1) oceanside bank converts a dollar of equity into 10 cents of net income and has $9.50
in assets per dollar of equity capital. oceanside also has a profit margin of 15%. what is
oceanside’s au ratio?
a.1.05%
b.3.55%
c.5.56%
d.6.45%
e.7.02%
2) a u.s. bank borrowed dollars, converted them to euros, and invested in
euro-denominated cds to take advantage of interest rate differentials. to cover the
currency risk the investor should
a.sell dollars forward
b.sell euros forward
c.buy euros forward
d.sell euros spot
e.none of the above
3) on september 1, 2012 an investor purchases a $10,000 par t-bond that matures in 12
years. the coupon rate is 6% and the investor buys the bond 70 days after the last
coupon payment (110 days before the next). the ask yield is 7%. the dirty price of the
bond is:
a.$9,295.45
b.$9,300.55
c.$9,313.75
d.$9,321.82
e.$9,333.24
4) the major liability of the federal reserve is
a.u.s. treasury securities
b.depository institution reserves
c.currency outside banks
d.vault cash of commercial banks
e.gold and foreign exchange
5) the profits on a derivatives position are fixed when a bond’s price falls below a
certain point, but above that point the profits fall when the bond price rises. this profit
profile fits which of the following positions?
a.purchased call option
b.written call option
c.purchased put option
d.written put option
6) _____________ are examples of investment bankers offering traditional commercial
banking services.
a.online brokers
b.cash management accounts
c.underwriting corporate debt and equity offers
d.venture capital funds
e.mergers and acquisition services
7) the most important federal legislation affecting the regulation of life insurance
companies prior to 1999 was the
a.mccarran-ferguson act
b.mcfadden act
c.investment company act
d.sec act
e.insurance freedom act
8) figure 20-2
balance sheet big valley enterprises
interest is big valley’s only fixed cash charge.
big valley’s market value of equity to book value of debt ratio = 1.5
big valley’s current ratio indicates that big valley is ______ liquid than the typical firm
in the industry and big valley’s quick ratio indicates that big valley is _______ liquid
than the typical firm.
a.more; more
b.more; less
c.less; less
d.less; more
e.similar; similar
9) the sum of the market values of all the classes of a cmo is greater than the total value
of the gnma pass-throughs backing the cmo because
a.the cmo has less credit risk than the pass-through
b.cmo investors can choose their degree of prepayment protection
c.the government guarantees cmos’ performance
d.cmos have a more favorable tax status than pass-throughs
e.cmo investors have no prepayment risk
10) classify each of the following in terms of their effect on interest rates (increase or
decrease):
i. perceived risk of financial securities increases
ii. near term spending needs decrease
iii. future profitability of real investments increases
a.i increases, ii increases, iii increases
b.i increases, ii decreases, iii decreases
c.i decreases, ii increases, iii increases
d.i decreases, ii decreases, iii decreases
e.none of the above
11) if a bank is exposed to refinancing risk, its profitability is reduced if interest rates
__________________ and if it is exposed to reinvestment risk, its profitability is
reduced if interest rates ________________.
a.rise; fall
b.rise; rise
c.fall; rise
d.fall; fall
e.rise; stay the same
12) which of the following statements are true about a traditional ira?
i. subject to an income limit, in 2011 a single person could contribute up to $5,000 per
year of pretax income to an ira.
ii. all withdrawals are tax-free.
iii. earnings on the ira account are not taxed until withdrawn.
iv. you must begin withdrawals at age 59 .
v. withdrawal(s) can be a lump sum or installments.
a.i, ii, iv
b.i, ii, iv, and v
c.i, iii, and v
d.ii, iv, and v
e.iii, iv, and v
13) which of the following statements about mortgage markets is/are true?
i. mortgage companies service more mortgages than they originate.
ii. servicing fees typically range from 2% to 4%.
iii. most mortgage sales are with recourse.
iv. the government is involved in the residential mortgage markets.
a.i, iii, and iv only
b.ii, iii, and iv only
c.i, ii, and iv only
d.ii and iii only
e.i and iv only
14) figure 23-1
after conducting a rate sensitive analysis, a bank finds itself with the following amounts
of rate- sensitive assets and liabilities (rsas and rsl) and fixed-rate assets and liabilities
(fras and frls), the rate of return and cost rates on the accounts are also given:
if the bank wishes to set up a swap to totally hedge the interest rate risk, the bank
should
a.pay a variable rate of interest and receive a fixed rate of interest
b.pay a fixed rate of interest and receive a variable rate of interest
c.pay a variable rate of interest and receive a variable rate of interest
d.pay a fixed rate of interest and receive a fixed rate of interest
15) a negotiable cd is
a.a time draft payable to a seller of goods, with payment guaranteed by a bank
b.a loan to an individual or business to purchase a home, land, or other real property
c.a short-term fund transferred between financial institutions usually for no more than
one day
d.a marketable bank issued time deposit that specifies the interest rate earned and a
fixed maturity date
e.a short-term unsecured promissory note issued by a company to raise funds for a short
time period
16) figure 21-1
if fnbna is expecting a $20 million net deposit drain and the bank wishes to fund the
drain by borrowing more money, how much will pre-tax net income change if the
borrowing cost is the same as on its existing borrowed funds?
a.$600,000
b.-$312,000
c.-$2,000,000
d.-$600,000
e.$312,000
17) figure 21-2
what are second national bank’s total uses of liquidity?
a.$6,520
b.$13,500
c.$14,200
d.$12,280
e.$5,760
18) at the beginning of the year the exchange rate between the brazilian real and the u.s.
dollar was 2.2 reals per dollar. over the year brazilian inflation was 12% and u.s.
inflation was 4%. if purchasing power parity holds, at year-end the exchange rate
should be approximately ________________ dollars per real.
a.2.3913
b.0.4895
c.2.8498
d.0.4182
e.0.3440
19) a bank has a positive repricing gap. this implies that
a.some rsas are financed by fixed-rate liabilities
b.some rsls are financing fixed-rate assets
c.some rsas are financing equity
d.the bank has no fixed-rate assets
20) as the economy weakens, one would expect investment in ____________ funds to
increase and investment in _____________ funds to decrease, ceteris paribus.
a.money market mutual; equity
b.equity; bond
c.municipal bond; money market mutual
d.corporate bond; municipal bond
e.long-term; short-term