Which of the following is not true regarding common stock?
a. Common stock has no maturity.
b. New issues of common stock may dilute existing shareholder equity.
c. Common stock is a permanent source of funds.
d. Dividends paid are not tax-deductible.
e. Dividends are considered a fixed charge that must be paid.
Answer:
Which of the following is not part of the CAMELS ratings?
a. Capital adequacy.
b. Asset quality.
c. Earnings quality.
d. Liabilities quality.
e. Sensitivity to market risk.
Answer:
Return on risk-adjusted capital is defined as:
a. Income/Allocated Risk Capital.
b. Allocated Risk Capital/Adjusted Income.
c. (Risk Adjusted Income)/Capital.
d. Capital/Allocated Risk Capital.
e. Expenses + Target Profit.
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:
__________ have a large international presence.
a. Global banks
b. Nationwide banks
c. Super regional banks
d. Regional banks
e. Specialty Banks
Answer:
What are the firm’s estimated working capital needs?
a. $90
b. $540
c. $630
d. $1,170
e. $2,034
Answer:
A 90-day Treasury bill is quoted as having a 6% bond equivalent yield. What is the
effective annual yield?
a. 6.00%
b. 6.14%
c. 6.23%
d. 6.62%
e. 6.79%
Answer:
A firm has the following financial statement data: Sales = $2,000, COGS = $800,
Operating Expenses = $600, and Taxes = $400. What is the firm’s profit margin?
a. 10%
b. 20%
c. 30%
d. 40%
e. 60%
Answer:
The world’s largest financial company (as of January 2008) is:
a. ING Group
b. Fortis
c. Citigroup
d. HSBC Holdings
e. Bank of America
Answer:
Which of the following is not a measure of liability liquidity?
a. Total loans to total assets
b. Total deposits to total assets
c. Total equity to total assets
d. Loan losses to net loans
e. Core deposits to total assets
Answer:
How many 90-day Eurodollar futures contracts should a bank purchase to hedge the
roll-over of a 1-year, $5 million loan if loan rates and Eurodollar rates have the same
volatility?
a. 1 contract
b. 5 contracts
c. 10 contracts
d. 20 contracts
e. 50 contracts
Answer:
During 2007 2008, many borrowers had ________ in their homes causing individuals to
“walk away” from their homes.
a. positive equity
b. negative equity
c. positive market value
d. negative market value
e. positive asset value
Answer:
A 20-year zero coupon bond with a face value of $1,000 is currently selling for
$214.55. Using the bond’s modified duration, what is the approximate change in the
price of the bond if interest rates rise by 25 basis points?
a. -49.63%
b. -46.39%
c. -4.96%
d. -4.63%
e. Not enough information is given to answer the question.
Answer:
A bond has a Macaulay’s duration of 7 years. If rates fall from 7% to 6%, the bonds
price will:
a. increase by approximately 1%.
b. decrease by approximately 1%.
c. increase by approximately 10%.
d. decrease by approximately 10%.
e. Not enough information is given to answer the question.
Answer:
All of the following are money market instruments except:
a. Treasury bills.
b. Eurodollar deposits.
c. commercial paper.
d. Treasury bonds.
e. bankers acceptances.
Answer:
Many banks have changed their business model to a _____________ model.
a. originate-to-keep
b. originate-to-service
c. originate-to-pay
d. originate-to-lead
e. originate-to-distribute
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:
Jumbo certificates of deposit (CDs) typically:
a. have maturities greater than 10 years..
b. are negotiable.
c. are $1 million in size.
d. All of the above
e. b. and c.
Answer:
The _________ created a fund originally designed to allow the U.S. Treasury to
purchase distressed assets from financial institutions.
a. Capital Purchase Program
b. Foreclosure Prevention Act
c. Troubled Asset Relief Program
d. Primary Dealer Credit Facility
e. Check 21 Act
Answer:
Deposits at credit unions are insured by the:
a. National Credit Union Association.
b. Federal Credit Union Administration.
c. Federal Reserve.
d. Federal Deposit Insurance Corporation.
e. Credit Union Insurance Corporation.
Answer:
What is the firm’s cash-to-cash asset cycle?
a. 30 days
b. 59 days
c. 65 days
d. 95 days
e. 113 days
Answer:
A bank’s cumulative GAP:
a. is defined as the dollar amount of rate-sensitive assets divided by the dollar amount
of rate-sensitive liabilities.
b. is defined as the dollar amount of earning assets divided by the dollar amount of total
liabilities.
c. compares rate-sensitive assets with rate-sensitive liabilities across all time buckets.
d. compares rate-sensitive assets with rate-sensitive liabilities across a single time
bucket.
e. compares the dollar amount of earning assets times the average liability interest rate.
Answer:
Which of the following is not a member of the European Community (EC)?
a. France
b. Germany
c. Australia
d. Spain
e. United Kingdom
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:
Non-interest income includes all of the following except:
a. checking account fees.
b. insufficient funds service charges.
c. trust income.
d. personnel expenses.
e. all of the above are considered non-interest income.
Answer:
A shift from core deposits to non-core deposits will:
a. always increase the amount of fixed rate assets.
b. always increase the amount of rate-sensitive assets.
c. generally increase the amount of non-earning assets.
d. generally reduce net interest income.
e. b. and d.
Answer:
______________ refers to the process of pooling a group of assts with similar features
and issuing securities that are collateralized by the assets.
a. Originate-to-Resell
b. Securitization
c. Mortgage Collateralization
d. Deposit Origination
e. Loan-to-Distribute
Answer:
An offline debit payment is:
a. a signature-based transaction.
b. a PIN-based transaction.
c. an ACH transaction.
d. a CHIPS transaction.
e. a Fed Wire transaction.
Answer:
Which of the following would be considered an extraordinary item on an income
statement of a bank?
a. Revenue from the sale of the bank’s office building.
b. Interest income when the spread is greater than 10%.
c. Realized security gains.
d. Collection on loans already charged off.
e. All of the above would be considered extraordinary items.
Answer:
What is the bank’s duration gap?
a. 0.53
b. 0.73
c. 0.91
d. 1.88
e. 4.58
Answer:
Liability management decisions determines all of the following except:
a. interest expense on borrowed funds.
b. check handling costs.
c. personnel costs.
d. fee income.
e. loan rates.
Answer:
When a bank keeps dealer reserves, the reserves are primarily used:
a. to cover charge-offs.
b. to increase bank profits.
c. to increase dealer profits.
d. to reduce taxes.
e. to increase advertising revenues.
Answer:
A bank estimates that their average balance on demand deposit accounts is $2,000, net
of float. Each account costs the bank $150 per year in processing costs. The bank
collects an average of $7.50 per month on each account in service charges. Assume
reserve requirements are 10%.
If the bank can invest the deposit balance (after adjusting for reserve requirements) at
5%, what is the break-even deposit balance?
a. $1,000
b. $1,333
c. $1,667
d. $2,000
e. $2,333
Answer:
Earnings sensitivity analysis differs from static GAP analysis by:
a. looking at a wide range of interest rate environments.
b. using perfect interest rate forecasts.
c. calculating a change in net interest income given a change in interest rates.
d. Earnings sensitivity analysis differs from static GAP analysis in all of the above
ways.
e. Earnings sensitivity analysis and static GAP analysis do not differ. They are different
names for the exact same analysis.
Answer:
Credit card issuers earn income from:
a. annual fees.
b. interest on outstanding balances.
c. discounting the charges that merchants accept on purchases.
d. All of the above.
e. a. and b. only
Answer: