Under the international capital (Basel) agreement, Tier 2 capital must be raised to a
minimum of 4 percent of risk-weighted assets.
Answer:
Recent research indicates that some merger activity may actually stimulate “de novo”
bank entry into the marketplace.
Answer:
Negotiable CDs are restricted to short maturitiesfrom seven days to one or two years.
Answer:
According to the text, the ratio of a bank’s net after-tax income to pre-tax net operating
income is a measure of tax management efficiency.
Answer:
According to the textbook, if a bank’s liquidity deficit is expected to last for only a few
hours, the Federal funds market or the central bank’s discount window is normally the
preferred source of funds.
Answer:
ATMs are profitable for all banks since they can eliminate tellers at branches that have
ATMs.
Answer:
Under the Truth in Savings Act, customers must be informed of the impact of any early
deposit withdrawals on the annual percentage yield they expect to receive from an
interest-bearing deposit.
Answer:
When a bank irrevocably guarantees a commercial paper issue, the bank’s credit rating
substitutes for the borrower’s credit rating.
Answer:
Securitized assets cannot be removed from a bank’s balance sheet until they mature.
Answer:
Gradual phase-out of legal interest-rate ceilings on deposits offered by U.S. banks was
first authorized by the Glass-Steagall Act.
Answer:
Money-center banks usually service local communities, towns, and cities, offering a
narrow menu of services to the public.
Answer:
The total number of full-service branch offices has declined in the United States in
recent years.
Answer:
When banks serve as conduits for government policy this is referred to as their agency
role.
Answer:
The most important goal of any merger should be to increase the market value of the
surviving firm.
Answer:
According to the textbook, the financial success of a bank merger depends heavily upon
the comparative dollar amounts of earnings reported by the two banking organizations
and their relative price-earnings ratios.
Answer:
Bank regulators may challenge a merger between two institutions but can never require
banks to divest themselves of some of their offices in order to secure regulators’
approval.
Answer:
Liability management banking calls for using price (the interest rate offered) as the
control lever to regulate incoming funds.
Answer:
A banking corporation, chartered by either federal or state governments, that operates
only one full-service office is called a unit bank.
Answer:
According to the textbook, credit card loans tend to have the highest interest rates of all
consumer loans.
Answer:
Regulatory capital focuses on the market value of equity.
Answer:
The majority of all U.S. banks are members of the Federal Reserve System.
Answer:
Most loans that banks sell off their balance sheets carry interest rates that usually are
connected to long-term interest rates (such as the 30-year Treasury bond rate).
Answer:
Loans made by a particular bank secured by its own stock are not usually permitted
except under special circumstances.
Answer:
The National Bank Act (1863-64) created the Federal Reserve which acts as the lender
of last resort.
Answer:
According to recent research findings, the quotation of the APR to customers on the
loan they are requesting usually discourages consumers from shopping around.
Answer:
Interest rate caps protect the lender from falling interest rates.
Answer:
The yield curve is constructed using corporate bonds with different default risks, so that
the bank can determine the risk/return tradeoff for default risk.
Answer:
In recent years, deposits have been growing faster than nondeposit sources of funds
among U.S. banks.
Answer:
The FDIC Improvement Act requires that all depository institutions must have FDIC
insurance.
Answer:
If the discount factor associated with the value of a bank’s stock rises, the bank’s stock
price should rise, other factors held constant.
Answer:
Research suggests that in the short-term, newly chartered banks fail at a higher rate than
established banks.
Answer:
One of the factors to consider when a bank chooses among the nondeposit funding
sources is the relative cost. In general, managers prefer to borrow from the cheapest
source of funds, although other factors do play a role.
Answer:
Government-sponsored deposit insurance typically encourages individual depositors to
monitor their banks’ behavior in accepting risk.
Answer:
Less than 10 percent of the largest banks in the U.S. control almost 90 percent of the
industry assets.
Answer:
A bank with a duration gap of zero is immunized against changes in the value of net
worth due to changes in interest rates in the market.
Answer:
Most loans that banks sell off their balance sheets have minimum denominations of at
least a million dollars.
Answer:
Loan commitments ratio measures the volume of promises a lender has made to its
customers to provide credit up to pre-specified amount over a given time period.
Answer:
Which of the following asset classes is considered as the riskiest for a bank?
A. Corporate bonds
B. Equities
C. Real-estate
D. Loans
E. Municipal bonds
Answer:
First National Bank has new loan requests of $225 million, needs to purchase $100
million in U.S. Treasury securities to meet pledging requirements, and anticipates draws
against credit lines of $135 million. Deposits received today total $215 million and the
bank expects to bring in an additional $100 million next week. What is First National’s
estimated funds gap for the coming week?
A. -$225 million
B. $145 million
C. $135 million
D. -$100 million
E. None of the options is correct.
Answer:
____________ are often used to protect a nation against loss of its foreign currency
reserves, which might damage its prospects for repaying international loans and
purchasing goods and services abroad.
A. Export loan rate restrictions
B. Foreign exchange controls
C. Minimum capitalization requirements for domestic banks
D. Examination and supervision regulations for local branch offices
E. None of options is correct
Answer:
The _______________ is determined by the demand and supply for loanable funds in
the market.
A. coupon rate
B. reserve requirement
C. interest-sensitive gap
D. risk-free real rate of interest
E. duration gap
Answer:
Which of the following is a true statement?
A. The longer the time to maturity of a security, the smaller will be the duration
B. The lower the coupon rate of a security, the higher the duration
C. For a given duration and change in interest rates, the change in the price of the
security will be larger for a lower starting level of interest rates
D. The duration of a security remains constant no matter the level of market interest
rates
E. All of the options are true statements.
Answer:
A bank is asset-sensitive if its:
A. loans and securities are affected by changes in interest rates.
B. interest-sensitive assets exceed its interest-sensitive liabilities.
C. interest-sensitive liabilities exceed its interest-sensitive assets.
D. deposits and borrowings are affected by changes in interest rates.
E. None of the options is correct.
Answer:
Separate corporate entities affiliated either with a U.S. bank or with a foreign bank
operating in the U.S. that can cross state lines, but must devote the majority of their
accounts to international activities are known as:
A. joint ventures.
B. representative office.
C. Agreement corporations.
D. Edge Act corporations.
E. None of options is correct.
Answer:
The passage of _______________________ Act in the United States allowed various
combinations of bank-nonbank financial services and permitted banks, insurance
companies, and securities firms to acquire each other.
A. Gramm-Leach-Bliley
B. Riegle-Neal Interstate Banking
C. Sherman Antitrust
D. Bank Merger
E. Community Reinvestment
Answer:
A bank is considering adding security underwriting services to the services it offers. It
has estimated that the expected return and standard deviation of its traditional service
are 8% and 10% respectively. It has estimated that the expected return and standard
deviation of its new securities underwriting services are 16% and 20% respectively. The
correlation between these services has been estimated to be -0.3 and the bank estimates
that 80% of its business will be from traditional services and 20% from the new
services. What is the standard deviation of the new combined firm?
A. 7.8 percent
B. 10.0 percent
C. 12.0 percent
D. 15.5 percent
E. 20.0 percent
Answer:
First National Bank is planning to raise $30 million through an offering of negotiable
CDs. The current rate for similar CDs is 5.5 percent. Noninterest cost rate for CDs is
0.25 percent. First National pays a deposit insurance premium of 0.0023 per dollar of
insured deposits. Due to other immediate cash needs, only $25 million will be fully
invested. What is the effective cost rate of borrowing in the CD market for the bank?
A. 6.9 percent
B. 7.2 percent
C. 6.0 percent
D. 5.5 percent
E. None of the options is correct.
Answer:
A bank plans on borrowing $150 million through an RP transaction collateralized by
T-bills. It plans on borrowing the money for 5 days and the current RP rate is 5.25
percent. What is the bank’s total interest cost in dollars?
A. $7,875,000
B. $107,877
C. $21,875
D. $109,375
E. None of the options is correct
Answer:
Interest rate hedging devices used by banks today include which of the following?
A. Financial futures contracts.
B. Interest-rate options contracts.
C. Interest rate swaps.
D. Interest rate caps, floors, and collars.
E. All of the options are correct
Answer:
The lesson from the credit crisis of 2007-2009 is that securitized assets and credit
swaps:
A. are complex financial instruments.
B. are difficult to correctly value and measure in terms of risk exposure.
C. are a part of cyclically sensitive markets.
D. possible vehicles to set in motion a financial contagion that cannot be easily stopped
without active government intervention.
E. All of the options are correct.
Answer:
Chris Jones gets a cashier’s check from Wachovia Bank to make his down payment on a
new home. Which of the following roles is the bank performing?
A. The intermediation role
B. The payments role
C. The risk management role
D. The guarantor role
E. The policy role
Answer:
Ratio of population per branch is calculated as: A. total population in the area to be
served divided by number of branch offices present in the area.
B. total population in the state divided by number of branch offices present in the area.
C. total population in the state divided by number of branch expected to be opened in
next one year.
D. total population in the area to be served divided by number of employees hired for
the new branch office.
E. None of the options are correct
Answer:
A limited service facility that can market services supplied by the home office of an
international bank and identify new customers, but cannot take deposits or book loans is
known as a: A. branch office.
B. agency office.
C. subsidiary.
D. representative office.
E. None of options is correct.
Answer:
The First State Bank of Summerville knows that, if it issues commercial paper through
a subsidiary, tight money supply conditions in the market may result in the interest rate
on the commercial paper to be very high. What factor that affects a bank’s use of
nondeposit sources of funds is the bank concerned about?
A. The relative cost of raising the funds
B. The length of time the funds will be required
C. The risk associated with each source of funds
D. The size of the bank
E. Regulations
Answer:
A manager that uses ratios such as cash and deposits due from banks to total assets and
U.S. government securities to total assets to measure a firm’s liquidity position is
using: A. the sources and uses of funds approach.
B. the structured funds approach.
C. the liquidity indicator approach.
D. signals from the market place.
E. None of the options is correct.
Answer:
The principal functions and services offered by many financial-service firms today
include:
A. lending and investing money.
B. making payments on behalf of customers to facilitate their purchases of goods and
services.
C. managing and protecting customers’ cash and other property.
D. assisting customers in raising and investing funds profitably.
E. All of the above.
Answer:
Dorchester County has the following five banks in its market area:
If Summerfield and Charlestown banks merge, what would be the
Herfindahl-Hirschman Index after the merger? A. 3,017
B. 3,136
C. 5,000
D. 10,000
E. None of the options is correct
Answer:
What is a bank holding company?
A. It is a bank that offers all of its services out of one office
B. It is a bank that offers all of its services out of several offices
C. It is a corporation formed to hold the stock of one or more banks
D. It is a merchant bank
E. None of the options are correct
Answer:
An investor takes a call option on euro futures contracts at strike price of $0.65. If the
market price of euro futures increases to $0.67, the call option will be called:
A. “out of the money”.
B. “in the money”.
C. “long-hedge”.
D. “passing option”.
E. ‘swap money”.
Answer:
A bank devoted principally to the markets for smaller, locally based deposits and loans
is often referred to as a(n):
A. wholesale bank.
B. retail bank.
C. commercial bank.
D. investment bank.
E. social bank.
Answer:
Second National Bank is forecasting a return on equity of 15 percent for this year. The
board of directors wants to maintain its current policy of paying the bank’s stockholders
40 percent of any net earnings the bank will earn. How fast can the bank’s assets grow
this year without jeopardizing its ratio of capital to assets?
A. 15 percent
B. 9 percent
C. 8 percent
D. 6 percent
E. None of the options is correct.
Answer:
The value of a bank’s stock will tend to rise if the:
A. stream of future stockholder dividends is expected to increase.
B. financial organization’s perceived level of risk falls.
C. market interest rates decrease.
D. expected dividend increases are combined with declining risk, as perceived by
investors.
E. All of the options are correct.
Answer:
Small business lending by banks, in proportion of all loans is:
A. declining.
B. rising.
C. relatively constant.
D. one with no pattern.
E. one with an unknown pattern.
Answer:
A bank that buys a call option: A. has the right to accept delivery of the underlying
security at the contract price if they wish.
B. has the right to make delivery of the underlying security at the contract price if they
wish.
C. is obligated to accept delivery of the underlying security at the contract price.
D. is obligated to make delivery of the underlying security at the contract price.
E. is exposed to unlimited losses and limited gains.
Answer:
Which of the following types of banks tend to enjoy the highest net-interest margins in
the industry?
A. Small-sized banks
B. Virtual banks
C. Investment banks
D. Large commercial banks
E. Federally chartered banks
Answer:
A loan officer asks a customer what race she belongs to. Which law prohibits the loan
officer from asking such question?
A. The Truth in Lending Act
B. The Equal Credit Opportunity Act
C. The Community Reinvestment Act
D. The Fair Debt Collection Practices Act
E. None of the options is correct
Answer:
A bank has a net profit margin of 5.25 percent. It has an asset utilization ratio of 45
percent and has an equity multiplier of 12. It retains 40 percent of its earnings each
year. What is this bank’s internal capital growth rate?
A. 28.35 percent
B. 2.36 percent
C. 11.34 percent
D. 4.80 percent
E. None of the options is correct.
Answer:
Many experts believe that lower agency costs and better company performance depend
upon the effectiveness of ____________ the relationship that exists among managers,
the board of directors, stockholders, and other stakeholders.
Answer:
________________________ includes violations of rules and regulations. It can
include failure to hold adequate capital which can lead to costly corrective actions.
Answer:
Fed funds purchased is an example of _______________________ along with
Eurodollar borrowings.
Answer:
____________________________________________ refers to the market for foreign
currency or trading one currency for another.
Answer:
Money market deposits are included as part of ______________________ for banks.
Answer:
A bank’s _____________________________________ gives its loan officers specific
guidelines in making individual loan decisions and in shaping the overall loan
portfolio.
Answer:
Repurchase Agreements (RPs) are very similar to Federal funds and are often viewed as
____________ Federal funds transactions.
Answer:
Volatility in funding and credit costs to banks due to fluctuating supply and demand
conditions in the market is known as __________________ risk.
Answer:
Answer:
_________________________ loans are ones that families and individuals can draw
upon for immediate cash needs and are repayable in a lump sum. These loans often
cover the cost of a vacation, medical care, the purchase of a home appliance, or home
repairs.
Answer:
In the ____________________________ method of acquisition, a bank assumes all of
the assets and liabilities of the other bank which ceases to exist.
Answer:
Futures contracts can be traded ________, without the help of an organized exchange.
Answer:
The activity of manipulating the financial statements to artificially enhance the banks
financial strength is known as __________________.
Answer:
According to the textbook, one likely outcome of the 2007-2009 financial crisis for
both commercial and investment banks is _________________.
Answer:
Some people feel that everyone is entitled access to a minimum level of financial
service, no matter what their income level is. This issue is called the issue of
________________________.
Answer:
The ___________ is considered to be the most common base rate figure announced by
the majority of the largest banks that publish their loan rates regularly.
Answer:
A _________________________ is the difference between an institution’s sources and
uses of funds.
Answer:
The _____________________________________ was created by the National Bank
Act and is part of the Treasury Department. It is the primary regulator of national
banks.
Answer:
When the FHLMC creates CMOs, they often use different _________________ to
issue the securities, which are characterized by the differences in coupon rate, maturity
and risk profile.
Answer: