Which of the following is a disadvantage of using loan-backed bonds for a bank?
A. The cost of funding often rises
B. There is greater default risk on the bonds
C. Loans used as collateral for the bonds must be held until the bonds reach maturity
D. Loan-backed bonds have shorter maturities than deposits
E. All the options are disadvantages of loan-backed bonds
Answer:
A bank is concerned because they feel that a firm will not be able to raise enough cash
to pay bills that are due within the next year. What ratio are they most likely to examine
to address this concern?
A. Selling and administrative expenses/Net sales
B. Net sales/Total assets
C. Current assets – Current liabilities
D. Net income/Total assets
E. Long-term debt/(Long-term debt + Net worth)
Answer:
Which of the following is the principal risk faced by a home equity lender?
A. Interest rates in the economy may rise
B. Interest rates in the economy may fall
C. Home prices in the area may rise
D. Home prices in the area may decline
E. There is no risk associated with home equity lending.
Answer:
Which of the following is in the 100 percent risk-weight category?
A. Cash
B. General obligation municipal bonds
C. Residential mortgage loans
D. Credit card loans
E. None of the options is correct.
Answer:
A bank that is examining the ratio of total liabilities to total assets, is examining which
category of ratios?
A. Expense control measures
B. Operating efficiency measures
C. Coverage measures
D. Liquidity measures
E. Leverage measures
Answer:
Which of the following assets is the largest asset item on the bank’s balance sheet?
A. Securities
B. Cash
C. Loans and leases
D. Bank premises
E. None of the options are correct.
Answer:
If a bank has a positive interest-sensitive gap, one of the possible management
responses would be to:
A. wait for the interest rates to rise or be stable.
B. shorten asset maturities.
C. decrease interest-sensitive liabilities.
D. increase interest-sensitive assets.
E. extend liability maturities.
Answer:
A firm submits their financial records to a bank. Upon examination, the bank discovers
that this firm has $500 in cash, $2,500 in accounts receivables, $1,000 in inventory,
$5,000 in plant and equipment and that their assets totaled $9,000. In addition this bank
discovered that the firm had $2,000 in current liabilities, $2,500 in long-term debt, and
$4,500 in net worth. Finally, this bank discovered that this firm had $20,000 in net sales
and $2,000 in net income. What is this firm’s net working capital?
A. $9,000
B. $4,500
C. $4,000
D. $2,000
E. None of the options is correct.
Answer:
Computer terminals which allow customers to make cash withdrawals, check deposit
balances, and make deposits without dealing with a teller are known as:
A. ATMs.
B. POS terminals.
C. ACHs.
D. in-store branches.
E. ALMs.
Answer:
Shelby Mann is a loan officer with the First National Bank. She interviews a potential
loan customer to find out exactly why the person needs the loan and whether he would
be serious about repaying the loan. Which step in the lending process is Shelby
performing?
A. Finding prospective customers
B. Evaluating a customer’s character and sincerity
C. Making a site visit and evaluating a customer’s credit history
D. Evaluating a prospective customer’s financial condition
E. Assessing possible collateral and signing the loan agreement
Answer:
Murphy National Bank is thinking about adding a new branch in a very different market
area. It estimates that the new office will have an expected return of 16% with a
standard deviation of 8%. Currently, it has an expected return of 12% with a standard
deviation of 4%. The correlation between the returns on the new branch and the bank’s
current returns is estimated to be 0.20. The bank estimates that the new branch will
represent 15 percent of the revenues of the bank. What is the bank’s expected risk
(measured by the standard deviation) with the new branch? Round to the nearest 0.1
percent.
A. 14.6 percent
B. 3.8 percent
C. 4.6 percent
D. 7.4 percent
E. 5.8 percent
Answer:
Recent research on money position management suggests that the reserve deficits of
smaller depository institutions normally occur:
A. early in the reserve maintenance period.
B. early in the reserve computation period.
C. late in the reserve maintenance period.
D. late in the reserve computation period.
E. during low credit demand periods.
Answer:
For which of the following banking services can the bank be legally liable for losses
due to failure to act as a prudent decision maker?
A. Underwriting insurance services
B. Insurance sales services
C. Trust services
D. Exchange-traded-funds services
E. None of the options is correct
Answer:
The following financial information pertains to Harrison Bank.
What is the bank’s ROE? A. 1.6%
B. 10 %
C. 12.8%
D. 16%
E. None of the options is correct
Answer:
A time deposit that allows the depositor to withdraw some of the funds without a
withdrawal penalty is called a:
A. negotiable CD.
B. bump-up CD.
C. step-up CD.
D. liquid CD.
E. None of the options is correct.
Answer:
The Tate Manufacturing Company has $150 million in sales revenue with $90 million
in cost of goods sold. It has selling and administrative expenses of $10, pays annual
taxes in the amount of $10 and has depreciation and other non-cash expenses of $30
million. What are this firm’s annual projected cash flows?
A. $150 million
B. $60 million
C. $70 million
D. $40 million
E. None of the options is correct
Answer:
Which federal banking act requires the Federal Trade Commission to make it easier for
victims of identity theft to file theft reports and requires credit bureaus to help victims
resolve the problem?
A. The Sarbanes-Oxley Act
B. The USA Patriot Act
C. The Check 21 Act
D. The Fair and Accurate Credit Transactions Act
E. The Bankruptcy Abuse Prevention and Consumer Protection Act
Answer:
A bank is considering adding security brokerage services to the services it offers. It has
estimated that the expected return and standard deviation of its traditional service are
6% and 14% respectively. It has estimated that the expected return and standard
deviation of its new securities brokerage services are 14% and 24% respectively. The
correlation between these services has been estimated to be -0.4 and the bank estimates
that 60% of its business will be from traditional services and 40% from the new
services. What is the expected return of the new combined firm?
A. 14.0 percent
B. 10.8 percent
C. 10.0 percent
D. 9.2 percent
E. 6.0 percent
Answer:
The Jones State Bank is planning to add a branch office on the west side of Edmond,
Oklahoma. The bank has done a survey of local residents near the area where it wants
to build the branch office and has discovered that most residents are in their 50’s and
60’s. Which factor would this address when considering whether to add a new branch?
A. Traffic count
B. Number of retail shops
C. Average age of the local population
D. Population Density
E. Population Growth
Answer:
The task of correctly adding up all of the different types of bank risk exposures is
known as:
A. risk tallying.
B. summing risk.
C. risk aggregation.
D. risk accumulation.
E. risk totality.
Answer:
The Federal Reserve policy tool under which the Fed attempts to bring psychological
pressure to bear on individuals and institutions to conform to the Fed’s policies using
letters, phone calls, and speeches is known as: A. margin requirement.
B. moral suasion.
C. discount window supervision.
D. conference and compromise.
E. None of the options are correct.
Answer:
The _________ allows adequately capitalized bank holding companies to acquire banks
in any state.
A. Riegle-Neal Interstate Banking and Branching Efficiency Act
B. Competitive Equality Banking Act
C. Financial Institutions Reform, Recovery and Enforcement Act
D. Federal Deposit Insurance Corporation Improvement Act
E. Depository Institutions Deregulation and Monetary Control Act
Answer:
Nick Rodr gets a loan from the First State Bank of Guthrie to purchase a new
refrigerator for his condo. What service that a bank provides is he taking advantage of?
A. Risky arbitrage services
B. Liquidity services
C. Delegated monitoring services
D. Divisibility of money services
E. Credit services
Answer:
Banks depend heavily upon borrowed funds supplied by customers with little owners’
capital invested. This means that banks make heavy use of:
A. financial leverage.
B. capital restructuring.
C. operating leverage.
D. margin borrowing.
E. None of the options are correct.
Answer:
A bank is considering adding life insurance underwriting to the services it offers. It has
estimated that the expected return and standard deviation of its traditional services are
12 percent and 6 percent respectively. It has also estimated that the expected return and
standard deviation of its new underwriting services are 18 percent and 10 percent
respectively. The correlation between these services has been estimated to be +0.10 and
the bank estimates that 90 percent of its business will be from traditional services and
10 percent from the new underwriting services. If the bank is expecting that the overall
risk of the bank will be reduced by adding the life insurance underwriting to the bank,
what type of effect are they expecting?
A. Product-line diversification effect
B. Income diversification effect
C. Market diversification effect
D. Geographic diversification effect
E. None of the options is correct.
Answer:
Which of the following is a way to reduce the risk of standby credit letters?
A. Avoid renegotiating the terms of loans of SLC customers
B. Specialize in SLCs issued by the same region and industry
C. Selling participations in standbys in order to share risk with other lending
institutions
D. Do not count standbys as loans when assessing the bank’s risk exposure
E. All the options are ways to reduce the risk of standby credit letters
Answer:
A common approach adopted by banks to decide on whether or not to install a new
ATM is to estimate _____________ that the new machine is expected to generate.
A. new savings account
B. cash savings
C. credit card sales
D. time deposits
E. commercial transaction accounts
Answer:
A bond has a face value of $1,000 and coupon payments of $80 annually. This bond
matures in three years and is selling for $1,000 in the market. Market interest rate is 8
percent. What is this bond’s duration?
A. 3 years
B. 2.78 years
C. 1.95 years
D. 4.31 years
E. None of the options is correct.
Answer:
____________ and ___________ banks tend to be larger and hold more of the public’s
deposits in the United States.
A. National, member
B. State, nonmember
C. National, uninsured
D. State, insured
E. None of the options are correct
Answer:
Business corporations that are subsidiaries of a bank organized under Section 25 of the
Federal Reserve Act and must devote the bulk of their activities to serving international
customers are known as:
A. IBFs.
B. shell branches.
C. ETCs.
D. agreement corporations.
E. None of options is correct.
Answer:
A bank promises an annual return of 7.75 percent on a 180 day, $250,000 CD. What
will be the total amount due the customer at the end of the six-month period?
A. $269,375.00
B. $259,687.50
C. $9,687.50
D. $250,000.00
E. None of the options is correct
Answer:
While demand deposits have about the same gross expenses per dollar of deposit as
time deposits do, the _____________ levied against transaction account customers help
to lower the net cost of checkable deposits.
A. higher account opening fees
B. higher service fees
C. higher pre-closure fees
D. lower interest rates
E. less number of services
Answer:
Which of the following is a bank debt that appears to be highly sensitive to the market
perception of the bank’s risk?
A. Deposits
B. Fed funds
C. Repos
D. Subordinated debt capital
E. Preferred stock
Answer:
Paul Smith is planning to invest in the stock of Capital City Bank. He is examining the
ratios of interest sensitive assets to interest sensitive liabilities and uninsured deposits to
total deposits. What type of risk is Paul attempting to measure with these ratios?
A. Credit risk
B. Liquidity risk
C. Legal risk
D. Interest rate risk
E. Operational risk
Answer:
Which of the following is considered a depository financial institution?
A. Mortgage company
B. Private pension funds
C. Savings and Loan associations
D. Money market funds
E. Insurance company
Answer: