Which of the following is not an objective of a bank’s investment portfolio?
a. Meeting capital requirements
b. Maintaining liquidity
c. Diversifying credit risk
d. Managing interest rate exposure
e. Preserving capital
Answer:
Which of the following would be considered a “negative” loan covenant?
a. The firm’s current ratio cannot fall below 2.0
b. All property must be maintained in good condition
c. The firm’s net worth must exceed $10,000,000
d. The firm must carry property insurance on all collateral.
e. Cash dividends cannot exceed 50% of earnings
Answer:
A new charter to start a federal savings association is obtained from the:
a. Office of the Comptroller of the Currency.
b. National Credit Union Administration.
c. Office of Thrift Supervision.
d. State banking department.
e. Federal Reserve
Answer:
What is the bank’s duration gap?
a. 0.53
b. 0.73
c. 0.91
d. 2.03
e. 4.58
Answer:
All of the following are examples of operational risk except:
a. fraud.
b. compromised security data.
c. theft.
d. business interruptions.
e. default on a loan.
Answer:
Which of the following would be considered a “positive” loan covenant?
a. Days receivables outstanding cannot exceed 30 days
b. No change in senior management
c. Capital outlays cannot exceed $1,000,000 per year
d. No additional liens may be placed on the collateral
e. The bank must approve any firm mergers or acquisitions
Answer:
Jumbo CDs that a bank obtains from a third-party broker are called:
a. money market demand accounts.
b. time deposit accounts.
c. mortgage loans.
d. brokered deposits.
e. core deposits.
Answer:
The value of a basis point for 90-day Eurodollar Time Deposit futures contract is:
a. $10.
b. $100.
c. $25.
d. $250.
e. $500.
Answer:
Which of the following refers to the principles that drive a bank’s lending activity?
a. Loan policy
b. Credit culture
c. Credit analysis
d. Credit review
e. Loan documentation
Answer:
A bank currently owns a municipal bond paying a tax-exempt rate of 5%. If the banks
marginal tax rate is 35%, what is the taxable equivalent yield?
a. 7.69%
b. 3.25%
c. 6.75%
d. 3.70%
e. 9.32%
Answer:
Securities that are “held-to-maturity” are:
a. trading account securities.
b. recorded on the balance sheet at amortized cost.
c. marked-to-market.
d. a. and b.
e. a. and c.
Answer:
Which of the following is true of Treasury bills?
a. Interest on Treasury bills is exempt from state income taxes.
b. Interest on Treasury bills is exempt from federal income taxes.
c. Treasury bills pay a lower pretax yield than comparable corporate securities.
d. All of the above are true.
e. a. and c. only
Answer:
Which of the following will not affect a bank’s duration estimate for the year?
a. Prepayments on loans that exceed expectations.
b. A 20-year corporate bond that is unexpectedly called in 6 months.
c. Certificates of deposit that are withdrawn early.
d. Holding a 30-year Treasury bond until maturity.
e. All of the above will affect a bank’s estimated duration for the year.
Answer:
What is the equity multiplier for a bank where equity is equal to 8% of total assets?
a. 1.08
b. 8.00
c. 0.92
d. 12.5
e. 1.25
Answer:
Which of the following will cause a bank’s 1-year cumulative GAP to increase,
everything else the same.
a. An increase in 3-month loans and an offsetting decrease in 6-month loans.
b. An increase in 3-month loans and an offsetting increase in 3-month CDs.
c. A decrease in 3-month CD’s and an offsetting increase in 3-year CDs.
d. a. and c.
e. b. and c.
Answer:
On-us checks cashed are:
a. checks drawn on any bank other than the bank into which it was deposited.
b. the accounting transaction for selling fed funds.
c. discount window loans.
d. illegal.
e. checks drawn on a bank’s own customer’s account.
Answer:
Which of the following is not considered a viable long-term source of bank liquidity?
a. Federal funds sold
b. Short-term Treasury securities
c. Cash
d. High quality short-term municipal securities
e. Reverse repurchase agreements
Answer:
If a security is a first-time placement for a firm, it is called a(n):
a. initial public offering.
b. first time equity offering.
c. primary offering.
d. secondary offering.
e. seasoned offering.
Answer:
Which of the following is not a weakness of duration gap analysis?
a. It is difficult to accurately compute duration.
b. Each future cash flow must be discounted by the appropriate future interest rate.
c. The duration of a portfolio must be constantly monitored.
d. It is difficult to estimate the duration on zero coupon bonds.
e. All of the above are weaknesses of duration gap analysis.
Answer:
Which of the following contains a computer memory chip?
a. Debit card
b. Credit card
c. Smart card
d. Pre-Paid card
e. ATM card
Answer:
Positive working capital for a firm implies:
a. the firm has no short-term debt.
b. the firm has no seasonal cash flow needs.
c. that current assets are completely financed by current liabilities.
d. the firm has no long-term debt.
e. that current assets are partially financed by long-term debt and equity.
Answer:
Total operating income is comparable to _________ for a non-financial firm.
a. sales
b. cost of goods sold
c. gross profit
d. earnings before interest and taxes
e. net income
Answer:
Which of the following is are only available to non-commercial customers?
a. Money Market Demand Accounts
b. Demand deposit accounts
c. Mortgage loans
d. Negotiable Orders of Withdrawal (NOW) accounts
e. Auto leases
Answer:
Which of the following would be the least sensitive to changes in interest rates?
a. Demand deposits
b. Repurchase agreements
c. Federal funds purchased
d. Eurodollar liabilities
e. Jumbo CDs
Answer:
Banks use financial derivatives for all of the following except:
a. hedge asset yields.
b. adjust maturities by creating synthetic liabilities.
c. adjust the sensitivity of earnings to changes in interest rates.
d. lock-in the cost of liabilities.
e. Banks use financial derivatives for all of the above.
Answer:
Banks that emphasize lending to individuals are labeled:
a. wholesale banks.
b. retail banks.
c. personal banks.
d. non-bank banks.
e. regional banks.
Answer:
Put the following steps of the creation of a banker’s acceptance in order.
I. Shipping documents delivered
II. Letter of credit is issued
III. Bankers’ acceptance presented at maturity
IV. Goods are shipped
a. I, IV, II, III
b. II, IV, III, I
c. II, IV, I, III
d. I, IV, III, II
e. I, II, III, IV
Answer:
If you invested $700 today and another $1,000 in two years, to the nearest dollar, how
much will your investment be worth in seven years.? Assume an 8.4% annual
compound return.
a. $616
b. $749
c. $1,364
d. $2,728
e. None of the above
Answer:
Customer profitability data can be beneficial in helping bank management:
a. develop new products.
b. identify profitable target niches.
c. determine changes in product pricing.
d. All of the above
e. a. and b. only
Answer:
In general, commercial paper:
a. is rated by the various rating agencies.
b. has a maturity of 270 days or less.
c. sells at a premium to face value.
d. all of the above
e. a. and b. only
Answer:
Relative to wholesale banks, retail banks:
a. focus on individual consumer banking relationships.
b. operate with fewer consumer deposits.
c. purchase more non-core liabilities.
d. hold proportionally more business loans to large firms.
e. All of the above.
Answer: