_____________ indicators tend to be highly sensitive to the season of the year and
stage of the business cycle.
A. Stored liquidity
B. Purchased liquidity
C. Balanced liquidity
D. Asset liquidity
E. Liability liquidity
Answer:
When an investor first purchases or sells a futures contract, she must make a deposit to
the exchange. This is called the:
A. initial margin.
B. variation margin.
C. premium.
D. open interest.
E. margin call.
Answer:
Donna Carlon is using her plastic card to buy groceries. The money is taken from her
checking account immediately to pay for her groceries. How is Donna using her card?
A. As an installment loan
B. As a noninstallment loan
C. As a lump sum payer
D. As a debit card
E. None of the options is correct
Answer:
The deposit pricing method that focuses on the added cost of bringing in new funds is
called:
A. free pricing.
B. conditionally free pricing.
C. flat-rate pricing.
D. marginal cost pricing.
E. nonprice competition.
Answer:
The approximate percentage of banks operating in the U.S. who reportedly use
derivative contracts for risk reduction is:
A. 15%.
B. 25%.
C. 50%.
D. 75%.
E. 100%.
Answer:
The method of pricing a business loan that contends that a bank should take the whole
customer relationship into account when pricing each loan request is the:
A. cost-plus loan pricing method.
B. price leadership model.
C. below-prime rate pricing model.
D. customer profitability analysis.
E. None of the options is correct.
Answer:
There are 10 banks in a particular market area all with a market share of 10 percent.
What is the Herfindahl-Hirschman Index for this market area?
A. 10,000
B. 5,000
C. 1,000
D. 0
E. None of the options is correct
Answer:
A foreign currency contract where one party trades currencies with another and trades it
back at the end of the contract is called a:
A. currency option contract.
B. currency forward contract.
C. currency swap contract.
D. currency futures contract.
E. None of the options is correct.
Answer:
Which of the following developed a new mortgage-backed instrumentthe collateralized
mortgage obligation (CMO)in which investors were offered different classes of
mortgage-backed securities with different expected payout schedules?
A. Freddie Mac
B. Fannie Mae
C. Ginnie Mae
D. Credit Suisse
E. Federal Housing Administration
Answer:
In the United States, most bank mergers have occurred in which of the following
geographic region of the country?
A. Southeastern U.S.
B. Northeastern U.S.
C. The West
D. The Midwest
E. Southwestern U.S.
Answer:
If the correlation between revenues from traditional banking and nontraditional services
offered by a bank rises, potential diversification benefits:
A. will rise.
B. will fall.
C. will remain the same.
D. will remain the same but only under certain conditions.
E. cannot be determined.
Answer:
According to the textbook, the disadvantages of a federal charter include:
A. closer supervision of banking activities.
B. stricter standards for capital.
C. more stringent limits on the offering of new services.
D. All of the options are correct
E. stricter capital standards and more stringent limit on new offerings.
Answer:
Securitization had its origin in the selling of securities backed by ____________.
A. credit card receivables
B. residential mortgage loans
C. computer leases
D. automobile loans
E. truck leases
Answer:
According to the textbook, the principal beneficiaries of most bank mergers appear to
be:
A. the stockholders of the acquired bank.
B. the stockholders of the acquiring bank.
C. the public (in the form of new services offered and lower service fees).
D. the staff of the acquired bank.
E. None of the options is correct.
Answer:
An institutional arrangement in which federal and state authorities both have significant
bank regulatory powers is referred to as:
A. balance of power.
B. federalism.
C. dual banking system.
D. cooperative regulation.
E. coordinated control.
Answer:
According to the text, in 2005 the securitization of loans reached: A. million dollar
market.
B. billion dollar market.
C. trillion dollar market.
D. market unknown in value.
E. small but growing market.
Answer:
The federal agency that regulates the most banks is the:
A. Office of the Comptroller of the Currency.
B. Federal Deposit Insurance Corporation.
C. Federal Reserve System.
D. state banking commission.
E. state insurance commission.
Answer:
Which of the following ratios can be used to measure a bank’s credit risk?
A. Net loans’ duration/Total assets
B. Interest sensitive assets/Interest sensitive liabilities
C. Total assets/Number of full time employees
D. Nonperforming assets/Total loans and leases
E. Cash and equivalents/Total loans and leases
Answer:
When a bank serves as a security dealer for certain kinds of securities (mainly federal,
state, and local government obligations) the value of these securities is usually recorded
in what account on a bank’s Report of Condition?
A. Investment securities
B. Taxable and tax-exempt assets
C. Trading account assets
D. Secondary reserves
E. None of the options are correct.
Answer:
According to research, off-balance-sheet standby credit letters reduce risk by:
A. increasing the diversification of assets.
B. reducing the need for documentation.
C. reducing probability of losses.
D. avoiding capital requirements.
E. increasing concentration of risk exposure.
Answer:
A bank has $100 million in checking deposits with interest and non-interest costs of
8%, $600 million in savings and time deposits with interest and non-interest costs of
12%, and $100 million in equity capital with a cost of 26%. The bank has estimated that
reserve requirements, deposit insurance fees and uncollected balances reduce the
amount of money available on checking deposits by 20% and on savings and time
deposits by 5%. What is the bank’s before-tax cost of funds?
A. 13.44%
B. 13.25%
C. 15.33%
D. 19.17%
E. None of the options is correct
Answer:
A bank expects to raise $30 million in new money if it pays a deposit rate of 7%. It can
raise $60 million in new money if it pays a deposit rate of 7.5%. It can raise $80 million
in new money if it pays a deposit rate of 8% and $100 million in new money if it pays a
deposit rate of 8.5%. This bank expects to earn 9% on all money that it receives in new
deposits. What is the marginal cost of deposits if this bank raises their deposit rate from
8% to 8.5%?
A. 0.5%
B. 7.5%
C. 8.0%
D. 9.5%
E. 10.5%
Answer:
The principal goal of interest rate hedging strategy is to hold fixed a bank’s:
A. net interest margin.
B. net income before taxes.
C. value of loans and securities.
D. interest sensitive assets.
E. None of the options is correct.
Answer:
A broker has purchased stock in Sony Corporation and has asked Citibank to act as a
custodian of this stock. Citibank has issued a negotiable instrument representing
ownership interest in the stock of the Japanese company. These negotiable instruments
are denominated in dollars and not in yen. This is an example of a(n):
A. Eurocommercial paper (ECP).
B. Depository receipt (DR).
C. Note issuance facility.
D. Currency swap.
E. None of the options is correct
Answer:
The Price Bank of Edmond makes a loan to Home Depot. What type of loan has this
bank made?
A. Financial institution loan
B. Commercial and industrial loan
C. Loan to an individual
D. Miscellaneous loan
E. Lease financing receivables
Answer:
The Chahad Bank wants to open a new branch in a distant city with very different
economic conditions. Currently, the bank has an expected return of 15% with a standard
deviation of 7%. The new branch is expected to have a return of 20% with a standard
deviation of 10%. The correlation between the bank’s returns and the returns from the
new branch is -0.3. The new branch is expected to contribute 10% of the bank’s
revenues. What is the expected return for the bank if they add the new branch?
A. 35%
B. 19.5%
C. 17.5%
D. 15.5%
E. -15.9%
Answer:
A security where the interest payments and the principal payments are sold separately is
called:
A. a Treasury note.
B. an accretion.
C. a structured note.
D. a stripped security.
E. None of the options is correct.
Answer:
What financial-service industry category is second to the banking industry in total
financial assets held?
A. Mutual funds
B. Thrifts
C. Investment banks
D. Insurance companies
E. Pension funds
Answer:
Which dimension of a business firm’s financial and operating performance would the
gross profit margin fit best?
A. Liquidity measure
B. Market indicator
C. Contingent liability
D. Marketability of the product or service
E. None of the options is correct.
Answer:
Which of the following statements is correct? A. Demand for liquidity and sources of
liquidity for a bank are generally equal to each other.
B. Most liquidity problems in the banking system arise from outside a bank.
C. Liquidity problems for a bank are made easier because most of their liabilities are
not subject to immediate repayment.
D. Liquidity management is easy for a bank because a bank that is very liquid is also
very profitable.
E. All of the options are correct.
Answer:
The Farmer National Bank has purchased a bond that has a coupon rate of 11.5% and a
face value of $1,000. It has 16 years to maturity and is currently selling in the market
for $1,309.80. The bond makes annual coupon payments. What is the yield-to-maturity
on this bond?
A. 11.5%
B. 16%
C. 8%
D. 12.21%
E. None of the options is correct
Answer:
Which one of the following nonbank financial-service institutions sell shares to the
public representing an interest in a professionally managed pool of stocks, bonds, and
other securities?
A. Security brokers and dealers
B. Investment banks
C. Finance companies
D. Mutual funds
E. Hedge funds
Answer:
The _________ is determined by the clearing house and is used to calculate the
mark-to-market amounts.
Answer:
_________________________ is the availability of cash in the amount needed at a
reasonable cost.
Answer:
Working capital loans often require _____________________. These are required
deposits in the bank by the borrower whose size is dependent on the size of the credit
line.
Answer:
Federal Reserve balances of banks can be transferred from one institution to another in
seconds through the Fed’s wire transfer network called the ______________________.
Answer:
Under a _________________________ strategy, some of the expected demands for
liquidity are stored in assets, while others are backstopped by arrangements for lines of
credit from banks or other suppliers of funds.
Answer:
The loan mix of any lending institution depends heavily on the
_____________________ that each loan offers compared to all other assets a lending
institution can acquire.
Answer:
One part of interest-rate risk is ____________________. This part of interest-rate risk
reflects that as interest rates fall, any cash flows that are received are invested at a lower
interest rate.
Answer:
___________________ is the committee selected by stockholders to set policies and
monitor the performance of a bank.
Answer:
When the existing ownership of a bank experiences a loss in their share of the company
due to an increased number of shares going to new stockholders, it is known as
_____________________.
Answer:
The _________________________ was passed during the Great Depression. It
separated investment and commercial banks and created the FDIC.
Answer:
A financial institution often records the value of its assets and liabilities at
____________ which is the historical cost of the asset.
Answer:
The __________________________ lists the assets, liabilities and equity capital held
by the bank on a given date.
Answer:
The _________________________ of a standby letter of credit is a bank or other
investor who is concerned about the safety of funds committed to the account party.
Answer:
In the case of a borrower without a credit record or a very poor track record, a
_______________ may be requested to support repayment. Technically if the borrower
defaults on the payment, they are obligated to repay the loan.
Answer:
The most aggressive investment maturity strategy calls for a bank to continually shift
the maturities of its securities in response to changes in forecasts of interest rates and is
called the _________________.
Answer: