a compensation system for the bank’s executives
c.
overseeing policies for changing the bank’s capital structure
d.
pursuing a proxy contest to change the bank’s dividend policy
ANSWER:
d
LEARNING OBJECTIVES:
FMAI.MADU.15.19.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
74. A(n) ____________ is an agreement for a fee to receive payments when the interest rate of a particular security rises
above a specified level by a specified date.
a.
interest rate cap
b.
interest rate futures contract
c.
interest rate swap
d.
maximum rate contract
Chapter 19: Bank Management
Copyright Cengage Learning. Powered by Cognero.
Page 20
ANSWER:
a
LEARNING OBJECTIVES:
FMAI.MADU.15.19.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
75. Which of the following is a method that a bank can use to reduce its credit risk?
a.
diversifying its loans across industries
b.
focusing on credit card loans
c.
focusing on consumer loans
d.
selling its holdings of Treasury securities
ANSWER:
a
LEARNING OBJECTIVES:
FMAI.MADU.15.19.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge