Of the principal reasons for regulating banks, what was the primary purpose of the
National Banking Act (1863)?
A. Separation of commercial and investment banking
B. Separation of commercial banking and insurance activities
C. Chartering new banks and examining existing ones
D. Establishment of a network to clear and collect checks
E. Preventing banks from realizing monopoly powers
Answer:
A customer makes a savings deposit for 60 days. During that time he earns $11 in
interest and maintains an average daily balance of $1,500. What is the annual
percentage yield on this savings account?
A. 0.73%
B. 4.32%
C. 4.54%
D. 4.78%
E. None of the options is correct
Answer:
First National Bank has new loan requests of $175 million, needs to purchase $50
million in U.S. Treasury securities to meet pledging requirements, and anticipates draws
against credit lines of $45 million. Deposits received today total $140 million and the
bank expects to bring in an additional $230 million next week. What is First National’s
estimated funds gap for the coming week?
A. $225 million.
B. -$145 million.
C. $135 million.
D. -$100 million.
E. None of the options is correct.
Answer:
Main Street Bank has $100 million in commercial loans with an average duration of
0.40 years; $40 million in consumer loans with an average duration of 1.75 years; and
$30 million in U.S. Treasury bonds with an average duration of 6 years. What will be
the bank’s dollar-weighted asset portfolio duration?
A. 0.4 years
B. 1.7 years
C. 2.7 years
D. 4.1 years
E. None of the options is correct.
Answer:
Which of the following is a factor in determining the mix of loans that a bank has?
A. Location of the bank
B. Size of the bank
C. Written loan policy of the bank
D. Experience and expertise of the management
E. All of the options are factors in determining the mix of loans for a bank
Answer:
The Goudge Grilling Company has just ordered a shipment of grills from Frankfurt.
Payment for the grills must be in euros when the grills are delivered. Euros have
changed in value in the last 30 days. They have gone from $1.42 to $1.44. If this trend
continues which of the following currency contracts can help the Goudge Grilling
Company hedge their currency risk?
A. Put currency option
B. Short-hedge currency futures contract
C. Long-hedge currency futures contract
D. Currency swap contract
E. None of the options is correct.
Answer:
The Stumbaugh State Bank is thinking about purchasing a corporate bond that pays a
coupon of 9%. The bank has a marginal tax rate of 40%. What is the after-tax yield on
this bond?
A. 15%
B. 9%
C. 5.4%
D. 3.6%
E. None of the options is correct
Answer:
A charter of incorporation to start a new U.S. bank can be issued by:
A. the Office of the Comptroller of the Currency.
B. the state banking commissions of each state.
C. the Federal Deposit Insurance Corporation (FDIC).
D. All of the options are correct
E. both the Office of the Comptroller of the Currency and the state banking
commissions.
Answer:
According to a proposal under Dodd-Frank Wall Street Reform and Consumer
Protection Act, lenders who are pooling and securitizing the mortgage loans they create
and then selling them off should remain responsible for at least:
A. 10 percent of market risk attached to these loans.
B. 5 percent of market risk attached to these loans.
C. 10 percent of credit risk attached to these loans.
D. 5 percent of credit risk attached to these loans.
E. 50 percent of the credit risk attached to these loans.
Answer:
A bank has $200 million in checking deposits with interest and non-interest costs of
4%, $400 million in savings and time deposits with interest and non-interest costs of
8%, and $200 million in equity capital with a cost of 24%. The bank has estimated that
reserve requirements, deposit insurance fees, and uncollected balances reduce the
amount of money available on checking deposits by 10% and on savings and time
deposits by 5%. What is the bank’s before-tax cost of funds?
A. 11.00%
B. 11.26%
C. 11.50%
D. 12.00%
E. None of the options is correct
Answer:
A bank currently holds $105 million in transaction deposits subject to legal reserves but
has managed to enter into sweep account arrangements affecting $55 million of these
accounts. Given that the bank must hold 3 percent legal reserves up to $47.8 million of
transaction deposits and 10 percent legal reserves on any amount above that, how much
has this bank reduced its total legal reserves as a result of these sweep arrangements?
A. $5.500 million
B. $1.449 million
C. $7.119 million
D. $1.619 million
E. None of the options is correct
Answer:
The most important goal of any merger should be to:
A. increase the market value of the surviving firm.
B. reduce the risk of the surviving firm through geographic diversification.
C. increase managerial compensation.
D. increase the efficiency of the target firm.
E. None of the options is correct.
Answer:
Which of the following is true of Treasury bills? A. Interest on Treasury bills is not
exempt from state income taxes.
B. Interest on Treasury bills is exempt from federal income taxes.
C. Treasury bills pay a lower pre-tax yield than comparable corporate securities.
D. All the options are true.
E. None of the options is correct.
Answer:
Beverly Frickerson asks for a $15,000 loan for one year. The bank tells her that it will
give her $13,050 and deduct $1,950 in interest upfront. What is the effective rate of
interest on this loan?
A. 14.94 percent
B. 13.00 percent
C. 19.50 percent
D. 11.50 percent
E. None of the options is correct
Answer:
SNCs are also known as:
A. working capital loans.
B. asset-backed loans.
C. syndicated loans.
D. construction loans.
E. inventory loans.
Answer:
Financial firms devote greater attention to opening up new sources of funding and
monitoring the mix and cost of their deposit and non-deposit liabilities under the
_______________________ strategy.
A. asset management
B. liabilities management
C. interest-sensitive gap management
D. weighted gap management
E. duration gap management
Answer:
Recent research on interstate bank mergers suggests that generally such mergers have
resulted in:
A. increased earnings.
B. improved employee productivity.
C. faster growth.
D. improved cost control.
E. All of the options are correct.
Answer:
International banking regulation(s) that do not apply to most domestic banking activity
include:
A. foreign exchange controls.
B. restricting the outflow of scarce capital.
C. protecting domestic financial institutions from foreign competition.
D. protecting domestic markets from foreign competition.
E. All of the options are correct.
Answer:
As per the Gramm-Leach-Bliley Act, one of the ways through which a
banking-insurance-securities affiliation can take place is through:
A. a financial holding company.
B. the state insurance commissions.
C. the European Central Bank.
D. a financial service corporation.
E. a financial modernization organization.
Answer:
The floating-rate payer in a swap would most likely want to buy an interest-rate:
A. floor.
B. cap.
C. collar.
D. deposit contract.
E. futures contract.
Answer:
A checking account price schedule that charges a fixed charge per check, or per period,
or both is called:
A. free pricing.
B. conditionally free pricing.
C. flat-rate pricing.
D. marginal cost pricing.
E. nonprice competition.
Answer:
Which of the following asset items may include deposits placed with correspondent
deposits?
A. Savings deposit
B. Trading account assets
C. NOW accounts
D. Allowance for loan losses
E. Cash and due from depository institutions
Answer:
The State Bank of Nebraska owns a company that has more than half of its income
from activities associated with exporting goods and services from the U.S. This
company offers export insurance coverage, transportation and warehousing in Europe,
trade financing, and other services. What type of company does the State Bank of
Nebraska own?
A. A representative office
B. An agency office
C. A branch office
D. A subsidiary
E. An export trading company
Answer:
A manager that examines the bank’s stock price behavior and risk premium on the CDs
to measure liquidity position is using: A. the sources and uses of funds approach.
B. the structured funds approach.
C. the liquidity indicator approach.
D. signals from the marketplace.
E. None of the options is correct.
Answer:
The Shirley State Bank has $90 million in transaction deposits subject to legal reserves.
The bank must hold 3 percent legal reserves up to $43.9 million of transaction deposits
and 10 percent legal reserves on any amount above this. What is the bank’s total legal
reserve requirement?
A. $2.700 million
B. $1.449 million
C. $5.927 million
D. $4.170 million
E. None of the options is correct
Answer:
For a bank, there is always a trade-off problem between liquidity and:
A. risk exposure.
B. revenue generation.
C. profitability.
D. efficiency.
E. None of the options is correct.
Answer:
An agreement where one party agrees to sell T-bills to another party and at the same
time agrees to buy them back at a future date for set price is known as a:
A. repurchase agreement.
B. commercial paper.
C. term loan.
D. negotiable CD.
E. None of the options is correct
Answer:
The part of an agreement which allows one or both parties to make certain changes to
the agreement or eliminate the agreement is called:
A. an interest rate swap.
B. a currency swap.
C. a swaption.
D. a quality swap.
E. None of the options are correct
Answer:
Eurodollar contracts are quoted using:
A. an index price which is 100 minus the yield on a bank discount basis.
B. an index price which is 100 minus the yield on a ten-year U.S. treasuries.
C. interest rate derived from one-month federal funds futures.
D. interest rate derived from three-month U.S. T-bill futures.
E. interest rate derived from one-year U.S. T-bond futures.
Answer:
Dorchester County has the following five banks in its market area:
What is the Herfindahl-Hirschman Index for this market area? A. 3,017
B. 5,000
C. 10,000
D. 3,187,000
E. None of the options is correct
Answer:
________________ CDs permit periodic upward adjustments in promised interest
rates.
Answer:
When the title to accounts receivables pledged in an asset-based loan is passed to the
lender and the lender takes the responsibility of collecting the accounts receivables of
one of its business customers, this is called ____________________.
Answer:
When a bank buys funds from other financial institutions in order to cover good quality
loan demand and to satisfy deposit reserve requirements, it is practicing
_________________________ management.
Answer:
Consumer loans tend to be _____________________ sensitive. They tend to rise in
periods of economic expansion and tend to fall in periods of economic downturn.
Answer:
In the mortgage environment of the early 2000s, lenders were encouraged to sell
individual loans and packages of loans to buy more liquid securities, thus shifting much
of the risk of lending to capital markets. This process is referred to as
_________________.
Answer:
________________ labeled “Accounting for Derivative Instruments and Hedging
Activities” and its recent amendments, __________, are designed to make derivatives
more publicly visible on corporate financial statements.
Answer: