1) small banks control about 70% of banking industry assets.
2) swaps and forwards are subject to contingent risk; exchange-traded futures and
options are not.
3) the maximum gain (ignoring commissions and taxes) from buying an at-the-money
bond put option is the bond price at time of option purchase less the put premium. the
maximum loss is the put premium.
4) the repricing gap is the most comprehensive measure of interest rate risk used by
financial intermediaries.
5) the higher a bond’s coupon, the lower the bond’s price volatility.
6) loans sold to correspondent banks are predominantly sales of distressed hlt loans.
7) a forward contract
a.is marked to market
b.has significant default risk
c.is standardized
d.is traded over the counter
e.is highly liquid
8) an investor starts with 1 million and converts it to £694,500, which is then invested
for one year. in a year the investor has £736,170, which she then converts back to euros
at an exchange rate of 0.68 pounds per euro. the annual euro rate of return earned was
_____.
a.7.55%
b.6.00%
c.7.45%
d.8.13%
e.8.26%
9) 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
10) in a loan participation, which of the following is/are true?
i. the loan buyer has no part in the original underlying credit agreement, even after
purchase of the loan.
ii. if the selling bank fails, the loan buyer’s claim against the selling bank may be treated
as unsecured.
iii. in the event the selling bank fails, the original borrower’s deposits may be used to
reduce the loan amount without any proceeds going to the loan buyer.
a.i only
b.ii only
c.ii and iii only
d.i and ii only
e.i, ii, and iii
11) sec rule 144 a does which of the following?
a.allows privately placed investments to be traded on a limited basis
b.allows bond issuers to call their bonds when desired
c.determines the limits of responsibility of bond covenants
d.requires that bonds traded on the nyse bond market utilize the abs system
e.none of the above
12) a u.s. firm has £50 million in assets in britain that they need to repatriate in 6
months. they could hedge the exchange rate risk by
a.buying pounds forward
b.selling pounds forward
c.borrowing pounds
d.both b and c would hedge the risk
e.both a and c would hedge the risk
13) you have taken a stock option position and if the stock’s price drops you will get a
level gain no matter how far prices fall, but you could go bankrupt if the stock’s price
rises. you have:
a.bought a call option
b.bought a put option
c.written a call option
d.written a put option
e.written a straddle
14) _____________ are examples of investment bankers offering traditional
commercial banking services.
a.online brokers
b.cash management accounts
c.underwriting corporate debt and equity offers
d.venture capital funds
e.mergers and acquisition services
15) the act of buying a share in a loan syndication with limited contractual control and
rights over the borrower is called a
a.correspondent loan
b.loan assignment
c.hlt loan
d.loan participation
e.distressed loan
16) among other things, the financial institutions reform, recovery, and enforcement act
stipulated the creation of the
a.fdic
b.ots
c.occ
d.warren commission
e.cra
17) the type of swap most closely linked to the subprime mortgage crisis is the
____________.
a.interest rate swap
b.currency swap
c.equity linked swap
d.credit default swap
e.dif swap
18) an investment banker agrees to a firm commitment offering of 2 million shares of
ace stock. the offer price is set at $55 and the spread is 50 cents per share. if the stock is
actually sold to the public at $53.80 however, what is the investment banker’s gain or
loss?
a.$1,400,000 gain
b.$1,400,000 loss
c.$500,000 gain
d.$500,000 loss
e.none of the above
19) net loans and leases plus ________________ plus _________________ equals
gross loans and leases.
a.earned income; provision for loan and lease losses
b.unearned income; the allowance for loan and lease losses
c.net charge-offs; provision for loan and lease losses
d.provision for loan and lease losses; allowance for loan and lease losses
e.none of the above
20) an investment banker agrees to a firm commitment offering of 2 million shares of
ace stock. the offer price is set at $55 and the spread is 50 cents per share. if the stock is
actually sold to the public at $53.80 however, what is the investment banker’s gain or
loss?
a.$1,400,000 gain
b.$1,400,000 loss
c.$500,000 gain
d.$500,000 loss
e.none of the above
21) a fund that has a fixed number of shares outstanding and is traded on an exchange is
called a(n)
a.open-end mutual fund
b.hybrid fund
c.market timing fund
d.index fund
e.closed-end fund
22) an unregistered issue sold to a few large institutional buyers is an example of a
a.best efforts offering
b.fully underwritten public offering
c.shelf offering
d.private placement
e.sec rule 415 offering
23) given the functions of the money markets, why is it necessary for money market
securities to have a maturity of one year or less and low default risk?
24) is there a trade-off between controlling domestic inflation and maintaining a
sustainable pattern of international trade?
25) the 12 federal reserve banks perform what functions?
26) what additional flexibilities are provided by variable and universal life as compared
to a standard whole life or endowment policy?
27) explain how the deposit multiplier works.