“Locals” trade futures for their own account.
Answer:
Subordinated bank debt is federally insured.
Answer:
Relative to larger banks, smaller banks rely more on non-interest income as a source of
revenue.
Answer:
When constructing ratios, average balance sheet data should be used.
Answer:
If interest rates fall, a callable bond at par has the potential for large increases in price.
Answer:
During the past 20 years, the number of distinct U.S. banking organizations has
increased.
Answer:
Financial statements that have been audited are guaranteed to be 100% accurate.
Answer:
A GAP ratio of less than one is consistent with a negative gap.
Answer:
Duration of equity measures the dollar change in EVE with a 1% change in interest
rates.
Answer:
Repurchase agreements generally carry a lower interest rate than comparable maturity
Fed funds.
Answer:
Regarding interest expense, volume effects suggest that the mix of liabilities among
banks may differ.
Answer:
Bond prices and interest rates move in the same direction.
Answer:
When interest rates rise, average historical costs overstate the actual marginal costs of
issuing new debt.
Answer:
BMW Financial Services is owned by BMW Bank.
Answer:
Eurobonds are subject to fewer regulations than U.S. issued bonds.
Answer:
All other things the same, longer maturity bonds have greater relative price volatility
than shorter maturity bonds.
Answer:
A low days inventory on hand and a high inventory turnover relative to industry norms
indicates less efficient inventory management and/or more liquidity.
Answer:
Deposit service charges are a stable source of bank revenue.
Answer:
It is more difficult for multibank holding companies to realize economies of scale if
they allow subsidiary banks to retain key decision-making authority.
Answer:
If a hedger is owns the underling security, he will be long the futures position.
Answer:
Many bankers focus on eliminating the error of denying a loan to a customer who
ultimately would repay the debt.
Answer:
The annual number of bank failures since 2007 has increased dramatically.
Answer:
A borrower making a changing their accountant could be viewed as a negative signal
regarding the borrower’s condition.
Answer:
Credit cards are profitable for banks because many customers are prince insensitive.
Answer:
Common size ratio comparisons enable comparisons across firms in the same industry.
Answer:
Real estate lending is popular with bank, in part, due to the growth of the secondary
mortgage market.
Answer:
Most banks have the ability to easily raise new capital by issuing new equity.
Answer:
Transaction banking emphasizes the personal relationship between the banker and
customer.
Answer:
The FDIC insures credit union accounts up to $250,000.
Answer:
Smaller banks rely more heavily on internally generated capital than larger banks.
Answer:
Under a passive investment strategy, secondary reserves are invested in short-term
securities.
Answer:
Financial holding company and bank holding company are different names for the same
type of entity.
Answer:
Credit scoring models are less objective than judgmental evaluations.
Answer:
Duration:
a. is always greater than maturity.
b. rises as the coupon payment rises.
c. measures how bond prices change with changes in maturity.
d. is a measure of total return.
e. is a measure of how price sensitive a bond is to a change in interest rates.
Answer:
International banking facilities (IBFs):
a. cannot offer transaction accounts to non-bank customers.
b. must hold reserves with the Federal Reserve against deposits.
c. do not have to pay FDIC insurance premiums on Eurodollar deposits.
d. all of the above
e. a. and c. only
Answer:
What is the effective annual rate of an investment that offers 8%, compounded
quarterly?
a. 8.00%
b. 8.16%
c. 8.24%
d. 8.32%
e. 8.64%
Answer:
A bank currently just meets its total capital requirements of 8%. The bank currently has
a dividend payout ratio of 35%. Assets are expected to grow at 5%.
If the bank expects its ROA to be .45% and the bank does not wish to change its
dividend payout ratio from 35%, how much new equity capital (as a percent of total
assets) must the bank issue to support the growth in assets?
a. 0.001075%
b. 0.01075%
c. 0.1075%
d. 1.075%
e. 10.75%
Answer:
A jump rate CD is also known as a(n):
a. trust CD.
b. zero coupon CD.
c. bump-up CD.
d. federal funds CD.
e. fixed-rate CD.
Answer:
A London based firm has a subsidiary located in New York. The subsidiary has $1,000
in assets, $750 in liabilities and $250 in equity. The current spot rate is $1.60/£.
If the spot rate changes to $1.50/£, what will be the firm’s gain or loss?
a. $10.42 gain
b. £10.42 gain
c. $10.42 loss
d. £10.42 loss
e. cannot be determined
Answer:
What type of GAP analysis directly measures a bank’s net interest sensitivity through
the last day of the analysis period?
a. Earnings
b. Net Income
c. Maturity
d. Periodic
e. Cumulative
Answer:
Which of the following was not part of the Basle Agreement?
a. Bank’s required capital was linked to its composition of assets.
b. Banks are required to operate with a minimum level of equity.
c. The ownership of equity by banks was prohibited.
d. Capital requirements across countries were standardized.
e. The minimum total capital requirements were set to 8% of risk-adjusted assets.
Answer:
On Goldman Sachs’ balance sheet for 2007, ___________ consist of securities that
Goldman Sachs has loaned under an agreement to repurchase at a later date.
a. collateralized agreements
b. financial instruments
c. collateralized financings
d. receivables
e. payables
Answer:
Which of the following is an overnight collateralized loan facility that provides loans
for up to 120 days to primary dealers in exchange for a broad range of collateral?
a. Term Auction Facility
b. Term Securities Lending Facility
c. Primary Dealer Credit Facility
d. Troubled Asset Relief Program
e. Housing and Economic Recovery Facility
Answer:
The two-week period during which a bank must hold sufficient legal reserves is called
the:
a. deposit computation period.
b. deposit maintenance period.
c. vault cash computation period.
d. base computation period.
e. maintenance period.
Answer:
All of the following are sources of cash except:
a. an increase in long-term debt.
b. a decrease in inventory.
c. a new equity issue.
d. a decrease in notes payable.
e. an increase in accounts payable.
Answer:
The lender’s secondary source of repayment in case of default is:
a. capacity.
b. collateral.
c. character.
d. capital.
e. credit.
Answer:
Checking accounts with unlimited check-writing and pay interest are known as:
a. demand deposit accounts.
b. money market deposit accounts.
c. NOW accounts.
d. certificates of deposit.
e. time deposits.
Answer:
A portfolio is equally invested in securities with 1-, 2-, and 3-years to maturity. Each
year as the 1-year securities mature, the funds are reinvested in 3-year securities. This is
an example of which investment strategy?
a. Barbell maturity strategy
b. Riding the yield curve
c. Laddered maturity strategy
d. Timing maturity strategy
e. Cycle maturity strategy
Answer:
The European Community is currently made up of how many member countries?
a. 7
b. 10
c. 17
d. 20
e. 27
Answer:
Which of the following is true regarding money market deposit accounts (MMDAs)?
a. A maximum of three checks per month may be written on a MMDA account.
b. The average check size on an MMDA account is smaller than the average demand
deposit check size.
c. MMDAs are formally transaction accounts.
d. Required reserves on MMDAs are higher than on demand deposit accounts.
e. Rates paid on MMDAs are generally higher than rates on money market mutual
funds.
Answer:
Which of the following is not a purpose of Check 21?
a. Prevent check truncation.
b. Foster innovation in the check collection system.
c. Improve overall efficiency of the payment’s system.
d. All of the above.
e. a. and. c.
Answer:
To the nearest dollar, what is the value today of an investment that pays $1,000,000 in
15 years, assuming an annual opportunity cost of 8%?
a. $555,265
b. $315,242
c. $463,193
d. $3,238,387
e. None of the above
Answer:
Assuming an 8% return, compounded semi-annually, what is the market value of a 12%
coupon bond with three years to maturity?
a. $1,000.00
b. $1,104.84
c. $1,419.68
d. $1,809.35
e. $2,000.00
Answer:
Large time deposits are generally referred to as:
a. mini CDs.
b. jumbo CDs.
c. big CDs.
d. giant CDs.
e. super CDs.
Answer:
For a bank with deficient capital ratios, which of the following actions could be taken to
increase the capital ratios, holding everything else the same?
a. Cut the bank’s dividend payment.
b. Increase the bank’s burden.
c. Repurchase the bank’s common stock on the open market.
d. Increase the bank’s growth rate by making additional commercial loans.
e. Reduce the bank’s holdings of Treasury securities.
Answer:
Effective duration:
a. estimates when embedded options will be used.
b. directly indicates how much the price of a security will change given a change in
interest rates.
c. is always greater than maturity.
d. is a weighted average of the time until cash flows are received.
e. All of the above
Answer:
Which of the following classes of securities are recorded at amortized cost on the
balance sheet?
a. Held-to-maturity
b. Available-for-sale
c. Trading
d. all of the above
e. a. and b. only
Answer:
A bond has a Macaulay’s duration of 56 years. If rates rise from 6.25% to 6.50%, the
bonds price will:
a. increase by approximately 6.25%.
b. decrease by approximately 6.25%.
c. increase by approximately 6.50%.
d. decrease by approximately 6.50%.
e. Not enough information is given to answer the question.
Answer:
A bank currently just meets its total capital requirements of 8%. The bank currently has
a dividend payout ratio of 35%. Assets are expected to grow at 5%.
If the bank expects its ROA to be .45%, what is the maximum dividend payout ratio to
support the increase in assets?
a. 11.1%
b. 22.2%
c. 33.3%
d. 44.4%
e. 89.9%
Answer:
An online debit payment is:
a. a signature-based transaction.
b. a PIN-based transaction.
c. an ACH transaction.
d. a CHIPS transaction.
e. a Fed Wire transaction.
Answer:
If the Federal reserve is easing monetary policy at the end of a recession, you would
expect the yield curve to be:
a. upward sloping.
b. flat.
c. inverted.
d. humped.
e. none of the above
Answer:
What is the bank’s expected economic net interest income?
a. $34.5
b. $32.3
c. $39.5
d. $44.0
e. $120.5
Answer:
The largest component of “non- interest cash and due from banks” is:
a. cash items in process of collection.
b. deposits held at other financial institutions.
c. federal funds sold.
d. vault cash.
e. loans from the Federal Reserve.
Answer:
Modified duration:
a. estimates when embedded options will be used.
b. directly indicates how much the price of a security will change given a change in
interest rates.
c. is always greater than maturity.
d. All of the above
e. a. and b.
Answer: