You know the following information about the Davis National Bank:
Given this information, what is the value of this firm’s total revenues?
A. $800
B. $850
C. $150
D. $950
E. $900
Answer:
Most loans sold in the open market usually mature within _______.
A. 30 days
B. 60 days
C. 90 days
D. 180 days
E. 360 days
Answer:
The First National Bank of Edmond wants to acquire the First State Bank of Oklahoma
City. The management believes that this merger will enhance their reputation in the
labor market because the new firm will be twice as big as what they are managing now.
In addition, the First National Bank of Edmond has promised to pay $10,000,000 in
compensation to the top managers of the First State Bank of Oklahoma City and help it
cover any resulting tax liability. What motive for a merger does this most likely reflect?
A. Profit potential
B. Risk reduction
C. Rescue of failing institution
D. Tax and market positioning
E. Maximizing management welfare
Answer:
Which of the following is an advantage of using loan-backed bonds for a bank?
A. Loans used as collateral for the bonds can be sold before the maturity of the bonds
B. Loan-backed bonds have longer maturities than deposits
C. Banks do not have to meet regulatory capital requirements on loans used as
collateral
D. Banks can use fewer loans as collateral than the amount of bonds issued
E. All the options are advantages of loan-backed bonds
Answer:
A bank that is examining the ratio of overhead expenses to net sales, is examining
which category of ratios?
A. Expense control measures
B. Operating efficiency measures
C. Coverage measures
D. Liquidity measures
E. Leverage measures
Answer:
A financial institution with a low ROA can achieve a relatively high ROE through:
A. high leverage.
B. low leverage.
C. high owner’s capital.
D. tax swap.
E. None of the options is correct.
Answer:
A bank has decided to retain more of their earnings, moving their retention ratio from
40% to 70%. What way of meeting their capital needs is the bank taking?
A. Changing their dividend policy
B. Issuing common stock
C. Issuing preferred stock
D. Issuing subordinated notes and debentures
E. Selling assets and leasing facilities
Answer:
The types of deposits that will be created by the banking system depend predominantly
upon: A. the level of interest rates.
B. the state of the economy.
C. the monetary policies of the central bank.
D. public preference.
E. None of the options is correct.
Answer:
In-store services usually require:
A. more capital than other banks.
B. more aggressive marketing plans than other banks.
C. more employees than other banks.
D. more advanced technology than other banks.
E. All the options are correct.
Answer:
A bank has total interest income of $67 million and total noninterest income of $14
million. This bank has total interest expenses of $35 million and total noninterest
expenses (excluding PLL) of $28 million. Its provision for loan losses is $6 million and
its taxes are $5. What is this bank’s net noninterest income?
A. $7
B. -$20
C. $18
D. $32
E. None of the options are correct.
Answer:
An investor’s return on a T-bill consists purely of:
A. cash dividends.
B. coupon payments.
C. price appreciation.
D. stock dividends
E. special dividends.
Answer:
In the United States, a commercial bank qualifies as a “bank” under federal law if it
offers:
A. consumer installment loans, CDs.
B. trust services, commercial loans.
C. checking accounts, commercial loans.
D. security investments, inventory loans to business customers.
E. commercial deposit accounts, consumer savings plans.
Answer:
_________________ is a danger faced by the stockholders of an acquiring firm in a
merger if excessive numbers of new shares are issued relative to the value of their old
shares.
A. Earnings volatility
B. Reduction of the exchange ratio
C. Dilution of ownership
D. Increased risk of bankruptcy
E. None of the options is correct
Answer:
A bank is about to make a $50 million project loan to develop a new oil field and is
worried that the petroleum engineer’s estimates of the yield on the field are incorrect.
The bank wants to protect itself in case the developer cannot repay the loan. Which type
of credit derivative contract would you most recommend for this situation?
A. Credit-linked note
B. Credit option
C. Credit risk option
D. Total-return swap
E. Credit swap
Answer:
The number of futures contracts that a bank will need in order to fully hedge its overall
interest rate risk exposure and protect the net worth depends upon (among other
factors):
A. the relative duration of bank assets and liabilities.
B. the duration of the underlying security named in the futures contract.
C. the price of the futures contract.
D. All of the options are correct
E. None of the options are correct
Answer:
Which of the following financial statements shows the revenues and expenses of a bank
over a set period of time?
A. The Statement of Stockholders Equity
B. The Funds-Flow Statement
C. The Report of Financial Condition
D. The Report of Income
E. None of the options are correct.
Answer:
The ______________________ Act requires that applicants for mortgage loans must be
given a disclosure statement indicating whether the servicing rights could be transferred
to another institution that borrowers will have to deal with during the loan tenure.
A. Equal Credit Opportunity
B. National Bank
C. Federal Lending
D. National Affordable Housing
E. Fair Credit Reporting
Answer:
Mark Green is considering buying a new Honda Accord. The purchase price of the car
is $21,000 but Mark has a trade-in worth $4,500. Mark needs a loan to buy the car and
knows that his local bank requires him to put down 10 percent of the purchase price
after the value of the trade-in is considered. Mark also knows that bank will charge 8
percent for the loan and require monthly payments over the next 4 years.
If Mark’s monthly payments are 362.53 per month, what is the total finance charge if he
takes the full 4 years to pay off the loan? A. $468
B. $4,032
C. $4,500
D. $2,551.53
E. None of the options is correct
Answer:
According to the text, which of the following appears to be the most important factor
used in the FICO credit scoring system?
A. The borrower’s payment history
B. The amount of money owed
C. Marital status
D. Employment history and salary
E. Age
Answer:
The existence of branch banking in a given state: A. encourages new banks to be
chartered.
B. discourages new banks from being chartered.
C. results in more bank failures than normal.
D. results in lower operating cost per unit of service.
E. None of the options are correct
Answer:
A foreign currency contract that obligates the holder of the contract to make delivery of
a foreign currency sometime in the future is called a:
A. call currency option.
B. put currency option.
C. long-hedge currency futures contract.
D. short-hedge currency futures contract.
E. None of options is correct.
Answer:
The view that depositors hire banks to analyze the financial condition of prospective
borrowers and continually evaluate the condition of outstanding loans is referred to as:
A. delegated monitoring.
B. the concept of financial intermediation.
C. the liquidity function in banking.
D. market imperfection theory.
E. the efficiency contribution of banking.
Answer:
In the United States a ‘well capitalized’ bank must have a ratio of capital to
risk-weighted assets of at least:
A. 6 percent.
B. 8 percent.
C. 10 percent.
D. 5 percent.
E. None of the options is correct.
Answer:
Fluctuations in the timing of cash-flows arising out of an underlying pool of securitized
assets is referred to as:
A. income risk.
B. prepayment risk.
C. liquidity risk.
D. capital risk.
E. None of the options is correct.
Answer:
Religious opposition decreased during the Renaissance because:
A. loans to the poor often carried high interest rates.
B. loans and deposits primarily consisted of wealthy customers.
C. the Industrial Revolution demanded new methods of making payments and
obtaining credit.
D. savings and wealth were lost due to war, theft, and expropriation by governments.
E. All of the options are correct.
Answer:
The 1977 act that prevents banks from “redlining” certain neighborhoods, refusing to
serve those areas is:
A. the National Banking Act.
B. the Garn-St. Germain Act.
C. the Financial Institutions Reform, Recovery and Enforcement Act.
D. the Riegle-Neal Interstate Banking and Branching Efficiency Act.
E. the Community Reinvestment Act.
Answer:
Sight n’ Sound is a retail store that sells refrigerators, washers, dryers, and other
consumer appliances. They need a loan so that they can place an order with Whirlpool.
The appliances will be the collateral for the loan and as an appliance is sold, the money
will be passed on to the lender. An employee of the lender will periodically check to
make sure what has sold and what remains in the store. What type of loan does Sight n’
Sound need?
A. Self-liquidating inventory loan
B. Working capital loan
C. Interim construction financing
D. Security dealer financing
E. Retailer and equipment financing
Answer:
____________ are much less costly to build and maintain, typically costing as little as
one-fourth the expense incurred in constructing and operating a stand-alone bank
branch, and experiencing more traffic flow than conventional branches.
A. ATMs
B. POS terminals
C. ACHs
D. In-store branches
E. ALMs
Answer:
Which of the following activities of investment banking often leads to large speculative
gains or losses during the first few hours of the sale of offering new shares of stock?
A. Leveraged buyouts
B. Security underwriting
C. Initial public offering
D. Hedge funds
E. Annuities
Answer:
The Williams National Bank has new loan requests of $585 million, needs to purchase
$160 in U.S. Treasury securities for reserve requirements, and anticipates draws on
lines of credit in the amount of $120 million. If deposits received today total $300
million and it expects to bring in an additional $340 million in deposits next week, what
is the estimated funds gap of the Williams National Bank?
A. $225 million
B. $585 million
C. $640 million
D. $865 million
E. None of the options is correct
Answer:
Answer:
The fact that a consumer feels a strong moral and ethical responsibility to repay a loan
on time refers to the ______________________ of the borrower. The loan officer must
be assured that the borrower is serious about repaying the loan before the lending
institution makes a loan.
Answer:
When a loan is made in a foreign country and where the court system and bankruptcy
laws needed to support the enforcement of contracts and loans are missing, it causes a
special type of risk called ______________.
Answer:
The apparent size bias in the financial marketplace led to the creation of the
__________ in the 1950s, to guarantee loans made to small businesses by private
lending institutions.
Answer:
When financial institution borrows in the RP market, this loan is listed as
_________________________ under agreements to repurchase.
Answer:
_________________________ is a 14 day period stretching from a Thursday to a
Wednesday. This is the period in which a bank has to keep its average daily level of
required reserves for a particular computation period with the Federal Reserve bank in
the region.
Answer:
_________________________________ is a way to price loans which starts with the
costs of making a loan and adds to it a risk premium for default risk and a desired profit
margin.
Answer:
Insurance companies are the principal __________ of credit derivatives.
Answer:
A(n) _________________________ is a contingent claim of the firm that issues it. The
issuing firm, in return for a fee, guarantees the repayment of a loan received by its
customer or the fulfillment of a contract made by its customer to a third party.
Answer:
Many financial service institutions estimate their liquidity needs based upon experience
and industry averages. This approach to managing liquidity is called the ____________
approach.
Answer:
A(n) _________________________ is a conditional method of pricing deposit services
in which the fees paid by the customer depend mainly on the account balance and
volume of activity.
Answer:
_______________________ is a traditional service provided by banks in which the
banks store the valuables of their customers and certify their true value.
Answer:
Answer:
One of the main roles of the Federal Reserve today is ________________. They have
three tools that they use today to carry out this role: open market operations, the
discount rate, and legal reserve requirements.
Answer:
One of the elements of CAMELS rating system is _____________________ which
looks at the quality of a bank’s loans. Examiners look at all loans over a certain size and
a random selection of all other loans when looking at this aspect of a bank.
Answer:
For a bank with immediate reserve requirements, a viable alternative to Fed funds
market and RPs is to use the _______________ window operated by the Federal
Reserve to provide loans.
Answer:
The equity multiplier measures the amount of _____________________ for a bank and
is one principal component of the bank’s ROE.
Answer: