A bank is going to issue $10,000,000 in 5-year par value bonds that pay a 5% annual
coupon. The bank must pay .7% of the face value in floatation costs. What is the bank’s
effective cost of borrowing?
a. 5.0%
b. 5.2%
c. 5.7%
d. 6.2%
e. 7.5%
Answer:
Which of the following is not true regarding Edge Act banks?
a. Edge Act banks may be owned by U.S. banks.
b. Edge Act banks may be owned by foreign banks.
c. Edge Act banks may be owned by bank holding companies.
d. Edge Act banks may be located outside the U.S.
e. Edge Act banks may be located in the U.S.
Answer:
A bank has a 1-year $1,000,000 loan outstanding, payable in four equal quarterly
installments. What dollar amount of the loan would be considered rate sensitive in the 0
90 day bucket?
a. $0
b. $250,000
c. $500,000
d. $750,000
e. $1,000,000
Answer:
Which of the following was a goal of the Depository Institutions Deregulation and
Monetary Control Act of 1980?
a. To reduce the range of banking services offered.
b. To allow banks to pay market rates on deposits.
c. To allow banks to make long-term mortgage loans.
d. To allow banks to offer Money Market Deposit Accounts.
e. To reduce the number of leveraged buyouts.
Answer:
A bank currently owns a municipal bond paying a tax-exempt rate of 6.5%. If the banks
marginal tax rate is 40%, what is the taxable equivalent yield?
a. 3.90%
b. 10.83%
c. 9.10%
d. 4.64%
e. 9.32%
Answer:
Consumer loans differ from commercial loans in all of the following ways except:
a. consumer loans are generally smaller than commercial loans.
b. consumer loans are generally for longer terms than commercial loans.
c. consumer loans are generally less expensive to administer on a unit basis than
commercial loans.
d. individuals are more likely to default than businesses.
e. consumer loans in some states are still covered by usury laws.
Answer:
If a bank expects interest rates to decrease in the coming year, it should:
a. increase its GAP.
b. issue long-term subordinated debt today.
c. increase the rates paid on long-term deposits.
d. issue more variable rate loans.
e. become more liability sensitive.
Answer:
Which of the following mortgage types were offered to ‘subprime” borrowers?
a. Interest Only
b. Option Adjustable-Rate
c. Principal Only
d. All of the above
e. a. and b. only
Answer:
What is the earnings base at 1st State?
a. 12.5%
b. 17.5%
c. 58.5%
d. 75.5%
e. 82.5%
Answer:
Which of the following bank assets is the most liquid?
a. Long-term investments
b. Short-term investments
c. Loans
d. Demand deposits
e. Unearned income
Answer:
What is the total amount of the bank’s regulatory capital?
a. $500
b. $700
c. $750
d. $1,000
e. $1,300
Answer:
CDs sold at a steep discount from par and appreciate to face value at maturity are
known as:
a. zero coupon CDs.
b. variable rate CDs.
c. callable CDs.
d. stock market indexed CDs.
e. immediately available funds CDs
Answer:
Which of the following is not a reason that banks hold cash assets?
a. To meet customer’s needs for currency.
b. To meet capital requirements.
c. To meet required reserves.
d. To compensate for correspondent bank services.
e. To assist in the check clearing process.
Answer:
The earnings change ratio:
a. is defined as yield on rate-sensitive liabilities divided by the yield on rate-sensitive
assets.
b. measures how the yield on an asset is assumed to change given a 1% change in some
base rate.
c. measures the change in net interest income for a given change in some base rate.
d. All of the above.
e. a. and c.
Answer:
A bank estimates that their average balance on demand deposit accounts is $2,500, net
of float. Each account costs the bank $175 per year in processing costs. The bank
collects an average of $5 per month on each account in service charges. Assume reserve
requirements are 10%.
If the bank can invest the deposit balance (after adjusting for reserve requirements) at
7%, what is the break-even deposit balance?
a. $3,777
b. $3,500
c. $2,500
d. $1,825
e. $1,479
Answer:
From the following list, which two are the biggest contributors to non-interest income?
a. Fiduciary Activities & Deposit Service Charges
b. Trading Revenue & Investment Banking
c. Insurance Commission Fees and Income & Other Non-Interest Income
d. Depository Service Charges and Other Non-Interest Income
e. Fiduciary Activities and Investment Banking
Answer:
Which of the five Cs refers to an individual’s wealth?
a. cash.
b. capacity.
c. character.
d. conditions.
e. capital
Answer:
If interest rates rise 1% for all assets and liabilities, what is the approximate expected
change in the economic value of equity?
a. $2.56
b. $5.84
c. $5.84
d. $22.19
e. -$22.19
Answer:
There is a short-run trade-off between a bank’s liquidity and _______.
a. asset quality
b. profitability
c. discount window borrowing
d. all of the above
e. a. & b. only
Answer:
The largest single loan category for all banks is:
a. real estate loans.
b. commercial loans.
c. credit card loans.
d. industrial loans.
e. agricultural loans.
Answer:
Which of the following does not have an embedded option?
a. A callable Federal Home Loan Bank bond.
b. Demand deposit accounts.
c. A home mortgage loan.
d. An auto loan.
e. All of the above have embedded options.
Answer:
The underlying mortgages in Ginnie Mae mortgage pools include:
a. Federal Housing Association (FHA) mortgages.
b. Veterans Administration (VA) mortgages.
c. privately issued mortgages.
d. all of the above
e. a. and b. only
Answer:
Unsecured liabilities created from the exchange of immediately available funds are
known as:
a. federal funds purchased.
b. repurchase agreements.
c. federal funds sold.
d. pledged securities.
e. brokered deposits.
Answer:
A savings and loan that sold off their junk bond holdings and issued consumer auto
loans with the proceed would most likely be:
a. decreasing their market risk.
b. increasing their capital risk.
c. decreasing their legal risk.
d. increasing their operating risk.
e. reducing their credit risk.
Answer:
Federal Reserve Reg. ____ requires disclosure of as to why a costumer was denied
credit.
a. AA
b. BB
c. Z
d. C
e. B
Answer:
Return on equity can be decomposed into:
a. the sum of return on assets and the equity multiplier.
b. the product of return on assets and the equity multiplier.
c. the product of the profit margin and the equity multiplier.
d. the sum of the profit margin and the equity multiplier.
e. the sum of the profit margin, equity multiplier, and the interest ratio.
Answer:
Which of the following adjustments are made to gross loans and leases to obtain net
loans and leases?
a. The loan and lease loss allowance is subtracted from gross loans
b. Unearned income is subtracted from gross interest received
c. Investment income is added to gross interest received
d. a. and b.
e. a. and c.
Answer:
According to the Federal Reserve, a non-card bank:
a. issues its own card.
b. does not issue its own card.
c. operates under a regional card bank.
d. a. and c.
e. b. and c.
Answer:
A bond that has an annual coupon rate of 11% has three years to maturity. If the current
discount rate is 16%, what is the bond’s Macaulay’s duration?
a. 3.00 years
b. 2.991. years
c. 2.89 years
d. 2.79 years
e. 2.69 years
Answer:
Today, the primary motivation behind forming a bank holding company is:
a. to reduce competition.
b. the ability to circumvent restrictions on branching.
c. to broaden the scope of products the bank can offer.
d. to increase deposit concentration.
e. All of the above are motivating factors today for forming a bank holding company.
Answer:
The primary appeal of online banking is:
a. prevention of identity theft.
b. high-volume traffic.
c. lack of face-to-face interaction.
d. its convenience.
e. the ability to make small dollar purchases.
Answer:
To be considered well-capitalized, a bank’s minimum Tier 1 capital, total capital, and
leverage capital must be:
a. 4%, 8%, and 3%, respectively.
b. 8%, 5%, and 3%, respectively.
c. 10%, 10%, and 10%, respectively.
d. 6%, 10%, and 5%, respectively.
e. 3%, 4%, and 8%, respectively.
Answer:
A bank owns a zero coupon bond with 5 years to maturity and a face value of $10,000.
If interest rates increase from 6% to 7%, the approximate change in price, using
Macaulay’s duration is $352.48, what is the approximate pricing error when using
Macaulay’s duration?
a. $8
b. $10
c. $12
d. $14
e. $16
Answer:
Which of the following is not a cost management strategy?
a. Investing in resources to improve long-term profitability
b. Changing pricing such that total revenues increase
c. Identify operating efficiencies
d. Burden identification
e. Expense reduction
Answer:
A bond that with a 12% coupon rate (paid semi-annually) has two years to maturity. If
the current discount rate is 10%, what is the bond’s Macaulay’s duration?
a. 4.00 years
b. 3.47 years
c. 2.00 years
d. 1.73 years
e. 1.50 years
Answer:
