“On the run” Treasury notes and bonds are newly issued securities and “off the run”
Treasuries are securities that have been previously issued.
Households generally supply more funds to the markets as their income and wealth
increase, ceteris paribus.
In 2010, the notional value of bank off-balance-sheet activities was greater than bank
industry assets.
At almost all banks noninterest expense is greater than noninterest income; hence, the
overhead efficiency ratio is usually greater than 100 percent.
TIPS are a Treasury offering that protects investors from unexpected increases in
inflation.
An increase in the marginal tax rates for all U.S. taxpayers would probably result in
reduced supply of funds by households.
In ratio analysis, the profit margin times the asset utilization ratio equals return on
assets.
Bonds rated below Baa by Moody’s or BBB by S&P are junk bonds.
Under the Affordable Care Act, all health care plans must include
a.ten specified essential health benefits.
b.up to ten family members.
c.disability income insurance.
d.no out-of-pocket spending requirements.
The Check 21 Act, effective in October 2004, does which of the following?
A.Allows bank customers to better take advantage of bank float
B.Requires banks to immediately clear all customer deposits
C.Prohibits the Fed from being involved in check clearing to prevent unfair competition
with private check clearing agencies
D.Authorizes the use of an electronic image to facilitate paperless check clearing
E.Eliminates all fees on checking
A homeowner can obtain a $250,000, 30-year fixed-rate mortgage at a rate of 6.0
percent with zero points or at a rate of 5.5 percent with 2.25 points. How long must the
owner stay in the house to make it worthwhile to pay the points if the payment saving is
not invested?
A.7.15 years
B.3.33 years
C.6.04 years
D.5.90 years
E.more than 30 years
If a firm has more foreign currency assets than liabilities, and no other foreign currency
transactions, it has
A.positive net exposure.
B.negative net exposure.
C.a fully balanced position.
D.zero net exposure.
A contingent promise by a bank to pay a bill when it comes due if the bill’s originator
fails to pay is an example of a
A.swap agreement.
B.standby letters of credit.
C.forward contract.
D.loan commitment.
E.commitment to buy foreign exchange.
A homeowner could take out a 15-year mortgage at a 5.5 percent annual rate on a
$195,000 mortgage amount, or she could finance the purchase with a 30-year mortgage
at a 6.1 percent annual rate. How much total interest over the entire mortgage period
could she save by financing her home with the 15-year mortgage (to the nearest dollar)?
A.$230,408
B.$190,105
C.$155,612
D.$144,325
E.$138,612
Seeking legal ways to reduce, eliminate or defer income taxes is called
a.tax planning.
b.financial planning.
c.Income maximization.
d.Contribute to your employer-sponsored 401(k) retirement plan at least up to the
amount of the employer’s matching contribution.
The best banking account PIN numbers and passwords are those that are easy to
remember.
a.True
b.False
Which of the following is true?
A.Forward contracts have no default risk.
B.Futures contracts require an initial margin requirement be paid.
C.Forward contracts are marked to market daily.
D.Forward contract buyers and sellers do not know who the counterparty is.
E.Futures contracts are only traded over the counter.
An investor buys a $10,000 par, 4.25 percent annual coupon TIPS security with three
years to maturity. If inflation every six months over the investor’s holding period is 2.50
percent, what is the final payment the TIPS investor will receive?
A.$10,213.00
B.$10,869.28
C.$11,822.25
D.$11,843.37
E.$12,201.11
Most of the changes in size, structure, and composition of the banking industry in
recent years are due to
A.bank failures.
B.increasing regulations.
C.new charters granted.
D.declines in the number of branch offices.
E.mergers and acquisitions.
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.
A firm desires to sell stock to the public. The underwriter charges $0.45 million in fees
and offers to buy six million shares from the firm at a price of $35 per share. In
addition, registration and audit fees total $130,000, and marketing and miscellaneous
fees add up to another $75,000. The underwriter expects to earn gross proceeds per
share of $38. What is the issuing firm’s out-of-pocket dollar transaction cost to issue the
stock? Immediately after the stock was issued, the stock price rose to $40. What is the
issuing firm’s opportunity cost? What is the total issuance cost, including opportunity
costs, as a percentage of the total funds available to the issuing firm?
Using the Black-Scholes model, explain what happens to the value of a call as S, T, and
2 change. Why is the relationship between risk and price different for options than for
other securities?
Discuss how secondary markets benefit funds issuers.
Rate-sensitive funding sources at a bank are termed core deposits.
Suppose you borrow $15,000 and then repay the loan by making 12 monthly payments
of $1,297.92 each. What rate will you be quoted on the loan?
Explain the effects of coupon and maturity on volatility.
What are the main responsibilities of the FOMC?
What are the major differences between the interbank foreign exchange market and the
foreign currency exchanges?
What are the major sources of purchased funds? Can using purchased funds change a
bank’s profitability? its risk level? Explain.