Which of the following situations is similar to the externality effect? A. Exercising an
adverse material change in conditions clause as a last resort, thereby canceling or
repricing a loan commitment.
B. Increase in the cost of funds above normal levels while many FIs scramble for funds
to meet their commitments to customers during a credit crunch.
C. In a loan commitment, the borrower takes down only part of the funds over the
specified time-period.
D. The buyer of a commercial letter of credit fails to perform as promised under a
contractual obligation.
E. All of the above.
Answer:
The first state in the U.S. to allow out of state acquisitions wasA. New York.
B. California.
C. Florida.
D. Maine.
E. Alaska.
Answer:
Finance companies charge different rates than do commercial banks which A. tend to
be higher than bank rates.
B. often reflect a more risky borrower.
C. causes some finance companies to be classified as subprime lenders.
D. must meet state usury law guidelines.
E. All of the above.
Answer:
What is the one-day, 99% confidence level, value at risk (VAR) of securities Alpha and
Beta, respectively (in millions)? A. $3 and $25.50
B. $3 and $0.75
C. $248 and 248
D. $300 and $300
E. 300 and 3,300
Answer:
The notational value of the world-wide credit derivative securities markets stood at
_________ trillion as of June 2012, which compares to _________ trillion as of July
2008. A. $24.9; $54.6
B. $13.2; $31.2
C. $31.2; $16.8
D. $7.8; $14.7
E. $16.0; $27.4
Answer:
Choose among the following major banking laws.
A. The McFadden Act of 1927
B. The Glass-Steagall Act of 1933
C. The Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of
1980
D. The Garn-St Germain Depository Institutions Act of 1982
E. The Competitive Equality in Banking Act of 1987
F. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
G. The Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991
H. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
I. Financial Services Modernization Act of 1999
This legislation sought to limit the growth of non-bank banks.
Answer:
A contract that is a fixed-floating interest rate swap with a third party acting as an
intermediary is known as A. a pure credit swap.
B. a total return swap.
C. an off-market swap.
D. a plain vanilla swap.
E. an currency rate swap.
Answer:
A positive net exposure position in FX implies that the FI is A. net long in a currency
and exposed to depreciation of the foreign currency.
B. net short in a currency and exposed to depreciation of the foreign currency.
C. net long in a currency and exposed to appreciation of the foreign currency.
D. net short in a currency and exposed to appreciation of the foreign currency.
E. neither long nor short in a currency.
Answer:
The Financial Services Modernization Act of 1999A. stipulates that a financial services
holding company that engages in commercial banking, investment banking, and
insurance activities will be functionally regulated.
B. allows bank holding companies to open insurance underwriting affiliates.
C. requires banks that underwrite and sell insurance to operate under the same set of
state regulations as insurance companies.
D. All of the above.
E. Answers A and B only.
Answer:
What is the number of T-bond futures contracts necessary to hedge the balance sheet if
the duration of the deliverable bonds is 9 years and the current price of the futures
contract is $96 per $100 face value and if basis risk shows that for every 1 percent
shock to interest rates, i.e., ΔR/(1 + R) = 0.01, the implied rate on the deliverable bonds
in the futures market increases by 1.1 percent, i.e., ΔRf/(1 + Rf) = 0.011? A. 1,500
contracts.
B. 1,888 contracts.
C. 2,100 contracts.
D. 2,408 contracts.
E. 3,100 contracts.
Answer:
Suppose X3 = 0.2 instead of -0.30. According to Altman’s credit scoring model, the firm
would fall under which default risk classification?A. A high default risk firm.
B. An indeterminant default risk firm.
C. A low default risk firm.
D. A medium default risk firm.
E. Either B or D.
Answer:
What is the change in the value of the FI’s equity for a 1 percent increase in interest
rates from the current rates of 10 percent (i.e., ΔR = +0.01, and 1 + R = 1.10)? A.
-$,979,091.
B. -$16,318,182.
C. -$15,979,091.
D. +$16,318,182.
E. +$979,091.
Answer:
Investors in mortgage-backed pass-through securities are exposed to a variety of risks.
Compared to other fixed-income securities, the most unique of these risks is A.
prepayment risk
B. default risk
C. credit risk
D. interest rate risk
E. liquidity risk
Answer:
Which of the following refers to the possibility that a firm’s owners or managers will
take actions contrary to the promises contained in the covenants of the securities the
firm issues to raise funds? A. Liquidity risk.
B. Price risk.
C. Credit risk.
D. Intermediation.
E. Agency costs.
Answer:
What is the total DEAR of Sumitomo’s trading portfolio if the correlation among assets
is assumed to be 0.80? A. -$100,000.
B. -$291,548.
C. -$350,000.
D. -$380,789.
E. -$400,000.
Answer:
Annuities are an important product sold by life insurance companies. Which of the
following statements is correct as of 2012? A. Life insurance contracts continue to
dominate premiums written while annuities are of less importance.
B. The value of annuity sales are more than double those of traditional life insurance
lines.
C. Retirement accounts and private pension plans are not allowed access to the
annuities of life insurance companies.
D. The funds in an annuity can only be invested in guaranteed investment contracts
(GICs).
E. All annuities are listed as separate accounts business on the life insurer’s balance
sheet.
Answer:
An investment banker agrees to underwrite an issue of 10 million shares of stock for
TWResearch, Inc. on a firm commitment basis. The investment banker pays $10.50 per
share to TWResearch, Inc. for the 10 million shares of stock. It then sells those shares
to the public for $11.20 per share.
If the investment bank can sell the shares for $9.75 per share, how much money does
TWResearch receive? A. $105,000,000.
B. $150,000,000.
C. $112,000,000.
D. $125,000,000.
E. $110,000,000.
Answer:
Which of the following are potential benefits of technology for an FI? A. Improved
service quality, especially for customers of large banks.
B. The rate of innovation of new products can be increased.
C. FIs can more easily cross-market new and existing products to customers.
D. Improved flexibility in financial transactions for retail customers.
E. All of the above.
Answer:
When risk-taking is not actuarially fairly priced into deposit insurance premiums A.
depositors are required to pay the shortfall in funds collected.
B. there is an increase in the incentives for owners of DIs to take additional risk.
C. deposit insurance premiums are more costly than economically justified.
D. depositors will be unprotected should the DI become insolvent and fail.
E. the insurance provider is forced to find other sources of funds to continue coverage
for the institution.
Answer:
Which of the following items has not been a factor in the erosion of interstate banking
restrictions? A. The purchase of troubled banks.
B. The establishment of nonbank banks.
C. The Bank Holding Company Act Amendments of 1970.
D. The expansion of OBHC activities.
E. The establishment of regional and national banking pacts.
Answer:
In the RiskMetrics model, value at risk (VAR) is calculated as A. the price sensitivity
times an adverse daily yield move.
B. the dollar value of a position times the price volatility.
C. the dollar value of a position times the potential adverse yield move.
D. the price volatility times the √N.
E. DEAR times the √N.
Answer:
Hedge fund data such as assets held and trading activity A. are primarily self-reported.
B. can be independently tracked.
C. can be obtained from SEC filings.
D. can be obtained from research agencies.
E. All of the above.
Answer:
A digital default option A. always pays the par value of a loan if exercised.
B. has a payout that is capped at 80 percent of the par value of the loan.
C. will cause the FI never to lose more than the premium paid to purchase the option.
D. Answers A and C only.
E. Answers A and B only.
Answer:
Which of the following is common to both hedge funds and mutual funds? A. SEC
Registration.
B. Disclosure norms.
C. Management fees.
D. Performance fees.
E. Investor profiles.
Answer:
The buffer proposed by Basel III that is designed to ensure that DIs build up a capital
surplus outside of periods of financial distress is called the A. Capital conservation
buffer.
B. Countercyclical buffer.
C. Leverage buffer.
D. Tier II buffer.
E. CET1 capital buffer.
Answer:
Permissible section 20 subsidiary activities include A. insurance activities.
B. hedging.
C. factoring.
D. extensions of lines of credit.
E. investment banking activities.
Answer:
The quantity risk exposure of a loan commitment is A. credit risk.
B. interest rate risk.
C. takedown risk.
D. funding risk.
E. exchange rate risk.
Answer:
Which of the following would one typically find in the trading portfolio of an FI? A.
Cash, loans, and deposits.
B. Premises and equipment.
C. Relatively illiquid assets.
D. Assets held for long holding periods.
E. Bonds, equities, and derivatives.
Answer:
Firewalls are A. barriers introduced to protect the bank against losses.
B. mechanisms to insure bank shareholders against loss.
C. regulations restricting the proliferation of Section 20 subsidiaries.
D. limitations on capital flows to the parent company.
E. safety codes required in tall skyscrapers.
Answer:
A bank purchases a 3-year, 6 percent $5 million cap (call options on interest rates),
where payments are paid or received at the end of year 2 and 3 as shown below:
Assume
interest rates are 5 percent in year 2 and 7 percent in year 3. Which of the following is
TRUE? A. The bank will receive $50,000 at the end of year 2 and receive $50,000 at
the end of year 3.
B. The bank will receive $50,000 at the end of year 2 and pay $50,000 at the end of
year 3.
C. The bank will receive $0 at the end of year 2 and pay $50,000 at the end of year 3.
D. The bank will receive $0 at the end of year 2 and receive $50,000 at the end of year
3.
E. The bank will receive $50,000 at the end of year 2 and pay $0 at the end of year 3.
Answer:
What is the basic reason that two counterparties enter into a swap agreement? A.
Exchange of one specified cash flow in the future based on some underlying index.
B. Better management of credit risk by using a fixed or floating rate bond as hedging
instrument.
C. To restructure or off-set the expected future cash flows to be collected from assets or
liabilities held on the balance sheet.
D. Exchange of assets for a specific period of time at a specified interval.
E. Taking the opposite side of each transaction in order to keep the swap market liquid.
Answer:
A type of company that recently has moved from only purchasing loans on the
secondary market into primary loan syndication is A. a bank loan mutual fund.
B. a domestic bank.
C. a foreign bank.
D. an investment bank.
E. a vulture fund.
Answer:
The FIRREA Act of 1989 introduced the qualified thrift lender test (QLT), which set the
percentage of assets required for qualification to be no less than A. 50 percent.
B. 55 percent.
C. 60 percent.
D. 65 percent.
E. 68 percent.
Answer:
Consider the following two FIs: Company A has $500 million in total assets and total
costs equal to $200 million. Company B has $60 million in total assets and total costs
equal to $24 million.
What are average costs for each FI? A. 0.40 for A and 2.50 for B.
B. 2.50 for both A and B.
C. 2.50 for A and 0.40 for B.
D. 0.40 for both A and B.
E. Insufficient information.
Answer:
