1) using stored liquidity to offset a deposit drain will reduce the size of the bank, but
using purchased liquidity to offset the drain will not.
2) a u.s. bank has £700 million in loans it has made to corporate customers and it has
£850 million in deposits. the net foreign exchange exposure from these accounts may
be hedged by selling 150 million pounds forward.
3) policy reserves are the primary asset of the typical life insurer.
4) if you were a loan officer evaluating a small business credit application for a loan
secured by working capital, you would generally want to see a higher (rather than
lower) number of days in inventory and number of days’ sales in receivables.
5) if you are a lender evaluating a loan application and you calculate the following
ratio: (ebit + lease payments)/[interest + lease payments + (sinking fund/(1-t))] then you
are calculating a debt service ratio and it should be less than one in order to approve the
loan.
6) the monetary base is the amount of coin and currency in circulation plus reserves.
7) in the event of bankruptcy, a firm’s janitor must be paid all of the salary owed to him
before stockholders receive anything.
8) advantages of going global for u.s. banks include all but which one of the following?
a.diversification of earnings
b.greater opportunities to exploit economies of scale
c.greater sources of funds
d.conducting business in less regulated environments
e.low fixed costs involved in international expansion
9) as a result of the alleged conflicts of interest between analysts and underwriting,
which of the following changes were implemented?
i. analysts cannot participate in, nor attend certain presentations to potential investors
conducted by investment bankers associated with underwriting an issue.
ii. analyst compensation can no longer be tied to the amount of underwriting business a
firm generates.
iii. securities firms must divest stock research divisions to ensure independence from
their investment banking business.
a.i only
b.i and ii only
c.i and iii only
d.ii and iii only
e.i, ii, and iii
10) investors pay load charges to receive
a.higher returns on their investments
b.additional services from funds
c.voting shares of stock
d.advice on which fund to buy
e.12b-1 remunerations
11) in the united states, regulators currently use a ________________ to calculate
required reserve balances.
a.lagged reserve accounting system
b.contemporaneous reserve system
c.homoscedastic reserve system
d.two-day computation period
e.accrual accounting period
12) which of the following is/are true about specialists?
i. investment banks generally cannot be specialists
ii. specialists are used by the nasdaq system
iii. market and limit orders are transacted at specialist posts, but the specialist’s own
account orders are executed elsewhere
iv. specialists help maintain continuous trading
a.i, ii, and iii only
b.i and iv only
c.ii, iii, and iv only
d.i only
e.iii only
13) the bis maturity ladder approach to managing liquidity includes which of the
following?
i. assessing expected cash inflows and outflows in different time periods.
ii. calculation of daily and cumulative funding requirements.
iii. estimating funding requirements under different scenarios.
iv. minimizing the securities holdings to increase the bank’s roe.
a.i and ii only
b.ii and iii only
c.i, ii, and iv only
d.i, ii, and iii only
e.i, ii, iii, and iv
14) you have $12,500 to invest and you are considering investing in fund x. the fund
charges a front-end load of 3% and an annual expense fee of 2.25% of the ending asset
value over the year. you believe the fund’s gross rate of return will be 8% per year. if
you make the investment, what should your investment be worth in one year?
a.$12,125.20
b.$13,095.00
c.$12,654.80
d.$12,800.36
e.$13,162.50
15) the u.s. central credit union and the corporate credit union
a.are the primary regulators of the credit union industry
b.pool funds and provide investment services to local credit unions
c.serve as the trade organization for the industry
d.charter credit unions
e.provide deposit insurance for credit unions
16) an investment pays $400 in one year, x amount of dollars in two years, and $500 in
3 years. the total present value of all the cash flows (including x) is equal to $1500. if i
is 6%, what is x?
a.$702.83
b.$822.41
c.$789.70
d.$749.67
e.$600.00
17) refer to the listed stock option price quote from february and assume it is now
january:
figure 10-1
based on the option quote, the june put should cost
i. more than $477
ii. more than $665
iii. more than the mar and jun 60 calls
iv. more than the mar 60 call but no more than the jun 60 call
a.i only
b.i, ii, and iv only
c.i, ii, and iii only
d.i and iii only
e.iv only
18) an 8-year corporate bond has a 7% coupon rate. what should be the bond’s price if
the required return is 6% and the bond pays interest semiannually?
a.$1062.81
b.$1062.10
c.$1053.45
d.$1052.99
e.$1049.49
19) in 2009, the greatest dollar volume of u.s. corporate underwriting occurred for
which type of security?
a.straight corporate debt
b.asset-backed debt
c.common stock
d.preferred stock
e.convertible debt
20) the largest capital market security outstanding in 2010 measured by market value
was
a.securitized mortgages
b.corporate bonds
c.municipal bonds
d.treasury bonds
e.corporate stocks
21) figure 15-1
what is the combined ratio after dividends for this line? are premiums sufficient to
generate profitability for this line? why or why not?
22) what are the main provisions of erisa?
23) you are a corporate treasurer for esso oil. the quoted rate on dollar denominated
euro commercial paper has just blipped down recently. your firm can issue $10 million
of 180-day euro commercial paper in the london markets at 3.45%. you can also invest
the proceeds in the united states in comparable maturity negotiable dollar-denominated
cds, which are quoting 3.95%. ignoring any transactions costs, how much money, if
any, can esso make by borrowing in the euro markets and investing in the united states?
is this a good deal or not? should you expect it to last? explain.
24) figure 15-1
everything else constant, what is the maximum expected loss ratio that would yield a
profitable line after including investment income?
25) what kind of interest rate option could fnma use to limit the interest rate risk?
explain how this would work. explain how a collar could also be used.
26) a british bank has borrowed dollars in the united states, but is now concerned about
its currency risk. what alternatives does it have to limit its risk? be specific.