Suppose a bank promises an annual return of 6.5 percent on a three month (90-day
$150,000 CD), what will be the total amount due to the customer at the end of the three
month period?
A. $152,437.50
B. $2,437.50
C. $150,000
D. $152,404.11
E. None of the options is correct
Answer:
The party for whom a standby credit letter is issued by a bank is known as the:
A. account party.
B. beneficiary.
C. representative.
D. credit guarantor.
E. None of the options is correct.
Answer:
The primary source for international bank statistics is:
A. the FDIC.
B. the OCC.
C. the BIS.
D. the ETC.
E. the United Nations.
Answer:
Banks are generally not allowed to invest in speculative grade bonds. What kind of risk
is this designed to limit?
A. Liquidity risk
B. Business risk
C. Credit risk
D. Operational risk
E. Interest rate risk
Answer:
The Simpson State Bank of Stillwater has just sold Federal funds to another bank in its
Federal Reserve district. Which type of factor affecting legal reserves is this for the
bank?
A. A controllable factor increasing legal reserves
B. A noncontrollable factor increasing legal reserves
C. A controllable factor decreasing legal reserves
D. A noncontrollable factor decreasing legal reserves
E. None of the options is correct
Answer:
A bank wants to examine the adequacy of a business customer’s earnings based on the
coverage ratios. They are most likely to look at which of the following ratios?
A. Wages and salaries/Net sales
B. Accounts receivables/(Annual credit sales/360)
C. Net income after taxes/Net sales
D. Income before interest and taxes/Interest payments
E. (Current assets – Inventory)/Current liabilities
Answer:
The Tidewater State Bank has $1,000 in total assets (all of which are earning assets),
$700 of which will be repriced within the next 90 days. This bank also has $800 in total
liabilities, $400 of which will be repriced within the next 90 days. Currently, the bank is
earning 8 percent on its assets and is paying 5 percent on its liabilities.If interest rates
on both assets and liabilities decrease by 2 percent in the next 90 days, what would be
this bank’s net interest margin? A. 3.4 percent
B. 4 percent
C. 0.4 percent
D. 5.6 percent
E. 2 percent
Answer:
The Peace Bank of Ohio has just received a $50 million credit at the local clearing
house. Which type of factor affecting legal reserves is this for the bank?
A. A controllable factor increasing legal reserves
B. A noncontrollable factor increasing legal reserves
C. A controllable factor decreasing legal reserves
D. A noncontrollable factor decreasing legal reserves
E. None of the options is correct
Answer:
Jane Smith has asked for a 30 year mortgage (repayable in monthly installments) to
purchase a home in Oklahoma City, Oklahoma. The purchase price of the home is
$150,000 of which $125,000 must be borrowed. If the APR on this loan is 8 percent,
how much will Jane’s total financing charges be?
A. $246,233
B. $205,194
C. $180,194
D. $165,097
E. None of the options is correct
Answer:
A bank has issued $5,000,000 in long term debt and since that time interest rates have
risen so that it will only cost the bank $3,000,000 to buy the long term debt back. The
bank decides to issue $3,000,000 in new stock and use the proceeds to retire the long
term debt. What way of meeting their capital needs is the bank taking?
A. Issuing common stock
B. Issuing preferred stock
C. Issuing subordinated notes and debentures
D. Selling assets and leasing facilities
E. Swapping stock for debt instruments
Answer:
There is an important debate raging today regarding whether banks should be regulated
at all. George Benston contends that:
A. firms in regulated industries actually seek out regulations because they bring
monopolistic rents.
B. regulations shelter firms from changes in demand and cost, lowering its risk.
C. regulations can increase consumer confidence which increases customer loyalty to
regulated firms.
D. depository institutions should be regulated no differently than any other corporation
with no subsidies or special privileges.
E. None of the above options are correct.
Answer:
The FDIC Improvement Act of 1991 requires a bank closing one of its branches to give
its customers a minimum notice of:
A. 90 days.
B. 60 days.
C. 30 days.
D. 10 days.
E. None of the options are correct.
Answer:
According to the text, which of the following is often the most profitable credit service
a lender can offer?
A. Government loans
B. Business loans
C. Consumer loans
D. Loans extended to not-for-profit organizations
E. Money market loans
Answer:
Short-term to medium-term loans repayable in two or more consecutive payments are
known as:
A. noninstallment loans.
B. installment loans.
C. residential mortgage loans.
D. nonresidential cash loans.
E. None of the options is correct.
Answer:
A bank has $200 million in assets in the 0 percent risk-weight category. It has $400
million in assets in the 20 percent risk-weight category. It has $1,000 million in assets
in the 50 percent risk-weight category and has $1,000 million in assets in the 100
percent risk-weight category. This bank has $96 million in Tier 1 capital and $48
million in Tier 2 capital. What is this bank’s ratio of total capital to risk assets?
A. 6.08 percent
B. 3.04 percent
C. 9.11 percent
D. 5.54 percent
E. None of the options is correct.
Answer:
A bank expects to raise $20 million in new money if it pays a deposit rate of 7%, $60
million in new money if it pays a deposit rate of 7.5%, $100 million in new money if it
pays a deposit rate of 8%, and $120 in new money if it pays a deposit rate of 8.5%. The
bank expects to earn 9.5% on all money that it receives in new deposits. What is the
marginal cost of deposits if the bank raises their deposit rate from 7.5% to 8%?
A. 11%
B. 8.75%
C. 7.75%
D. 7%
E. 0.5%
Answer:
Which of the following types of banks would most likely offer the largest number of
financial services virtually?
A. A retail bank
B. A community bank
C. A commercial bank
D. A universal bank
E. An international bank
Answer:
A loan that examiners regard as uncollectible and unsuitable to be called a bank asset is
called a:
A. criticized loan.
B. scheduled loan.
C. substandard loan.
D. doubtful loan.
E. loss loan.
Answer:
The Cassil National Bank charges its customers $0.50 per transaction for using the
ATM machine, if their deposit balance is below $500. It charges $0.25 per transaction
for using the ATM if their deposit balance is between $500 and $1,000. If its customers’
deposit balance is over $1,000, there is no charge for using the ATM machine. This is an
example of: A. an interchange fee.
B. an independent pricing schedule.
C. a conditional pricing schedule.
D. a surcharge fee.
E. None of the options are correct
Answer:
Loans to individuals and families to finance the purchase of new homes are known as:
A. noninstallment loans.
B. installment loans.
C. residential mortgage loans.
D. nonresidential cash loans.
E. None of the options is correct.
Answer:
Hager Smith, a customer of Standard Bank, maintains an average balance of $420,000.
The float from uncollected funds from his balance, accounts for $21,000. The
applicable legal reserve requirement at this checking account is 10 percent. Determine
Smith’s net usable funds.
A. $359,100
B. $396,900
C. $378,000
D. $399,000
E. $438,900
Answer:
A company which owns stocks of three different banks is categorized as a(n):
A. unit bank.
B. interstate bank.
C. investment bank.
D. multi-bank holding company.
E. None of the options are correct.
Answer:
Along with the value at risk model, which is the other model that determines each
bank’s unique market risk exposure and the amount of capital it needs?
A. Internal modeling.
B. Systemic modeling.
C. Credit risk modeling.
D. Borrower credit ratings.
E. Damage testing.
Answer:
Third State Bank wants to add a new branch office. It has determined that the cost of
construction of the new facility will be $1.5 million with another $500,000 in
organizational costs. The bank has estimated that it will generate $319,522 per year in
net revenues. If the new branch is expected to last 20 years, what is the expected rate or
return on this investment? (Round to the nearest whole percent)
A. 6 percent
B. 21 percent
C. 15 percent
D. 32 percent
E. 25 percent
Answer:
According to recent studies cited in this chapter, in choosing a bank to supply their
deposits and other services, which of the following factors do business firms rank first?
A. Quality of financial advice given
B. Financial health of lending institution
C. Whether loans are competitively priced
D. Whether cash management and operations services are provided
E. Quality of bank officers
Answer:
The South Carolina National Bank makes a loan to the Heritage Credit Union. What
type of loan did this bank make?
A. Financial institution loan
B. Commercial and industrial loan
C. Loans to individuals
D. Miscellaneous loans
E. Lease financing receivables
Answer:
Research indicates that economies of scale (cost savings) often results in mergers of
financial institutions which are relatively: A. small in size.
B. large in size.
C. medium in size.
D. undercapitalized.
E. overcapitalized.
Answer:
A savings instrument where the customer makes a lump sum payment to the investment
manager who invests the payment in earning assets and later receives a stream of
income from the assets is called:
A. a leveraged buyout.
B. an annuity.
C. the net asset value.
D. a hedge fund.
E. None of the options is correct.
Answer:
Many financial experts believe that the customers most likely to be damaged by
decreased competition include: A. large corporations in large cities.
B. households and business in smaller cities and towns.
C. households that earn more than a million dollars a year.
D. students away at college.
E. None of the options are correct.
Answer:
Loans that examiners consider as having significant weaknesses or those represent a
dangerous concentration of credit in one borrower or industry are called:
A. criticized loans.
B. scheduled loans.
C. substandard loans.
D. doubtful loans.
E. loss loans.
Answer:
One-time-only transactions that often involve sale of financial assets or real property
pledged as collateral behind a loan and upon which the bank has foreclosed, affect a
bank’s account known as:
A. allowance for loan losses.
B. nonrecurring sales of assets.
C. asset gains or losses.
D. provision for loan and security losses.
E. None of the options are correct.
Answer:
Range notes are:
A. securities that usually pay low interest rates.
B. securities that pay interest only if the underlying index moves out of the
predetermined range.
C. securities that pay interest only if the underlying index stays in the predetermined
range.
D. usually issued as putable securities.
E. securities with pay-off similar to a financial future.
Answer:
U.S. banking laws require the organizers of a proposed new bank to demonstrate:
A. adequate future earnings prospects.
B. adequate owners’ capital availability.
C. evidence of a public need for a new bank.
D. existing banks will not be endangered.
E. All of the options are correct.
Answer:
Wholesale banks are those banks that:
A. sell at a discount relative to all commercial banks.
B. only make loans to the wholesale industry.
C. lend almost exclusively to farmers.
D. serve corporations and government.
E. have only retail customers.
Answer:
Early European banks were places for safekeeping of wealth because:
A. loans to the poor often carried high interest rates.
B. loans and deposits were primarily for wealthy customers.
C. the industrial revolution demanded new methods of making payments and obtaining
credit.
D. savings and wealth were lost due to war, theft, and expropriation by governments.
E. All of the options are correct.
Answer: