A customer is seeking a $150,000 home mortgage. The bank requires the customer to
pay 1¾ points up front. How much of the loan amount will actually be available to the
customer if the bank approves the loan?
A. $150,000
B. $152,625
C. $147,375
D. $148,000
E. None of the options is correct
Answer:
Which federal banking act requires that financial service providers establish the identity
of customers opening new accounts?
A. the Sarbanes-Oxley Act
B. the USA Patriot Act
C. the Check 21 Act
D. the Fair and Accurate Credit Transactions Act
E. the Bankruptcy Abuse Prevention and Consumer Protection Act
Answer:
You know the following information about the Davis National Bank:
Given this information, what is the value of this firm’s increase in undivided profits?
A. $300
B. $150
C. ($50)
D. $120
E. $80
Answer:
You know the following information about the Davis National Bank:
Given this information, what is the value of this firm’s pretax net operating income (or
net income before extraordinary items)?
A. $300
B. $150
C. ($50)
D. $120
E. $80
Answer:
U.S. banks tend to fare best when the yield curve is:
A. horizontal.
B. downward-sloping.
C. vertical.
D. upward-sloping.
E. None of the options is correct.
Answer:
Which of the following trust agreements is used to back the issue of securities by a
corporation?
A. Revocable trust
B. Irrevocable trust
C. Charitable trust
D. Indenture trust
E. None of the options is correct.
Answer:
Suppose a bank expects to issue 45-day negotiable CDs for $150 million. The interest
rate on these CDs is 6.35 percent. What is the dollar amount in interest the bank will
owe on these CDs at the end of the 45-day period?
A. $9,525,000
B. $1,190,625
C. $76,200,000
D. $6,750,000
E. None of the options is correct
Answer:
An option buyer can:
A. exercise the option.
B. sell the option to another buyer.
C. allow the option to expire.
D. All of the options are correct.
E. exercise the option or must sell it to another buyer.
Answer:
A group of loans pooled for securitization is expected to yield a return of 23%. The
coupon rate promised to investors on securities issued against the pool of loans is 8%.
The default (charge-off) rate on the pooled loans is expected to be 4.5%. The fee to
compensate a servicing institution for collecting payments on the loans is 2%. Fees to
set up credit and liquidity enhancements are 3%. The fee for advice on how to set up the
pool of securitized loans is 1%. What is the residual income on this pool of loans?
A. 18.5%
B. 9%
C. 4.5%
D. 2%
E. None of the options is correct
Answer:
Pools of mortgages put together, either by a government agency or by a private
investment banking corporation, to raise more loanable funds for the issuer are known
as a(n):
A. accretion bond.
B. participation certificate.
C. CMO.
D. stripped security.
E. commercial paper.
Answer:
A loan for Colin Beverly to purchase a new Mazda Miata would fit into which of the
following categories of bank loans?
A. Financial institution loan
B. Commercial and industrial loan
C. Loan to an Individual
D. Miscellaneous loan
E. Lease financing receivables
Answer:
A typical branch banking organization:
A. has complete centralization of authority.
B. has complete decentralization of authority.
C. has partial decentralization of authority.
D. is completely operated by regulators.
E. is completely operated by shareholders.
Answer:
Bank of America is concerned that the Federal Reserve Board may impose legal reserve
requirements on money borrowed in the Fed funds market. Which factor that affects a
bank’s use of nondeposit sources of funds is this bank concerned about?
A. The relative cost of raising the funds
B. The length of time the funds will be required
C. The risk associated with each source of funds
D. The size of the bank
E. Regulations
Answer:
A bank has determined the information below for one of its customers. This customer
wants to borrow $1,000,000 but will maintain an average deposit balance in its account
of $200,000. What is the expected net rate of return on this loan?
A. 10.00 percent
B. 8.20 percent
C. 10.25 percent
D. 13.75 percent
E. None of the options is correct.
Answer:
An important investment security popular with banks that must, by law, mature within
one year from the date of issue and which has a high degree of safety and marketability
is the:
A. Treasury bill.
B. Treasury note.
C. FNMA note.
D. bankers’ acceptance.
Answer:
For which of the following types of short-term loans, the lender has to incur the
expense of collecting accounts receivable and risk of the loan?
A. Factoring
B. Retailer and equipment financing
C. Syndicated loans
D. Term business loans
E. Revolving credit financing
Answer:
You know the following information about the Taylor National Bank:
Given this information, what is the value of this firm’s total revenues?
A. $1,500
B. $2,000
C. $2,050
D. $1,950
E. $1,450
Answer:
A bank maintains an average clearing balance of $5,000,000 with the Federal Reserve.
The Federal funds rate is currently 6.5 percent. What amount of credit will the bank
earn over the reserve maintenance period that can be used to offset any fees charged by
the Federal Reserve?
A. $325,000
B. $8,357,143
C. $194,444
D. $12,639
E. None of the options is correct
Answer:
Most new U.S. banks are chartered in:
A. small communities where there is very little existing competition.
B. relatively large urban areas where organizers can earn higher expected rates of
return on their investment.
C. rural areas where they will be more convenient for customers.
D. All of the options are correct
E. small communities where there is very little existing competition and provides more
convenience for the customers.
Answer:
The European Central Bank has the main goal of:
A. ensuring that commercial and investment banks are separated.
B. keeping unemployment low.
C. ensuring price stability.
D. ensuring an adequate and fair supply of loans.
E. All of the above options are correct.
Answer:
A customer wants to borrow $125,000 to purchase a new home. The APR on this loan is
10 percent and it is a 30-year mortgage with monthly payments. What is the monthly
payment the customer will have to make on this loan?
A. $1,097
B. $55
C. $12,500
D. $13,260
E. None of the options is correct
Answer:
As the text suggests, all of the following areas of the world have significant
opportunities for foreign banks except:
A. Asia.
B. China.
C. Russia.
D. Japan.
E. South Korea.
Answer:
The 30-day Federal funds futures contracts are traded in the units of:
A. $100,000
B. $1,000,000
C. $3,000,000
D. $5,000,000
E. $500,000
Answer:
Alexander Phua goes to his local bank and gets an insurance policy that protects him
against loss in case he is in a car accident. Which of the following roles is the bank
performing?
A. The intermediation role
B. The payments role
C. The risk management role
D. The guarantor role
E. The policy role
Answer:
A bank seeking to avoid lower than expected yields from loans and security investments
is most likely to use:
A. a short position or selling hedge in futures.
B. a long position or buying hedge in futures.
C. a long position in put option on futures contracts.
D. a long position or buying hedge in futures and a long position in put option on
futures contracts.
E. None of the options are correct.
Answer:
A lender that makes a loan to an individual whose only income is commission based
and who hasn’t made a sale in six weeks may be violating which of the 6 Cs of
lending?
A. Character
B. Capacity
C. Cash
D. Control
E. Collateral
Answer:
A bank that has a high asset utilization (AU) ratio most likely:
A. is doing a poor job of controlling expenses.
B. has a small amount of financial leverage.
C. has a small amount of liquidity risk.
D. is allocating assets to the most productive investments.
E. None of the options is correct
Answer:
Most new banks:
A. become profitable in the first 3 years of their operation.
B. have pro-competitive effects on the markets they enter.
C. are more closely supervised by regulators than established institutions.
D. All of the options are correct
E. None of the options are correct.
Answer:
A bank or any other lender whose loans are pooled is called:
A. the originator.
B. the special-purpose entity.
C. the trustee.
D. the servicer.
E. the credit enhancer.
Answer:
Following is the information listed below for Carter State Bank. What is the bank’s
ROA?
A. 8.46 percent
B. 16.03 percent
C. 15.71 percent
D. 1.36 percent
E. None of the options is correct
Answer:
Which of the following is a characteristic of Treasury bills?
A. They are coupon instruments
B. They are short-term debt instruments issued by major corporations
C. They are discount securities
D. They have more risk than other money market securities
E. All the options are characteristics of Treasury bills
Answer:
A(n) _____________________ is one which offers its full range of banking services
from only one location.
Answer:
The _________________________ effect brings more than one financial-service
industries together to reduce the overall risk of the revenue flows through the company.
Answer:
________________________ refers to the uncertainty regarding a financial firm’s
earnings due to failures in computer systems, errors, misconduct by employees,
lightning strikes, and similar events.
Answer:
Answer:
A(n) ______________________ branch is a special foreign office which merely
records the receipt of deposits and other international transactions. Often these branches
contain little more than a desk, a telephone, fax machine, and computer and are used as
a way around regulations.
Answer:
Many depository institutions hold __________ balances (extra reserves) to help prevent
overdraft penalties.
Answer:
An investment maturity strategy which calls for a bank to have all of its investment
assets in very long term maturities is known as the ________________________.
Answer:
The fact that financial institutions monitor the financial condition of their borrowers by
serving only as an agent on behalf of depositors is the _______________________
theory of banking.
Answer:
In an interest-rate swap, the principal amount of the loan, usually called the
________________________, is not exchanged.
Answer:
The ____________________________________________ is the first major federal
law regulating foreign bank activity in the U.S. It requires foreign banks accepting
deposits to meet reserve requirements and allows foreign banks to be eligible for federal
deposit insurance under stipulated conditions.
Answer:
A(n) ______________________ bank is one that offers its services only through the
Internet. It does not have any brick-and-mortar offices.
Answer:
__________ consists of interest income received on loans from customers that has not
yet been earned by the bank under accrual accounting methods.
Answer:
One part of __________ arises from fees charged for ATM and POS transactions.
Answer:
____________________ reduces a bank’s overall risk exposure by establishing service
facilities in different market areas.
Answer:
The ___________________________________ Act prevents banks from redlining of
certain neighborhoods and refusing to provide loans and other services in those areas.
Answer:
The oldest approach to meeting liquidity needs, which relies on the sale of liquid assets
to meet liquidity demands is called ________________________.
Answer:
A(n) _________________________ is the fee a buyer must pay to be able to put
securities to, or to call securities away from the option writer.
Answer:
A(n) _________________________ is the person in a bank, responsible for the bank’s
cash position and meeting legal reserve requirements.
Answer: