1) a u.s. bank has £900 million in loans it has made to corporate customers and it has
£750 million in deposits when the exchange rate is £1 = $1.98. the bank will have a net
foreign exchange loss on these accounts if the exchange rate moves to £1 = $1.95.
2) wholesale cds obtained from an investment house rather than directly from a
customer are referred to as brokered deposits.
3) the process of mortgage securitization results in a separation between mortgage
origination and mortgage financing.
4) angel venture capitalists have invested more in startup firms than institutional
venture capital firms.
5) the subprime crisis is a good example of the credit risk faced by financial
institutions.
6) the nyse is an example of a secondary market.
7) when the quantity of a financial security supplied or demanded changes at every
given interest rate in response to a change in a factor, this causes a shift in the supply or
demand curve.
8) a bank with a negative repricing gap could enter into a swap to pay a fixed rate of
interest and receive a variable rate of interest to effectively reduce its repricing gap.
9) in terms of assets managed and numbers of plans, defined contribution plans are
becoming more predominant and defined benefit plans are declining.
10) convexity arises because a fixed income’s price is a nonlinear function of interest
rates.
11) the majority of money market securities are low denomination, low risk investments
designed to appeal to individual investors with excess cash.
12) for a one-year maturity bucket, the repricing model assumes that a 9-month loan is
as equally rate-sensitive as a 3-month loan.
13) writing a put option results in a potentially limited gain and a potentially unlimited
loss.
14) the market value of a fund’s net assets divided by the number of mutual fund shares
outstanding is called the nav of the fund.
15) one fixed-rate mortgage pool has a 750 psa and a second fixed-rate pool has 150
psa. the pool with the higher psa ______________________ than the pool with the
lower psa.
i. probably has a higher coupon
ii. probably has lower default risk
iii. will mature more quickly
a.i, ii, and iii
b.i and ii only
c.ii and iii only
d.i and iii only
e.i only
16) interest income from treasury securities is ________________, and interest income
from municipal bonds is always ________________.
a.exempt from federal taxes; exempt from all taxes
b.taxable at the state level only; exempt from state taxes only
c.taxable at federal level only; exempt from federal taxes
d.taxable at the state level; taxed at the federal level
e.totally tax exempt; exempt from state taxes
17) major provisions of the financial services modernization act of 1999 include all of
the following except
a.allowing bank holding companies to open insurance underwriting affiliates and vice
versa
b.allowing bank holding companies to open or merge with investment banks
c.created one regulator to oversee all activities of financial service firms
d.all of the above are included
18) the fdic may require an undercapitalized bank to
i. provide the fdic with a capital restoration plan.
ii. cease acquiring brokered deposits.
iii. obtain fdic approval for all acquisitions.
iv. suspend dividends and management fees.
v. suspend payments on subordinated debt.
a.i and ii only
b.iii only
c.i, ii, iii, and iv only
d.i, ii, iii, iv, and v
e.i, ii, iii, and v only
19) in dollars outstanding in 2010 the largest money market security was
a.commercial paper
b.banker’s acceptances
c.t-bills
d.fed funds & repos
20) which of the following bond terms are generally positively related to bond price
volatility?
i. coupon rate
ii. maturity
iii. ytm
iv. payment frequency
a.ii and iv only
b.i and iii only
c.ii and iii only
d.ii only
e.ii, iii, and iv only
21) you have agreed to deliver the underlying commodity on a futures contract in 90
days. today the underlying commodity price rises and you get a margin call. you must
have
a.a long position in a futures contract
b.a short position in a futures contract
c.sold a forward contract
d.purchased a forward contract
e.purchased a call option on a futures contract
22) areas of commercial bank regulation dealing with preventing banks from
discriminating unfairly in lending are termed ______________________ regulations.
a.safety and soundness
b.consumer protection
c.investor protection
d.credit allocation
e.monetary policy
23) a chinese exporter sells $200,000 of toys to a french importer. the chinese exporter
requires the french importer to obtain a letter of credit. when the bank accepts the draft
the exporter discounts the 90-day note at a 4% discount. what is the exporter’s true
effective annual financing cost?
a.4.00%
b.4.04%
c.4.10%
d.4.16%
e.4.22%
24) you buy a $10,000 par treasury bill at $9,575 and sell it 60 days later for $9,675.
what was your ear?
a.4.44%
b.6.29%
c.6.35%
d.6.52%
e.6.67%
25) a bank has three assets. it has $75 million invested in consumer loans with a 3-year
duration, $39 million invested in t-bonds with a 16-year duration, and $39 million in
6-month maturity t-bills. what is the duration of the bank’s asset portfolio in years?
a.3.95 years
b.4.83 years
c.6.50 years
d.7.38 years
e.11.51 years
26) which one of the following utilizes the least amount of deposits as a source of
funds?
a.banks
b.credit unions
c.finance companies
d.savings associations
e.savings banks
27) money market mutual funds (mmmfs) have caused disintermediation at banks at
times. this is because mmmfs
a.sometimes pay higher interest rates than bank deposits
b.are less risky than bank deposits
c.are now federally insured, like bank deposits
d.offer guaranteed rates of return
e.none of the above
28) how has the negotiable feature of wholesale cds improved bank’s ability to manage
their liquidity?
29) what are the major factors that are likely to contribute to continued growth in the
loan sale market?
30) why do banks continue to make credit card loans even though credit card default
rates are often at least twice as high as other loan types?
31) what are the primary differences between index funds and etfs? what are two
examples of etfs?
32) what are the advantages and disadvantages of foreign investing? how does an adr
help overcome the disadvantages?