According to the text, no-fee savings accounts are on the decline.
Answer:
Seasonal credit discount window loans generally have the highest interest rates.
Answer:
Basis risk exists on interest rate swaps because the interest rate on the swap agreement
may differ from the interest rate on assets and liabilities that the parties hold.
Answer:
Liquidity indicators measure a business firm’s ability to raise cash in a timely fashion at
a reasonable cost.
Answer:
Deposits with the Federal Reserve banks are considered to have moderate credit risk
and are therefore placed in the 50 percent risk-weight category.
Answer:
The ultimate goal of liability management is to gain control over a financial institution’s
sources of funds.
Answer:
In order to get regulatory approval for a merger, many a times banks have been required
to open up a number of new branch offices.
Answer:
According to the textbook, a majority of securities held in U.S. banks’ investment
portfolios are state and local government bonds.
Answer:
The ratio of uninsured deposits to total deposits is considered to be a measure of credit
risk in banking.
Answer:
A concern in the banking and commercial finance industries today is that traditional
inventory loans may be on the decline.
Answer:
Bank income from loans is usually taxable.
Answer:
A financial institution’s liquidity gap represents the difference between its sources and
uses of liquid funds.
Answer:
One of the measures of a bank’s efficiency and return is “earnings spread”. It is
calculated by the ratio of total interest income to total liabilities as reduced by the ratio
of total interest expenses to total assets.
Answer:
Stripping a security eliminates prepayment risk.
Answer:
Deposit insurance subsidized by government encourages banks to increase their ratios
of capital to deposits.
Answer:
Primary credit is defined as loans available for short terms and normally considered
beneficial for the borrower because it carries an interest rate slightly below the target
Fed funds rate.
Answer:
Deposits held by banks with others are called correspondent deposits.
Answer:
A bank with a positive duration gap experiencing a decrease in interest rates will
experience an increase in its net worth.
Answer:
Consumer loans appear to have virtually no sensitivity to the business cycle, staying
relatively stable through both recessions and expansions.
Answer:
The Bank Merger Act and its amendments require that Bank Holding Companies be
under the jurisdiction of the Federal Reserve.
Answer:
The etymological roots of the word “bank” trace this word back to an Italian term
referring to a “money-changer’s table”.
Answer:
An increasing portion of short-term lending in recent years has consisted of asset-based
loans.
Answer:
The ultimate standard of performance in a market-oriented economy is how much net
income remains after all expenses (except stockholder dividends) have been charged
against revenues.
Answer:
The size of a financial institution has an effect on the type of nondeposit funding source
it considers. For example, larger depository institutions have the credit standing to sell
the largest negotiable CDs, while the Fed funds market is suitable for smaller
institutions.
Answer:
Liquid assets must have a reasonably stable price so that the market is deep enough to
absorb the sale without a significant loss of value.
Answer:
Discount window loans jumped dramatically the day following 9/11.
Answer:
Financial institutions laden with home mortgages tend be immune to interest-rate risk.
Answer:
An interest rate collar sets both, a minimum and a maximum interest rate on a variable
rate loan agreement.
Answer:
Call risk refers to the right of debt collectors to call in the loans in advance of maturity
and get an early repayment.
Answer:
The FDIC is a private credit rating company which provides credit ratings on the short
term and long term securities issued by banks.
Answer:
Finance companies are the most dominant lenders of credit to households in the United
States with commercial banks ranked second as consumer lenders.
Answer:
Unlike the APR method for calculating consumer loan rates, the simple interest
approach adjusts for the length of time a borrower actually has use of the credit.
Answer:
Loan sales by banks are generally of two types: (a) participation loans; and (b)
_________. The term that correctly fills in the blank above is:
A. assignments
B. recourse loans
C. direct loans
D. subscription loans
E. None of the options is correct
Answer:
Which of the following reasons leads to an implication that traditional banking is
dying?
A. Decrease in number of branches
B. Increased restructuring of loans
C. Degradation of market share
D. Reduction of public trust and confidence in the system.
E. Increase in risky arbitrage services
Answer:
Harrison Bank has the following financial information.
What is the bank’s total operating revenue?
A. $125
B. $8,000
C. $488,281
D. $31,250,000
E. None of the options is correct
Answer:
The beginning balance in the allowance for loan loss account for Synopsis Bank is $500
million. The banking firm charges $2 million for provision for loan losses. Synopsis
Bank will report: A. $502 million as adjusted allowance for loan losses.
B. $498 million as noninterest expense.
C. $2 million as allowance for loan losses.
D. $502 million as provision for loan loss expense.
E. $2 million as adjusted allowance for loan losses.
Answer:
Which of the following is an advantage of credit swaps for each partner?
A. Broaden the number of markets
B. Broaden the variety of markets from which they collect loan revenues and principal
C. Spread out the risk in the loan portfolio
D. Avoiding capital requirements
E. Options A, B, and C are all advantages of a credit swap for each partner.
Answer:
The law which was passed to curtail predatory lending is known as the:
A. Community Reinvestment Act.
B. Home Ownership and Equity Protection Act.
C. Equal Credit Opportunity Act.
D. Fair Debt Collection Practices Act.
E. None of the options is correct.
Answer:
Which of the following accounts is also called the bank’s primary reserves?
A. Cash and deposits due from banks
B. Investment securities
C. Trading account securities
D. Fed funds sold
E. None of the options are correct.
Answer:
As per the National Currency and Bank Acts, the comptroller of currency ensures that
every national bank is examined by a team of federal examiners at least:
A. twice in a year.
B. once in 3 months.
C. once every 12 to 18 months.
D. once every 9 to 12 months.
E. once in a month.
Answer:
Lloyd Blenman is building a shopping center in Charlotte and needs to get a loan until
the shopping center is constructed and he can get a mortgage on the property. What type
of loan does he need?
A. Self-liquidating inventory loan
B. Working capital loan
C. Interim construction financing
D. Security dealer financing
E. Retailer and equipment financing
Answer:
Which of the following is an option when a liquidity deficit arises and a bank wants to
borrow liquidity to cover the deficit?
A. Selling Treasury Bills
B. Reducing its correspondent deposits with another bank
C. Selling a municipal bond
D. Issuing a jumbo CD
E. All the options are correct
Answer:
Which of the following is considered to be an advantage of branch banking?
A. Increased availability and convenience of services
B. Decreased chance of failure
C. Reduced transaction costs
D. Decreased chance of failure and reduced transaction costs
E. All the options are correct
Answer:
A bank is considering making a loan to John Carter. John is a commissioned sales
broker. Some months he earns as much as $10,000 and in other months he earns
virtually nothing. Which aspect of evaluating a consumer loan would this be concerned
with?
A. Character and purpose
B. Income level
C. Deposit balance
D. Employment and residential stability
E. Pyramiding of debt
Answer:
A call option on Eurodollar deposit futures is most likely to be used by a bank to:
A. protect the value of its fixed-rate loans and securities.
B. offset a negative interest-sensitive gap.
C. offset a positive duration gap.
D. offset a negative duration gap.
E. speculate on the rising interest rates.
Answer:
Which dimension of a business firm’s financial and operating performance, would
unfunded pension liabilities fit best?
A. Profitability measure
B. Market indicator
C. Contingent liability
D. Marketability of the product or service
E. None of the options is correct.
Answer:
A bank has capital to risk-weighted assets of 9.2%, Tier 1 capital to risk-weighted assets
of 5% and a leverage ratio of 4.8%. What type of bank is this?
A. Well capitalized
B. Adequately capitalized
C. Undercapitalized
D. Significantly undercapitalized
E. Critically undercapitalized
Answer:
The available-for-sale securities are shown on the: A. Report of Condition at book
value.
B. Report of Income at fair market value.
C. Report of Condition as a contra asset.
D. Report of Condition at fair market value.
E. Report of Income as an income.
Answer:
A bank holding company that wishes to acquire _________ or more of equity shares of
an additional bank must seek approval from the Federal Reserve Board.
A. 5 percent
B. 10 percent
C. 15 percent
D. 25 percent
E. 51 percent
Answer:
A significant limitation to financial futures as an interest-rate hedging device is a
special form of risk known as ___________ risk. Which of the following terms
correctly completes the statement?
A. default
B. basis
C. credit
D. market
E. None of the options are correct
Answer:
Which of the following regulations requires lending institutions to delineate the trade
territory it plans to serve and to offer all of its services without discrimination to all the
residents in that particular trade territory?
A. Equal Credit Opportunity Act
B. National Bank Act
C. Federal Lending Act
D. Fair Credit Reporting Act
E. Community Reinvestment Act
Answer:
Business loans designed to fund long-term business investments, such as the purchase
of equipment or the construction of physical facilities, covering a period longer than
one year are known as:
A. working capital loans.
B. term loans.
C. interim construction financing.
D. durable goods loan.
E. None of the options is correct.
Answer:
A security which was created by the United States Treasury department to protect
against inflation risk is called:
A. CMO.
B. FNMA.
C. GNMA.
D. TIPS.
E. CD.
Answer:
The Second National Bank of Guthrie has opened an office in Chile. This office offers a
full line of services and is not a separate legal entity from the Second National Bank of
Guthrie. What type of office has the Second National Bank of Guthrie opened in Chile?
A. A representative office
B. An agency office
C. A branch office
D. A subsidiary
E. An export trading company
Answer:
Samuel Peltzman had a different view to George Stigler on the impact of regulation on
banks. He contends that:
A. firms in regulated industries actually seek out regulations because they bring
monopolistic rents.
B. regulations shelter firms from changes in demand and cost, lowering its risk.
C. regulations can increase consumer confidence which increases customer loyalty to
regulated firms.
D. depository institutions should be regulated no differently than any other corporation
with no subsidies or special privileges.
E. None of the options are correct.
Answer:
Bill Wells uses his Discover card to buy new furniture for his apartment. The interest
rate on this card is 18 percent and the minimum payment that is due is $100. Which of
the following categories will this loan fall into?
A. Residential mortgage loan
B. Home equity loan
C. Noninstallment loan
D. Revolving line of credit
E. None of the options is correct
Answer:
Which of the following adjustments are made to gross loans and leases to obtain net
loans and leases?
A. Loan and lease loss allowance is added to gross loans.
B. Unearned income is subtracted from gross interest received.
C. Investment income is added to gross interest received.
D. Loan and lease loss allowance and unearned income is subtracted from gross loans.
E. Loan and lease loss allowance is subtracted from gross loans and investment income
is added to gross interest received.
Answer:
Which of the following is one of the disadvantages of following the customer
relationship doctrine?
A. High interest costs on loans
B. Negative returns on loans
C. Poor credit scores of customers
D. Fewer loyal customers
E. Low service fees
Answer:
The Hagard Mercantile Company has made a $30 million investment in a mill in
Germany and fears a substantial decline in the mark’s current spot rate from $0.63 to
$0.56 lowering the value of the company’s investment in the mill. Which of the
following currency contracts can help Hagard solve this problem?
A. Call currency option
B. Put currency option
C. Long-hedge currency futures contract
D. Currency swap contract
E. None of the options is correct.
Answer:
What is the objective of a cash flow hedge?
A. To offset the losses due to changes in the value of an asset or liability
B. To reduce the risk associated with future cash flows
C. To predict future cash flows
D. To predict the value of an asset or minimize the value of a liability
E. None of the options are correct
Answer:
Recently, time deposits have been issued with interest rates adjusted periodically (such
as every 90 days). This time period is known as:
A. roll period.
B. maintenance period.
C. computation period.
D. maturity period.
E. reserve period.
Answer:
Suppose there are four banks in a local community. Each of these banks has 25 percent
of the deposits in this community. Calculate the change in the Herfindahl-Hirschman
Index (HHI) if two of these banks merge.
A. 625
B. 1,000
C. 1,150
D. 1,200
E. 1,250
Answer:
The Terrell State Bank is a small bank located in Guyman, Oklahoma. All of its loans
are agriculture and small business loans in Guyman. It wants to buy a municipal bond
from the state of South Carolina. What type of risk is it likely trying to reduce with this
purchase?
A. Credit risk
B. Interest-rate risk
C. Business risk
D. Call risk
E. Prepayment risk
Answer:
Loans providing credit to finance the purchase of automobiles, mobile homes,
appliances, and other retail goods to repair and modernize homes are classified under
the category:
A. financial institution loans.
B. commercial industrial.
C. loans to individuals.
D. miscellaneous loans.
E. None of the options is correct.
Answer:
A merger where the institutions involved don’t overlap much or at all in terms of
geographic area served is known as:
A. convergence.
B. consolidation.
C. market extension merger.
D. market making merger.
E. market pooling merger.
Answer:
The Harris State Bank has $2,000 in total assets (all of which are earning assets), $500
of which will be repriced in the next 90 days. This bank also has $1,600 in total
liabilities, $1,000 of which will be repriced in 90 days. The bank currently earns 9
percent on its assets and pays 4 percent on its liabilities.If interest rates on both assets
and liabilities fall by 2 percent in the next 90 days, what should happen to this bank’s
net interest margin? A. It should rise by 0.5 percent.
B. It should fall by 0.5 percent.
C. It should stay the same.
D. It should rise by 2 percent.
E. It should fall by 2 percent.
Answer:
A(n) ____________________________________________ is the exchange of
different national currencies between two parties who need foreign currencies to repay
loans or cover other expenses.
Answer:
A(n) ______________________ loan is a short-term or a medium-term loan repayable
in two or more consecutive payments, usually monthly or quarterly.
Answer:
____________________________ loans are ones that are extended to farmers and
ranchers to assist in planting crops, harvesting crops, and to support the feeding and
care of livestock.
Answer:
A(n) _________________________ is a thrift account which carries a fixed maturity
date and generally carries a fixed interest rate for that time period.
Answer:
Trust department activities usually center upon establishing a ____________
relationship with a customer.
Answer:
A firm’s balance sheet figures expressed as a percentage of total assets are often called
__________.
Answer:
One of the ratios used in the liquidity indicator approach to managing a financial
institution’s liquidity needs is ___________. This ratio is cash and deposits due from
depository institutions divided by total assets, where a greater ratio indicates a stronger
liquidity position.
Answer:
A ______________ repurchase agreement (RP) is one in which the underlying
collateral is not identified precisely and thus allows some substitution at the time of
delivery.
Answer:
A(n) ______________________ is where a bank customer, anticipating a future need to
make foreign currency purchase, will negotiate a contract for the delivery of the
currency at a set price on a set date.
Answer:
_____________________ is the rate on short-term Eurocurrency deposits which range
in maturity from a few days to a few months.
Answer:
________________ is an asset category which includes direct and indirect investment
in real estate. These are properties obtained for compensations for nonperforming
loans.
Answer:
A(n) _________________________ is a contract that promises to reimburse policy
holders for personal injury, property damage, and other losses, in exchange for the
policy holder’s premium payments.
Answer:
To most authorities, the recent upsurge in mergers reflects the expectation of the
stockholders that the profit potential will _____________ once the merger is
completed.
Answer:
When a borrower receives a loan at one lending institution to repay another, it is called
___________________________ of debt.
Answer:
The _____________ of setting up a new ATM is the present value of the future stream
of cash savings discounted at the firm’s required rate of return less the total cash outlay
for the ATM.
Answer: