Since 1980, the number of banks in the United States has been increasing dramatically
due to deregulation of the industry.
At year-end a firm has assets of $100 and debts due of $120. In this situation, the
stockholders must pay an additional $20 out of their own pocket.
The duration of a four-year maturity 10 percent coupon bond is less than four years.
Small banks control about 70 percent of banking industry assets.
For a given interest rate change, a 20-year bond’s price change will be twice that of a
10-year bond’s price change.
The major asset of the Federal Reserve is currency outside banks and the major liability
is U.S. Treasury securities.
If the FOMC wished to generate faster economic growth, they could issue a policy
directive to the Federal Reserve Board Trading Desk to purchase U.S. government
securities.
Dual class stock refers to firms with both common and preferred stock outstanding.
Euro commercial paper is a short-term obligation of the European Central Bank.
Banks have higher leverage than most manufacturing firms.
Primary markets are markets in which users of funds raise cash by selling securities to
funds’ suppliers.
In the T-bill secondary market the ask yield will normally be less than the bid yield.
Futures or option exchange members who take positions on contracts for only a few
moments are called scalpers.
Loans comprise the single largest asset category for a bank.
A borrower using a conventional mortgage will have to put up at least a 20 percent
down payment or purchase private mortgage insurance.
Refer to Figure 3-1. What is Maria and John’s asset-to-debt ratio?
a.0.57
b.35.0
c.2.56
d.1.77
Two competing fully electronic derivatives markets in the United States are
A.CME Globex and Eurex.
B.Philadelphia Exchange and AMEX.
C.NYSE and ABS.
D.CME and Pacific Exchange.
E.D-Trade and IMM.
The practice in which any unspent dollars in a Flexible Spending Account (FSA) at the
end of the year are forfeited and not returned to the employee is known as the
a.use-it-or-lose-it rule.
b.defined-contribution retirement plan.
c.situation of taxes paid out.
d.expense reimbursement account.
Insolvency risk at a financial intermediary (FI) is the risk
A.that promised cash flows from loans and securities held by FIs may not be paid in
full.
B.incurred by an FI when the maturities of its assets and liabilities do not match.
C.that a sudden surge in liability withdrawals may require an FI to liquidate assets
quickly at fire sale prices.
D.incurred by an FI when its investments in technology do not result in cost savings or
revenue growth.
E.risk that an FI may not have enough capital to offset a sudden decline in the value of
its assets.
Refer to Figure 14-1. What is the dividend payout ratio for Rosa’s?
Figure 14-1
Rosa’s is a small chain of Mexican food restaurants that features five delicious varieties
of salsa. The business has grown over the past ten years from a hobby to a small
corporation with 200,000 shares of common stock outstanding. The corporation has not
issued any preferred stock. The following is Rosa’s latest financial data:
NARREND
a.0.08
b.0.13
c.0.27
d.0.43
A ______ is a firm that notifies all companies with which you have debit and credit
cards in the event that the cards are lost.
a.card registration service
b.truth-in-savings service
c.money-market fund.
d.account monitoring service.
SEC Rule 144 A does which of the following?
A.allows privately placed investments to be traded on a limited basis
B.allows bond issuers to call their bonds when desired
C.determines the limits of responsibility of bond covenants
D.requires that bonds traded on the NYSE bond market utilize the ABS system
E.none of the options
You purchase a $255,000 house and you pay 20 percent down. You obtain a fixed-rate
mortgage where the annual interest rate is 5.85 percent and there are 360 monthly
payments. What is the monthly payment?
A.$1,215.27
B.$1,203.48
C.$1,194.45
D.$1,367.22
E.$1,504.35
As a result of the health care reform Patient Protection and Affordable Health Care Act
which of the following aspects of health care plans will no longer be allowed?
a.charging men and women different rates
b.payout maximums
c.denial of coverage for preexisting conditions
d.All of these.
Rank the following types of mortgages by amount outstanding from largest to smallest.
I. Home mortgages
II. Multifamily mortgages
III. Farm mortgages
IV. Commercial mortgages
A.I, II, III, IV
B.I, II, IV, III
C.II, I, IV, III
D.IV, II, III, I
E.I, IV, II, III
A government securities dealer needs to make a 7 percent pretax annual return on $10
million of capital employed to make it worthwhile to make a market in T-bills. If the bid
discount on $10,000 face value 90-day T-bills is 3.50 percent, and the dealer can expect
to do 5,200 round trip deals today, what must the ask discount be?
Hint: A round trip is a buy and a sell transaction.
Explain how the credit crunch originating in the mortgage markets hurt financial
intermediaries’ attempts to use diversification and monitoring to limit the riskiness of
their loans and investments while offering more liquid claims to savers.
If mortgage rates are 6.25 percent for a 30-year fixed-rate mortgage, how large can his
mortgage be?
Refer to Figure 14-2. What is Sudsy Soap’s P/E ratio?
Figure 14-2
Toni and Felix are considering buying stock. They would like to purchase 600 shares of
Sudsy Soap stock at $35 a share. Sudsy Soap had the following figures for the past
year:
NARREND
a.0.233
b.2.33
c.3
d.35
What are the differences between purchased funds and core deposits?