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1) after deposits, the second largest source of funds at savings institutions is fhlb loans.
2) sales finance institutions specialize in loan sales to banks and thrifts.
3) relying on purchased liquidity is more risky than relying on stored liquidity.
4) higher interest rates lead to lower bond convexity, ceteris paribus.
5) under current reserve requirements, bank loan sales with recourse are considered a
liability and are subject to reserve requirements.
6) the duration gap model is a more complete measure of interest rate risk than the
repricing model.
7) program trading is the simultaneous buying and selling of at least 15 stocks worth a
total of $1 million or more.
8) pension contributions paid to insured pension funds and the assets purchased with
these funds become the legal property of the insurance company and are not the legal
property of the individual pension fund contributors.
9) loan charge-offs do not lead to insolvency risk because when loans are written off
both loans and liabilities are reduced.
10) if a bank wishes to have a positive balance sheet repricing gap and a negative
balance sheet duration gap, then the bank should predominantly have short-term
rate-sensitive assets funded by long-term fixed-rate liabilities.
11) in 1973, the smithsonian agreement ii eliminated fixed exchange rates for the major
economies.
12) at almost all banks noninterest expense is greater than noninterest income; hence,
the overhead efficiency ratio is usually greater than 100%.
13) the dow jones industrial average is a price-weighted index of 30 stocks chosen to
represent the overall market.
14) the difference between the private costs of regulations and the private benefits for
the producers of financial services is called the net regulatory burden.
15) fed funds are short-term unsecured loans while repos are short-term secured loans.
16) the largest market available for purchased funds is the ___________________.
a.wholesale cd market
b.eurodollar deposit market
c.banker's acceptances market
d.discount window purchases
e.fed funds market
17) the concept underlying purchasing power parity is the
a.fisher effect
b.bretton woods agreement
c.law of one price
d.big mac index
e.balance of payments concept
18) fraudulent conveyance proceedings are
a.charges that a loan was improperly sold according to the conditions of the original
loan agreement
b.charges of improprieties in hlts
c.evidence of moral hazard on the part of the loan buyer
d.illegal methods to boost borrower's earnings to increase probability of loan
acceptance
e.the primary cause of the subprime mortgage crisis
19) before 2003 the discount window loan rate was set
a.below the target fed funds rate
b.above the target fed funds rate
c.equal to the target fed funds rate
d.equal to the repurchase rate
20) a bond that you held to maturity had a realized return of 8%, but when you bought
it, it had an expected return of 6%. if no default occurred, which one of the following
must be true?
a.the bond was purchased at a premium to par
b.the coupon rate was 8%
c.the required return was greater than 6%
d.the coupons were reinvested at a higher rate than expected
e.the bond must have been a zero coupon bond
21) which of the following statements about 401(k) plans are true?
i. they are defined benefit plans.
ii. they allow employer and employee contributions.
iii. earnings accrue tax-free during the employee's working years.
iv. they allow employee discretion in asset allocation.
v. they always have minimum guaranteed rates of return.
a.i, iv, and v only
b.i, ii, and v only
c.ii and iii only
d.ii, iii, and iv only
e.all are true
22) a microhedge is a
a.hedge of a particular asset or liability
b.hedge against a change in a particular macro variable
c.hedge of an entire balance sheet
d.hedge using options
e.hedge without basis risk
23) figure 12-1
the bank's profit margin is
a.27.27%
b.23.08%
c.21.31%
d.18.46%
e.none of the above
24) the _________________ insures losses of funds deposited with securities firms in
the event of failure of a securities firm.
a.sec
b.nasd
c.sia
d.sipc
e.fdic
25) a policyholder wishes to annuitize the cash value of her insurance policy at
retirement. she desires an annual payment of $95,000 per year and the cash value is
expected to be $1,100,000 at retirement. approximately how many payments can she
expect to receive if annuity interest rates are 5.122%?
a.18
b.16
c.14
d.12
e.10
26) in 2010, only about _____ of the largest banks actively used derivatives.
a.750
b.830
c.940
d.990
e.1100
27) actively managed funds find it difficult to consistently earn higher risk-adjusted
returns than a broad stock market index. the difference in return between actively
managed funds and passively managed index funds can be explained by which of the
following?
i. lower expense ratios at index funds
ii. higher turnover ratios at index funds
iii. differences in returns in sectors of the market and the overall market return
a.ii only
b.i and iii only
c.i and ii only
d.ii and iii only
e.i, ii, and iii
28) all but which one of the following is an example of noninterest income or
noninterest expense?
a.income from service charges on deposits
b.income from trust services
c.gains and losses from trading account assets
d.earnings on securities held for investment
e.salaries and benefits paid to employees
29) on monday an equity mutual fund has cash of $150 and stocks worth $900. the fund
has 100 shares outstanding. on tuesday the stocks fall in value to $800 and 10 shares are
then redeemed by the fund. assuming that the fund uses its cash first to cover
redemptions, what is the one-day rate of return to the remaining fund shareholders, and
how much cash and stock does the fund now have?
30) what are the main responsibilities of the fomc?
31) how does a banker's acceptance help create more international trade?
32) how are hedge fund expenses different from mutual fund expenses? what are hurdle
rates and high water marks at a hedge fund? why are these used?
33) is it safer to hedge a contingent liability with options, futures, forwards, or swaps?
explain.
