Which of the following created the Truth in Savings Act?
A. The FDIC Improvement Act
B. The International Banking Act
C. The Sarbanes-Oxley Act
D. The Gramm-Leach-Bliley Act
E. The Financial Institutions Reform, Recovery and Enforcement Act
Answer:
A bank has an average duration for its asset portfolio of 5.5 years. The bank has total
assets of $1,000 million and total liabilities of $750 million. If this bank’s
leverage-adjusted duration gap is zero, what must be the duration of its liabilities
portfolio?
A. 7.33 years
B. 4.125 years
C. 7.5 years
D. 5.5 years
E. None of the options is correct.
Answer:
The federal law that requires each U.S. merging bank to notify its principal federal
regulatory agency and request for an approval before a merger can take place is the:
A. Bank Merger Act.
B. Glass-Steagall Act.
C. Depository Institutions Deregulation and Monetary Control Act.
D. Garn-St Germain Depository Institutions Act.
E. Gramm-Leach-Bliley Act.
Answer:
A security dealer requires credit to add new government securities to his security
portfolio. What type of loan is this?
A. Asset-Based Financing
B. Working capital loan
C. Security dealer financing
D. Revolving credit financing
E. None of the options is correct.
Answer:
A bank money manager estimates that the bank will experience a liquidity deficit of
$400 million with a probability of 10 percent, a liquidity deficit of $900 million with a
probability of 20 percent, a liquidity surplus of $600 million with a probability of 30
percent, and a liquidity surplus of $1,200 with a probability of 40 percent over the next
month. What is this bank’s expected liquidity deficit or surplus next month?
A. $880 million liquidity surplus
B. $440 million liquidity deficit
C. $440 million liquidity surplus
D. $880 million liquidity deficit
E. None of the options is correct
Answer:
A bank is planning to set up a new branch. It expects the new branch to generate 20
percent of the total business of the bank after it is opened. The bank expects the returns
on this branch to be 15 percent with a standard deviation of 5 percent. Currently the
bank has a 12 percent rate of return with a standard deviation of 4 percent. The
correlation between the returns on the new branch and the bank’s current returns is
expected to be 0.25. What is the bank’s expected standard deviation after adding this
branch?
A. 12.84 percent
B. 3.35 percent
C. 4.36 percent
D. 3.58 percent
E. 6.8 percent
Answer:
Principal roles that a financial institution’s investment portfolio plays include which of
the following?
A. Income stability
B. Geographic diversification
C. Hedging interest rate risk
D. Backup liquidity
E. All of the options are correct
Answer:
A credit agreement in which a business customer may borrow up to a pre-specified
limit, repay all or a portion of the borrowing, and reborrow as necessary until the credit
line matures is known as a(an): A. interim construction.
B. project loan.
C. working-capital loan.
D. revolving credit line.
E. None of the options is correct.
Answer:
A bank has an average asset duration of 5 years and an average liability duration of 9
years. This bank has total assets of $1,000 million and total liabilities of $850 million.
Currently, market interest rates are 5 percent. If interest rates rise by 2 percent (to 7
percent), what is this bank’s change in net worth?
A. Net worth will decrease by $50.47 million.
B. Net worth will increase by $50.47 million.
C. Net worth will decrease by $240.95 million.
D. Net worth will increase by $240.95 million.
E. Net worth will not change at all.
Answer:
Websites known as electronic branches offer all of the following except:
A. Internet banking services.
B. ATMs.
C. point of sale terminals.
D. computer and phone services connecting customers.
E. traveler’s checks.
Answer:
Which of the following is true with respect to the difference between futures and
forward contracts?
A. Futures contracts are marked-to-market daily, while forward contracts are not
B. Buyers and sellers deal directly with each other on forward contracts but go through
organized exchanges in futures contracts
C. Futures contracts are standardized, forward contracts generally are not
D. Forward contracts are generally more risky because no exchange guarantees the
settlement of each contract if one or the other party to the contract defaults
E. All of the options describe differences between futures and forward contracts
Answer:
The interest rate on one year Treasury Bonds is 5 percent. The interest rate on five year
Treasury Bonds is 7.5 percent. The interest rate on ten year Treasury Bonds is 10
percent. What is true about the yield curve? A. It is upward sloping.
B. It is downward sloping.
C. It is a horizontal curve.
D. It is a vertical curve.
E. It is parallel to the x-axis.
Answer:
Which of the following assets are excluded from the category of risk assets?
A. Real Estate Loans
B. Commercial Paper
C. Plant and Equipment
D. Commercial and Industrial Loans
E. All of the options are correct
Answer:
If you deposit $1,000 into a certificate of deposit that quotes you a 5.5% APY, how
much will you have at the end of 1 year?
A. $1,050.00
B. $1,055.00
C. $1,550.00
D. $1,005.50
E. None of the options is correct.
Answer:
The law which lifted government deposit interest ceilings in favor of competitive
interest rates is:
A. the National Bank Act.
B. the Glass-Steagall Act.
C. the Bank Merger Act.
D. the Depository Institutions Deregulation and Monetary Control Act.
E. None of the options are correct.
Answer:
The Bartholemew Bakery receives a lot of payments in cash. They deposit it in their
local bank who invests the money in an interest bearing account until it is needed to pay
bills. Which of the financial services banks offer, is the Bartholemew bakery taking
advantage of?
A. Getting a consumer loan
B. Getting financial advice
C. Managing cash
D. Getting venture capital services
E. Buying a retirement plan
Answer:
The Federal Reserve buys Treasury Bills in the open market. This will tend to:
A. decrease the price of treasury bills.
B. increase the available for use funds with banks and dealers involved in the
transaction.
C. cause reserves held at the Federal Reserve to decrease.
D. cause a decrease in the growth of deposits and loans.
E. All of the options are correct.
Answer:
Which of the following factor(s) does OCC assess during the application process for a
national bank charter?
A. Market demand
B. Probable customer base
C. Competition and economic conditions
D. Inherent risks in the services to be offered to the public
E. All of the options are correct
Answer:
Loans that are to be securitized are passed on to ____________. This helps ensure that
if the lender goes bankrupt, it does not affect the credit status of the pooled loans.
A. the originator
B. a special-purpose entity
C. the trustee
D. a servicer
E. the credit enhancer
Answer:
The Sheets Savings and Loan Association has purchased a bond that has a coupon rate
of 7.5% and a face value of $1000. It has 5 years to maturity and is currently selling in
the market for $1063. The bond makes annual coupon payments. What is the duration
of this bond?
A. 7.50 years
B. 5.00 years
C. 4.65 years
D. 4.37 years
E. None of the options is correct
Answer:
Short-term notes, with maturities ranging from 3 days to 9 months, issued by
well-known companies are known as:
A. negotiable CDs.
B. commercial paper.
C. federal funds.
D. repurchase agreements.
E. None of the options is correct.
Answer:
Following is the information listed below for Carter State Bank. What is the bank’s net
profit margin?
A. 8.46 percent
B. 16.03 percent
C. 15.71 percent
D. 1.36 percent
E. None of the options is correct
Answer:
Which of the following would not be a telephone service that customers can get from a
bank call center?
A. The current balance in their account
B. A fax copy of a loan application to the bank
C. List of what transactions have passed through the account
D. Access to their safety deposit box
E. All the options are telephone services customers can get from a bank call center
Answer:
Financial institutions face significant liquidity problems because of:
A. imbalances between the maturities of their assets and liabilities.
B. their high proportion of liabilities subject to immediate withdrawal.
C. the sensitivity of their business to changes in interest rates.
D. imbalances between the maturities of their assets and liabilities and their high
proportion of liabilities subject to immediate withdrawal.
E. All of the answer options are correct.
Answer:
A bank wishing to avoid higher borrowing costs is most likely to use:
A. a short position or selling hedge in futures.
B. a long position or buying hedge in futures.
C. a long position in call option on futures contracts.
D. a long position or buying hedge in futures and a long position in call option on
futures contracts.
E. None of the options are correct.
Answer:
A an average asset duration of 4.7 years and an average liability duration of 3.3 years.
This bank has $750 million in total assets and $500 million in total liabilities. This
bank’s leverage-adjusted duration gap is a:
A. positive gap of 8.0 years.
B. negative gap of 2.5 years.
C. positive gap of 1.4 years.
D. positive gap of 2.5 years.
E. None of the options is correct.
Answer:
The Hora National Bank has just received notice that a large depositor with the bank
wants to close its account immediately. Which type of factor affecting legal reserves is
this for the bank?
A. A controllable factor increasing legal reserves
B. A noncontrollable factor increasing legal reserves
C. A controllable factor decreasing legal reserves
D. A noncontrollable factor decreasing legal reserves
E. None of the options is correct
Answer:
A minimum of ___________ persons are required as organizers to apply for a federal
bank charter.
A. two
B. three
C. five
D. seven
E. ten
Answer:
A bank expects to raise $20 million in new money if it pays a deposit rate of 7%, $60
million in new money if it pays a deposit rate of 7.5%, $100 million in new money if it
pays a deposit rate of 8%, and $120 in new money if it pays a deposit rate of 8.5%. The
bank expects to earn 9.5% on all money that it receives in new deposits. What deposit
rate should the bank offer on its deposits, if it uses the marginal cost method of
determining deposits rates?
A. 7%
B. 7.5%
C. 8%
D. 8.5%
E. None of the options is correct
Answer:
________________________ represent(s) funds set aside for contingencies, such as
legal action against the institution or a sinking fund to retire stock or debt in the future.
A. Undivided profits
B. Surplus
C. Preferred stock
D. Common stock
E. Equity reserves
Answer:
The management of the Frickel Frontier Freight Company wants to make the company
private by borrowing money and using the proceeds of the loan to purchase the shares
of the company in the market. Management believes they can increase revenues enough
to be able to pay off the loan. What type of loan is management getting?
A. Term business loan
B. Revolving credit financing
C. Long-term project loan
D. Leveraged buyout
E. Syndicated loan
Answer:
From an analysis on its deposits, a bank determines that account processing and other
operating expenses cost the bank $3.95 per month. It has also determined that
non-operating expenses on its deposits are $1.35 per month. The bank wants to have a
profit margin which is 10 percent of monthly costs. What monthly fee should the bank
charge on its deposit accounts?
A. $5.30 per month
B. $3.95 per month
C. $5.83 per month
D. $5.70 per month
E. None of the options is correct
Answer:
The ______________________ is a way of pricing loans that allows a bank to take into
account the entire relationship the bank has with the customer when pricing the loan.
Answer:
Answer:
_________________________ are the net earnings of a bank, which have been kept by
the bank rather than being distributed as dividends to stockholders.
Answer:
A popular credit scoring system developed and sold by Fair Isaac Corporation is known
as ___________.
Answer:
A(n) _________________________ is a contract where two parties exchange interest
payments in order to save money and hedge against interest rate risks.
Answer:
One of the most comprehensive country-risk indicators is provided by
______________. This guide supplies political, economic, and financial risk ratings and
an overall composite rating for about 100 countries monthly.
Answer:
Under law and industry practice, a __________ is supposed to be set up between an
IB’s security underwriting and client advising divisions and the internal unit where
proprietary trading of stocks and bonds take place, to prevent the transfer of insider
information about clients.
Answer:
Smaller banks tend to emphasize on _________________ in the form of smaller
denomination personal cash loans and home mortgage loans extended to individuals
and families as well as smaller business loans.
Answer:
__________ can be held by individuals and nonprofit institutions, bear interest and
permit drafts to be written against the account to pay third parties.
Answer:
A(n) __________________________ loan is one where a customer can use the
difference between the appraised value of their home and the amount of mortgage
remaining against it to secure a loan.
Answer:
_______________ are primarily medium-term credit agreements between international
banks and their larger corporate and government customers. The customer is authorized
to periodically offer short term notes that come due in 90 to 180 days over a stipulated
period.
Answer:
________________ is the risk that loans will be terminated or paid off ahead of
schedule. This is a particular problem with home mortgages and other consumer loans
that are pooled and used as collateral in securitized assets.
Answer:
_______________________ is a measure of interest-rate risk exposure which is the
total difference in dollars between those assets and liabilities that can be repriced over a
designated time period.
Answer:
In recent decades, banks have aggressively sought to insulate their assets and liability
portfolios and profits from the ravages of changing interest rates. Many banks now
conduct their asset-liability management strategy with the help of a(n)
_____________________.
Answer:
Credit extended to banks, insurance companies, finance companies, and other similar
institutions is known as _______________.
Answer:
The __________________________ shows the amount of revenues received and
expenses incurred over a specific time period.
Answer: