Which of the following are lenders prohibited from asking on a credit application?
a. The applicant’s income
b. If the applicant has a telephone
c. If the applicant has declared bankruptcy in the past
d. How long the applicant has been on the job
e. Lenders are not prohibited from asking any of the above
Answer:
Banks created Section 20 affiliates to:
a. engage in investment banking activities.
b. make international loans.
c. purchase savings and loans.
d. invest in junk bonds.
e. compete with general-purpose finance companies.
Answer:
In an interest rate swap, the notional principle:
a. is the difference in the fixed and floating interest rates.
b. is the difference in the fixed and floating interest payments.
c. is used to calculate the FRA basis.
d. is used to calculate the value of the interest payments.
e. is used to calculate the hedge ratio.
Answer:
You invested $10,000 ten years ago. During the first two years, you earned 9% per year
and during the last eight years, you earned 12% per year. To the nearest dollar, how
much is your investment worth today?
a. $25,937
b. $29,417
c. $37,014
d. $40,456
e. None of the above
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. $6.85
e. -$6.85
Answer:
__________ is not a measure of bank productivity?
a. Assets per employee
b. Average personnel expense
c. Loans per employee
d. Net income per employee
e. Number of customers per employee
Answer:
The most important of the five Cs of credit when evaluating a consumer loan
application is:
a. cash.
b. capacity.
c. character.
d. conditions.
e. competition.
Answer:
S-corporations must have no more than ___ shareholders.
a. 10
b. 50
c. 100
d. 500
e. 1,000
Answer:
The ability to repay a loan is measured by a firm’s:
a. capacity.
b. collateral.
c. character.
d. capital.
e. credit.
Answer:
With “relationship pricing”:
a. banks unbundle services and charge separate prices for each.
b. service charges decline with larger customer deposit balances.
c. interest rates paid on deposit accounts decreases with customer deposit balances.
d. large depositors pay the highest fees.
e. small depositors receive the highest interest rates.
Answer:
What is the bank’s weighted average cost of liabilities?
a. $24.9
b. $34.5
c. $80.0
d. $94.3
e. $102.1
Answer:
Investment banks generally engage in all of the following types of business activities
except:
a. proprietary trading.
b. goodwill recovery.
c. market making.
d. securities underwriting..
e. advisory services
Answer:
Which of the following allows depository institutions to borrow for a fixed term against
a variety of collateral that is normally accepted for discount window loans?
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:
_________ own(s) the bulk of demand deposit accounts.
a. Consumers
b. Businesses
c. State governments
d. The federal government
e. Non-profits
Answer:
At what annual interest rate will you double your money if you invest for 8 years?
a. 10.11%
b. 9.05%
c. 8.19%
d. 7.91%
e. 6.73%
Answer:
The vast majority of FDIC-insured institutions are classified as:
a. credit card banks.
b. agricultural banks.
c. consumer lenders.
d. commercial lenders.
e. mortgage lenders.
Answer:
The basis on a futures contract is defined as:
a. the cash price minus the forward price.
b. the forward price minus the cash price.
c. the futures price minus the cash price.
d. the cash price minus the futures price.
e. None of the above.
Answer:
If the yield curve is inverted, a portfolio manager can take advantage of this by:
a. pricing more deposits on a fixed-rate basis.
b. buying more long-term securities
c. making variable-rate, callable loans.
d. increasing the number of rate-sensitive assets.
e. All of the above.
Answer:
Which of the following is/are true?
a. For rate increases, the estimated price based on duration will be below the actual
price.
b. For rate increases, the estimated price based on duration will be above the actual
price.
c. For rate decreases, the estimated price based on duration will be below the actual
price.
d. a. and c.
e. b. and c.
Answer:
EVE analysis: is essentially a _____________ analysis.
a. profitability
b. quality
c. liquidity
d. liquidation
e. earnings
Answer:
Which of the following is not a use of cash?
a. A decrease in accounts payable
b. An increase in inventory
c. An increase in accounts receivable
d. The payment of cash dividends
e. An increase in wages payable
Answer:
Assume that two firms, one considered a high credit risk (HCR) and the other a low
credit risk (LCR), are considering an interest rate swap. Each can borrow at the
following rates:
An interest rate swap would be beneficial to both parties if:
a. the LCR firm wants to borrow at the fixed rate and the HCR firm wants to borrow at
the variable rate.
b. the HCR firm wants to borrow at the fixed rate and the LCR firm wants to borrow at
the variable rate.
c. both firms want to borrow at the variable rate.
d. both firms want to borrow at the fixed rate.
e. an interest rate swap would be never be beneficial in this situation.
Answer:
In the CAMELS ratings, which reflects the bank’s off-balance sheet activities?
a. Capital adequacy
b. Asset quality
c. Earnings quality
d. Liquidity
e. Sensitivity to market risk
Answer:
Which of the following institutions’ customers have a “common bond”?
a. credit union
b. commercial bank
c. mortgage company
d. savings bank
e. thrift
Answer:
The _________ authorized the Treasury to purchase debt securities issued by the Fannie
Mae, Freddie Mac, and the Federal Home Loan Banks and to purchase common stock.
a. Treasury Emergency Authority Provisions
b. Foreclosure Prevention Act
c. Troubled Asset Relief Program
d. Primary Dealer Credit Facility
e. Check 21 Act
Answer:
What is the earnings base at 1st State?
a. 12.5%
b. 17.0%
c. 58.5%
d. 75.5%
e. 82.0%
Answer:
If a firm already has stock outstanding that is publically traded, additional offerings are
called:.
a. initial public offering.
b. second time equity offering.
c. primary offering.
d. secondary offering.
e. flavored offering.
Answer:
______________ is/are the primary revenue source for a majority of banks.
a. Check-processing fees
b. Investment income from deposit balances
c. Loan interest
d. Earnings credits
e. Swaps
Answer:
A 20-year annual coupon bond is currently selling for its par value of $10,000 with an
annual yield of 7%. If the bond is callable at par, what is the effective duration of the
bond, assuming rates change by 2%?
a. 25.00 years
b. 20.00 years
c. 5.52 years
d. 4.56 years
e. 3.68 years
Answer:
Which of the following loans Treasury securities to primary dealers in exchange for
other securities held by the dealers?
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:
A liability sensitive bank decides to reduce risk by marketing 2-year CDs paying 5%
instead of NOW accounts that pay 4%. The bank will benefit if:
a. the 2-year rate in one year is less than 5%.
b. the 1-year rate in one year is less than 6%.
c. the 1-year rate in one year is greater than 6%.
d. the 2-year rate in one year is greater than 6%.
e. Not enough information is given to determine the correct answer.
Answer:
Which of the following is not an advantage of the swap market over the futures market
for managing interest rate risk?
a. Getting out of a contract is easier in the swap market.
b. With a swap contract, you can hedge away longer-term risks than with futures
contracts.
c. The notional amount of the swap can be set to any value acceptable to both trading
parties.
d. All of the above are advantages of the swap market over the futures market.
e. a. and c. are not advantages of the swap market over the futures market.
Answer:
All other things constant, securities that are extremely liquid:
a. earn higher rates of return than securities that are less liquid.
b. have a longer maturity than less liquid securities.
c. have lower risk than less liquid securities.
d. a. and b.
e. b. and c.
Answer: