1) as long as overall cash flow growth is positive, a bank loan officer would not be
concerned if cash flow from operations was projected to be negative over the term of
the loan.
2) in a best efforts offering, the investment banker acts as an agent for the issuer rather
than as a principal.
3) if the dollar is initially worth 120 yen and then the exchange rate changes so that the
dollar is now worth 115 yen, the value of the yen has depreciated.
4) a bank’s financing gap is calculated as average loans minus average deposits plus
liquid assets.
5) breakdowns of atms and fraudulent use of information stored on a bank’s computer
system are examples of operational risk.
6) an increase in the perceived riskiness of investments would cause a movement up
along the supply curve.
7) diversified full-line securities firms engage in all but which one of the following?
a.trading and brokerage of existing securities
b.corporate restructuring and advice
c.issuing new securities
d.raising money via insured deposits
8) historically, most savings institutions were established as
a.mutual organizations
b.stockholder organizations
c.partnerships
d.charitable organizations
e.banks
9) which one of the following forms of securitization is usually “double securitization?”
a.mortgage-backed bonds
b.cmo
c.pass-through
d.loan sale
10) if a firm has more foreign currency assets than liabilities, and no other foreign
currency transactions, it has
a.positive net exposure
b.negative net exposure
c.a fully balanced position
d.zero net exposure
11) figure 20-2
balance sheet big valley enterprises
interest is big valley’s only fixed cash charge.
big valley’s market value of equity to book value of debt ratio = 1.5
big valley has a times interest earned ratio that is _________, which indicates that big
valley has _________ long-term insolvency risk than the typical firm in the industry.
a.4; the same
b.3.91; less
c.3.91; more
d.4.58; more
e.4.58; less
12) my bank has a larger number of adjustable-rate mortgage loans outstanding. to
protect our interest rate income on these loans the bank could
i. enter into a swap to pay fixed and receive variable.
ii. enter into a swap to pay variable and receive fixed.
iii. buy an interest rate floor.
iv. buy an interest rate cap.
a.i and iii only
b.i and iv only
c.ii and iii only
d.ii and iv only
13) you find the following current quote for the march t-bond contract: $100,000; pts
32nd, of 100%
you went long in the contract at the open. which of the following is/are true?
i. at the end of the day, your margin account would be increased.
ii. 55,210 contracts were traded that day.
iii. you agreed to deliver $100,000 face value t-bonds in march in exchange for
$89,120.
iv. you agreed to purchase $100,000 face value t-bonds in march in exchange for
$89,375.
a.i, ii, and iii only
b.i, ii, and iv only
c.i and iii only
d.i and iv only
e.iv only
14) the quoted ask yield on a 14 year $1000 par t-bond with a 7% semiannual payment
coupon and a price quote of 98:15 is
a.7.00%
b.7.18%
c.7.30%
d.3.59%
e.3.63%
15) plain vanilla interest rate swaps are exchanges of
a.principle only
b.interest only
c.principle and interest
d.principle and currency
e.interest rate and currency
16) match the intermediary with the characteristic that best describes its function.
i. provide protection from adverse events
ii. pool funds of small savers and invest in either money or capital markets
iii. provide consumer loans and real estate loans funded by deposits
iv. accumulate and transfer wealth from work period to retirement period
v. underwrite and trade securities and provide brokerage services
1> thrifts
2> insurers
3> pension funds
4> securities firms and investment banks
5> mutual funds
a.1, 3, 2, 5, 4
b.4, 2, 3, 5, 1
c.2, 5, 1, 3, 4
d.2, 4, 5, 3, 1
e.5, 1, 3, 2, 4
17) a captive finance company is one that
a.is owned by a retailer or manufacturer
b.is owned by a bank holding company
c.is owned by its depositors
d.lends only to high-risk individuals that cannot obtain loans elsewhere (i.e., captives)
e.is regulated at the federal level
18) using the black-scholes model, explain what happens to the value of a call as s, t,
and 2 change. why is the relationship between risk and price different for options than
for other securities?
19) suppose that a corporate defined benefit plan had decided it will keep pension fund
reserves equal to the present value of expected future pension benefits to be fully
funded. the plan has expected payouts of $12 million per year for 15 years and then $22
million per year for the subsequent 10 years. all payments are at year-end. at the current
5.75% rate of return on the plan’s assets, the plan is currently fully funded. if the plan
can increase the proportion of stock investments the fund holds and raise the expected
rate of return to 8.00%, how many dollars of pension assets can be freed up by the
corporation?
20) how does gnma improve mortgage marketability?
21) for most business loans, growing earnings are not a sufficient reason to grant a loan.
why?
22) what are the three pillars of the proposed new basel accord (basel ii)?