1) An FI with DA< kDL may choose to enter into a long-term swap in which it pays a
fixed rate of interest and receives a variable rate in order to effectively reduce the
duration gap.
2) The primary asset for P&C insurers is bonds.
3) Most state and local pension funds are underfunded.
rev: 12_13_2013_QC_42629
4) A mortgage pass-through security is a bond issue backed by a group of mortgages
that pays fixed semiannual coupon payments and the principal is repaid only at
maturity.
5) A corporation informs the bank that it will immediately draw down the maximum
amount on its credit line. This is an example of liability side risk.
6)
What is Second National Bank’s total net liquidity?
A.$6,520
B.$13,500
C.$14,200
D.$12,280
E.$5,760
7) In 2010 the average combined ratio after dividends for the P&C industry was
___________.
A.102.4
B.105.6
C.107.2
D.97.6
E.93.5
8) In 2012, the greatest dollar volume of U.S. corporate underwriting occurred for
which type of security?
A.Straight corporate debt
B.Asset-backed debt
C.Common stock
D.Preferred stock
E.Convertible debt
9)
Using only the TDS criteria, which one of the following statements is true?
A.Joe gets the loan, but Bill does not.
B.Bill gets the loan, but Joe does not.
C.Both get the loan.
D.Neither gets the loan.
10) The largest liability of broker dealers in 2012 was
A.bank loans payable.
B.short positions in securities and commodities.
C.subordinated debt.
D.repurchase agreements.
E.equity.
11) The following type(s) of life insurance policies do not have a savings feature:
A.Term life
B.Whole life
C.Variable life
D.Universal life
E.Both variable life and universal life
12) In 2013, only about _____ of the largest banks actively used derivatives.
A.750
B.830
C.940
D.990
E.1,400
13) Which one of the following is usually the better predictor of default?
A.Standard & Poor’s credit rating
B.Moody’s credit rating
C.Altman Z-score
D.Moody€s Analytics EDF
E.All of the methods are equally effective at predicting default.
14) Which one of the following five Cs of credit is NOT correctly defined?
A.Capacity€Whether the borrower has enough other credit available to pay off the loan
in the event of cash flow problems.
B.Capital€ The borrower’s equity.
C.Character€A measure of the borrower’s intention/willingness to repay the loan.
D.Conditions€Assessing how economic conditions could affect the borrower’s ability to
repay the loan.
E.Collateral€An asset of the borrower that the lender may seize in the event of default
on the loan.
15) Rank the following in asset size from largest to smallest in 2013.
I. Mutual funds
II. Insurance companies
III. Depository institutions
A.I, II, III
B.I, III, II
C.II, III, I
D.III, II, I
E.III, I, II
16) In 2013, the top five underwriters engaged in about _____________ of total U.S.
underwriting volume.
A.15 percent
B.22 percent
C.33 percent
D.44 percent
E.56 percent
17) Big Valley’s use of debt to finance assets indicates that Big Valley has
____________ the typical firm in the industry.
A.more long-term solvency risk than
B.the same long-term solvency risk as
C.less interest expense than
D.less long-term solvency risk than
E.a lower market value of equity to book value of equity ratio than
18) Big Valley’s fixed asset efficiency is ___________ that of the typical firm in the
industry.
A.the same as
B.lower than
C.higher than
19) In the absence of deposit insurance, a deposit is a _______________ to the bank’s
assets.
A.pro rata claim
B.first come/first serve claim
C.full pay or no pay claim
D.pro rata claim and first come/first serve claim
E.first come/first serve claim and full pay or no pay claim
20) Which of the following is/are true about a Roth IRA?
I. Contributions are tax deductible.
II. Withdrawals after retirement are not taxed.
III. You must begin withdrawals at age 70½.
IV. Employers match contributions.
V. They are only available to individuals earning less than $50,000, or households
earning less than $90,000.
A.I, II, and IV
B.II, IV, and V
C.I, III, and IV
D.II only
E.V only
21) A bank meets a deposit withdrawal with one of the following alternatives. Which
one of the following is an example of using stored liquidity to meet a deposit
withdrawal?
A.Increasing Eurodollar deposits
B.Contacting an investment banker to find new corporate deposits
C.Increasing fed funds borrowed
D.Issuance of a negotiable CD
E.Selling the bank’s holdings of T-bills
22) State Farm and other P&C insurers came into conflict with policyholders over
claims filed as a result of Hurricane Katrina that resulted in lawsuits. The conflict
resulted from
A. insurers’ refusal to pay until reinsurance funds were collected.
B. policyholders’ fraudulent claims.
C. insurers’ insistence that the Katrina storm surge resulted in flood damage that was
not covered.
D. insurers overcharging for hurricane insurance.
23) Employee plus employer contributions to a 401(k) are $15,000 per year. Equity
funds are earning 15 percent, bond funds 8 percent, and money market funds 6 percent.
The employee wants to retire as soon as possible with $1 million in retirement assets. If
he puts 50 percent of his money in stocks, 30 percent in bonds, and 20 percent in money
funds, how long until he can expect to retire?
A.3.3 years
B.9.7 years
C.20.2 years
D.2.4 years
E.12.2 years
24)
GDS cutoff: 30 percent
TDS cutoff: 35 percent Using only the GDS criteria, which one of the following
statements is true?
A.Joe gets the loan, but Bill does not
B.Bill gets the loan, but Joe does not.
C.Both get the loan.
D.Neither gets the loan.
25) Sales finance companies
A.specialize in making loans to customers of a specific retailer or manufacturer.
B.specialize in making installments and other loans to whatever consumers are
interested.
C.specialize in providing loans to businesses.
D.specialize in international factoring and forfeiting.
E.none of the options
26) A U.S. bank has deposit liabilities denominated in euros that must be repaid in two
years. The deposits pay a fixed interest rate of 4 percent. The bank took the money
raised and converted it to dollars, whereupon it lent the dollars to a corporate customer
that will repay the bank over the next two years in dollars at a variable rate of interest
equal to LIBOR +3 percent. The interest rate earned may change every six months.
27) What are three major weaknesses of the repricing model?
31) The bank keeps a capital-to-asset ratio of 8 percent. If the bank does not securitize
the mortgages, they will be fully funded with demand deposits that have a reserve
requirement of 10 percent. The demand deposits also have a deposit insurance premium
of 0.20 cents per $100 of deposits. If the bank securitizes the mortgages, how much less
capital will the bank require? If the savings from not having the required reserves and
the deposit insurance premiums could be invested at 5 percent, what is the dollar
opportunity cost of not securitizing?
33) Classify the following trading activities as either a position trade, a pure arbitrage
trade, or a risk arbitrage trade.
I. Buy Intel at $120 and hold it for six months in hopes of a price rise.
II. Buy GE on the NYSE and immediately sell it at a higher price on the Pacific
Exchange.
III. Short sell Dell in anticipation of a poor quarterly earnings report.