The Macaulay’s duration of a 10-year, 10% bond with a face value of $1,000 and a
market rate of 8%, compounded annually is:
a. 10 years
b. 11 years
c. 12 years
d. 13 years
e. None of the above
Answer:
Profitable bank customers:
a. make up a small fraction of all bank customers.
b. generally shop for the bank with the lowest price.
c. have small loan balances.
d. always avoid service charges.
e. are the most sensitive to changes in price.
Answer:
The minimum Tier 1 capital for this bank is:
a. $348
b. $450
c. $509
d. $581
e. $696
Answer:
Historically, what has prevented universal banks from operating in the United States?
a. The Universal Bank Prohibition Act
b. The Glass-Stegall Act
c. U.S. banks have no desire to become universal banks.
d. Universal banks have less risk diversification capabilities than traditional U.S. based
banks.
e. a. and c. only
Answer:
The Federal Reserve may prevent the formation of a financial holding company if one
of its insured depository institution subsidiaries:
a. received an unsatisfactory in its most recent Community Reinvestment Act exam.
b. has branches across state lines.
c. is part of a bank holding company.
d. makes subprime loans.
e. is well capitalized.
Answer:
Riding the yield curve:
a. is risk-free.
b. generally involves buying securities with a longer maturity than the intended holding
period.
c. can only be accomplished with stripped Treasury securities.
d. all of the above
e. a. and c. only
Answer:
A _______________________ is a post office box number controlled by the bank.
a. syndication
b. local
c. lockbox
d. maintenance box
e. microhedge
Answer:
A bond with a par value of $1,000 and a 13% semi-annual coupon rate has 20 years to
maturity. Assuming it is priced to yield 10%, compounded semi-annually, what is the
market value of the bond, to the nearest dollar?
a. $1,187
b. $1,107
c. $1,257
d. $2,373
e. None of the above
Answer:
Deposit insurance was temporarily increased to __________ per depositor through
2009.
a. $100,000
b. $150,000
c. $250,000
d. $300,000
e. $500,000
Answer:
A reverse collar consists of:
a. buying an interest rate floor and an interest rate cap.
b. buying an interest rate floor and selling an interest rate cap.
c. selling an interest rate floor and buying an interest rate cap.
d. buying a call option and selling a futures contract.
e. selling a put option and buying a futures contract.
Answer:
The Basel Committee defines operational risk as the risk of loss resulting from:
a. changes in interest rates.
b. changes in inflation.
c. inadequate internal processes.
d. excessive default risk.
e. inadequate capital.
Answer:
The U.S. government took all of the following actions to address the credit crisis in
2008 except:
a. putting Fannie Mae into conservatorship.
b. passed the Troubled Asset Relief Program (TARP).
c. created the Keep Banks Solvent (KBS) agency.
d. authorized large non-financial firms to sell bonds that were FDIC-insured.
e. temporarily increased FDIC domestic deposit coverage to $250,000.
Answer:
Which of the following are sold at a deep discount to par?
a. Trust CD
b. Zero coupon CD
c. Bump-up CD
d. Federal funds CD
e. Fixed-rate CD
Answer:
The underwriting process involves all of the following except:
a. helping a firm design a security to meet all legal requirements.
b. identifying potential buyers.
c. pricing the security.
d. selling the security to the market place.
e. All of the above are part of the underwriting process.
Answer:
In regards to repurchase agreements, the margin is:
a. a good faith deposit.
b. a loan against the repurchase agreement.
c. a risk-free guarantee.
d. the difference between the market value of the collateral and the amount of the loan.
e. all of the above.
Answer:
What is a macrohedge?
a. It is a hedge of the bank’s aggregate portfolio.
b. It is a hedge using just one type of futures contract.
c. It is the hedge of a specific asset or liability for which the bank is exposed to interest
rate risk.
d. It is a hedge using two or more types of futures contracts.
e. It is a has that has a duration of less than one month.
Answer:
Correspondent banking services would include which of the following?
a. Check collection
b. Data processing services
c. Federal funds trading
d. all of the above
e. a. & c. only
Answer:
What is a microhedge?
a. It is a hedge of the bank’s aggregate portfolio.
b. It is a hedge using just one type of futures contract.
c. It is the hedge of a specific asset or liability for which the bank is exposed to interest
rate risk.
d. It is a hedge using two or more types of futures contracts.
e. It is a has that has a duration of less than one month.
Answer:
Mutual of Omaha bank is charted as a:
a. commercial bank.
b. consumer bank.
c. mutual savings bank.
d. thrift.
e. credit union.
Answer:
Banks experience diseconomies of scale when:
a. marginal costs increase as total costs decrease.
b. total costs decrease as output decreases.
c. total costs increase as output increases.
d. average unit costs increase as output increases.
e. average unit costs decrease as output increases.
Answer:
Which of the following formalizes a bank’s lending guidelines?
a. Loan policy
b. Credit culture
c. Credit analysis
d. Credit review
e. Loan documentation
Answer:
When a bank’s claim to collateral is superior to all other creditors, the claim is said to
be:
a. developed.
b. guaranteed.
c. certified.
d. perfected.
e. endorsed.
Answer:
Originally, the FDIC insured deposits up to:
a. $100,000
b. $50,000
c. $25,000
d. $10,000
e. $5,000
Answer:
What is the return on equity for a bank that has an equity multiplier of 9, an interest
expense ratio of 6%, and a return on assets of 1.2%?
a. 10.8%
b. 6.0%
c. 8.0%
d. 4.8%
e. 0.65%
Answer:
Which of the following are likely to occur when interest rates rise sharply?
a. Fixed-rate loans are pre-paid.
b. Bonds are called.
c. Deposits are withdrawn early.
d. All of the above occur when interest rates rise sharply.
e. a. and b.
Answer:
Which of the following is not part of the four-stage process for evaluating the financial
aspects of commercial loans?
a. An analysis of the firm’s management, operations, and industry.
b. Performing financial ratio analysis.
c. Analyze the firm’s cash flow.
d. Examining the backgrounds of the sales force.
e. Project the borrower’s financial condition.
Answer:
The change in Net Fixed Assets equals:
a. capital expenditures minus depreciation.
b. capital expenditures plus depreciation.
c. capital expenditures minus cash flow from operations.
d. Gross fixed assets minus depreciation.
e. Gross fixed assets minus cash purchases.
Answer:
Interest expense varies between banks because of:
a. rate effects.
b. composition effects.
c. volume effects.
d. all of the above.
e. a. and c.
Answer:
Prior to the Basle Agreement, secondary capital included which of the following?
a. The allowance for loan losses
b. Limited-life preferred stock
c. Long-term subordinated debt
d. All of the above
e. b. and c.
Answer:
A bond that has an annual coupon rate of 15% has two years to maturity. If the current
discount rate is 8%, what is the bond’s Macaulay’s duration?
a. 2.00 years
b. 1.99 years
c. 1.88 years
d. 1.77 years
e. 1.66 years
Answer:
Which of the following is the primary emphasis of a values-driven credit culture?
a. Annual bank profit
b. Bank soundness and stability
c. Loan volume
d. Loan growth
e. Short-term earnings
Answer:
Under the current capital requirements, assets in Category 2, such as repurchase
agreements, have an effective total capital-to-total-assets ratio of:
a. 1.6%.
b. 2.0%.
c. 4.0%.
d. 8.0%.
e. 8.6%.
Answer:
Duration gap analysis:
a. applies he the concept of duration to the bank’s entire balance sheet.
b. applies he the concept of duration to the bank’s entire income statement.
c. applies he the concept of duration to the bank’s retained earnings.
d. indicates the difference in the GAP in the time it takes to collect on loan payments
versus the time to attract deposits.
e. estimates when embedded options will be exercised.
Answer:
The _________ requires disclosure of a bank’s privacy policy.
a. Riegle-Neal Interstate Banking and Branching Efficiency Act
b. Gramm-Leach-Bliley 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: