What is the strength of static GAP analysis relative to duration gap analysis?
a. Static GAP analysis recognizes the time value of money of each cash flow.
b. Static GAP analysis provides a measure of the total portfolio’s interest rate risk.
c. Static GAP analysis is easier to understand.
d. Static GAP analysis takes the long-run view while duration gap analysis takes a
shorter-run view.
e. The static GAP measure directly correlates with the risk of the bank, i.e., a bank with
twice the static GAP is twice as risky.
Answer:
For most banks, which of the following is the largest component of non-interest
expense?
a. Personnel expenses
b. Rent
c. Required reserves held at the Federal Reserve
d. Electricity
e. Depreciation on buildings and equipment
Answer:
In the credit process, which of the following activities falls under Credit Review?
a. Loan committee reviews
b. Perfecting the security interest
c. Market research
d. Review loan documentation
e. Market research
Answer:
A 10-year annual coupon bond is currently selling for its par value of $1,000 with an
annual yield of 5%. If the bond is callable at par, what is the effective duration of the
bond, if the interest rates change by 1%? The price of the bond at a 6% interest rate
equals $926.40.
a. 10 years
b. 7.36 years
c. 5.52 years
d. 4.60 years
e. 3.68 years
Answer:
What is the effective annual cost of a credit card that charges 18%, compounded
monthly?
a. 16.63%
b. 18.00%
c. 18.81%
d. 19.56%
e. 19.61%
Answer:
The basis on a futures contract is defined as:
a. the cash price minus the forward price.
b. the forward price minus the cash price.
c. the futures price minus the cash price.
d. the cash price minus the futures price.
e. None of the above.
Answer:
In which of the following ways can a bank acquire liquidity?
a. Selling Fed funds
b. Investing in repurchase agreements
c. Increasing the number of loans outstanding
d. Selling Treasury securities
e. Buying back outstanding bank stock
Answer:
When two banks that merge have a significant duplication of bank offices such that the
merger leads to the elimination of branches and personnel, this is known as a(n):
a. out-of-market merger.
b. in-market merger.
c. new-market merger.
d. reduced-branch merger.
e. goodwill merger.
Answer:
Large firms can obtain funds from which of the following?
a. Equity financing
b. Issuing commercial paper
c. Issuing long-term bonds
d. Loans from commercial banks
e. All of the above
Answer:
A bank currently owns a municipal bond paying a tax-exempt rate of 6.5%. If the banks
marginal tax rate is 40%, what is the taxable equivalent yield?
a. 3.90%
b. 10.83%
c. 9.10%
d. 4.64%
e. 9.32%
Answer:
The highest ROA and charge-off rates in 2012 were reported by:
a. agricultural banks.
b. credit card banks.
c. commercial lenders.
d. consumer lenders.
e. international banks.
Answer:
Use the following information.
How much Tier 1 capital does the bank have?
a. $100
b. $400
c. $450
d. $750
e. $950
Answer:
Which of the following would not be considered an earning asset?
a. Cash due from banks
b. Municipal securities
c. Treasury bills
d. Repurchase agreements
e. Mortgages
Answer:
The risk that a bank cannot meet payment obligations in a timely and cost-effective
manner is known as:
a. credit risk.
b. capital risk.
c. market risk.
d. operating risk.
e. liquidity risk.
Answer:
To be considered adequately capitalized, a bank’s minimum Tier 1 capital, total capital,
and leverage capital must be:
a. 4%, 8%, and 3%, respectively.
b. 8%, 5%, and 3%, respectively.
c. 10%, 10%, and 10%, respectively.
d. 6%, 10%, and 5%, respectively.
e. 3%, 4%, and 8%, respectively.
Answer:
How many 90-day Eurodollar futures contracts should a bank purchase to hedge the
roll-over of a 6-month, $20 million loan if loan rates and Eurodollar rates have the same
volatility?
a. 2 contracts
b. 4 contracts
c. 10 contracts
d. 20 contracts
e. 40 contracts
Answer:
The Federal Deposit Insurance Reform Act of 2005 created which of the following?
a. Bank Insurance Fund
b. Deposit Insurance Fund
c. Savings Association Insurance Fund
d. National Credit Union Shares Insurance Fund
e. Federal Savings and Loan Insurance Fund
Answer:
Banks created Section 20 affiliates to:
a. engage in investment banking activities.
b. make international loans.
c. purchase savings and loans.
d. invest in junk bonds.
e. compete with general-purpose finance companies.
Answer:
All of the following are examples of operational risk except:
a. fraud.
b. compromised security data.
c. theft.
d. business interruptions.
e. default on a loan.
Answer:
Transit checks deposited are:
a. checks drawn on any bank other than the bank into which it was deposited.
b. the accounting transaction for selling fed funds.
c. discount window loans.
d. illegal.
e. checks drawn on a bank’s own customer’s account.
Answer:
Which of the following is correct about futures contracts?
a. Buyers of futures contracts make a profit when prices fall.
b. Buyers of futures contracts make a profit when interest rates rise.
c. Sellers of futures contracts make a profit when prices fall.
d. Sellers of futures contracts make a profit when prices rise.
e. a. and d.
Answer:
If a bond is a discount bond, then:
a. the yield to maturity is less than the coupon rate.
b. the yield to maturity is greater than the coupon rate.
c. the yield to maturity is equal to the coupon rate.
d. its duration must be greater than its maturity.
e. its duration must be equal to its maturity.
Answer:
Which of the following would a bank generally classify as a long-term investment?
a. Treasury bill
b. Vault cash
c. Cash items in process of collection
d. Municipal bond
e. Repurchase agreements
Answer:
If a bank expects interest rates to increase in the coming year, it should:
a. increase its GAP.
b. issue fewer variable rate loans.
c. issue more 3-month CDs.
d. issue more fixed rate loans.
e. become more liability sensitive.
Answer:
___________ includes common stock, preferred stock and retained earnings.
a. Retail funding
b. Wholesale funding
c. Borrowed funding
d. Equity funding
e. Lockbox funding
Answer:
Relative to retail banks, wholesale banks:
a. deal primarily with consumers.
b. operate with fewer commercial deposits.
c. purchase more non-core liabilities.
d. hold proportionally more consumer loans.
e. All of the above.
Answer:
Securities that require unrealized gains or losses to be recorded on the income statement
are called:
a. held-to-maturity securities.
b. trading account securities.
c. available-for-sale securities.
d. revenue securities.
e. repurchase agreements
Answer:
A cross hedge often has greater risk then a perfect hedge because:
a. futures and cash interest rates are perfectly positively correlated.
b. futures and cash interest rates are perfectly negatively correlated.
c. cross hedging uses a contract based on the identical underlying asset.
d. futures and cash interest rates may not move together.
e. b. and d.
Answer:
If a bank has a negative GAP, a decrease in interest rates will cause interest income to
__________, interest expense to__________, and net interest income to __________.
a. increase, increase, increase
b. increase, decrease, increase
c. increase, increase, decrease
d. decrease, decrease, decrease
e. decrease, decrease, increase
Answer:
Revolving credit may take the form of:
a. overdraft protection.
b. demand deposit accounts.
c. excess reserves.
d. automobile loans.
e. interchange credit.
Answer:
A jump rateCD is also known as a(n):
a. trust CD.
b. zero coupon CD.
c. bump-up CD.
d. federal funds CD.
e. fixed-rate CD.
Answer: