A bank is considering adding life insurance underwriting to the services it offers. It has
estimated that the expected return and standard deviation of its traditional services are
12 percent and 6 percent respectively. It has also estimated that the expected return and
standard deviation of its new underwriting services are 18 percent and 10 percent
respectively. The correlation between these services has been estimated to be +0.10 and
the bank estimates that 90 percent of its business will be from traditional services and
10 percent from the new underwriting services. What is the expected standard deviation
of the new combination of services?
A. 6.40 percent
B. 12.60 percent
C. 5.59 percent
D. 9.08 percent
E. None of the options is correct.
Answer:
The Burr Bank has just calculated the ratio of its U.S. Government Securities to Total
Assets. Which liquidity indicator is this?
A. Cash position indicator
B. Liquid securities indicator
C. Net federal funds and repurchase agreement position
D. Capacity ratio
E. Hot money ratio
Answer:
Which of the following is one of the risks the OCC requires banks to measure and set
limits on?
A. Strategic risk
B. Reputation risk
C. Price risk
D. Liquidity risk
E. All of the options are correct
Answer:
Banks frequently bid on the opportunity to finance the entire inventory of dealers
selling automobiles, business and electronic equipment, and other durable goods
through a ___________ arrangement.
A. factoring
B. floor planning
C. project loan
D. revolving line of credit
E. None of the options is correct.
Answer:
The assets and liabilities of Finacle Bank as on December 31, 2015, are as follows:
$20,000 of short-term securities issued by governments and private borrowers (about to
mature), $12,000 of borrowings from the money market, $15,000 of short-term savings
accounts, $12,000 of variable-rate loans and securities, $18,000 of long-term loans
made at a fixed interest rate, $25,000 of long-term savings and retirement accounts,
$22,000 of deposits in the Central Bank (held as legal reserves), $550,000 of equity
capital provided by the bank’s owners, and $500,000 of building and equipment.
Which of the following is a repriceable liability for Finacle Bank?
A. Long-term savings and retirement accounts
B. Variable-rate loans and securities
C. Borrowings from the money market
D. Equity capital provided by the owners
E. Long-term loans made at a fixed interest rate
Answer:
In the United States, national banks cannot extend an unsecured loan to a single
borrower that exceeds _____________ of the bank’s capital and surplus.
A. 25 percent
B. 10 percent
C. 15 percent
D. 20 percent
E. None of the options is correct
Answer:
A bank with a negative interest-sensitive GAP:
A. has a greater dollar volume of interest-sensitive liabilities than interest-sensitive
assets.
B. will generate a higher interest margin if interest rates rise.
C. will generate a lower interest margin if interest rates fall.
D. has assets and liabilities with the same duration.
E. has liabilities with a greater duration than its assets.
Answer:
The Bank, N.A. accepts deposits from thousands of individuals and lends that money to
(among others) the Stillwater Body Shop to expand their work bays. Which of the
following roles is the bank performing?
A. The intermediation role
B. The payments role
C. The risk management role
D. The guarantor role
E. The policy role
Answer:
A time deposit that is non-negotiable but allows a depositor to switch to a higher
interest rate if market interest rates rise is called a:
A. negotiable CD.
B. bump-up CD.
C. step-up CD.
D. liquid CD.
E. None of the options is correct.
Answer:
Gradual evolution of markets and institutions such that geographic boundaries do not
restrict financial transactions is known as:
A. deregulation.
B. integration.
C. re-regulation.
D. globalization.
E. moral suasion.
Answer:
The approach in which the merger partners merely sum the volume of their assets,
liabilities, and equity in the amounts recorded just before their merger takes place is
known as the:
A. purchase accounting method.
B. merger accounting method.
C. pooling of interest method.
D. pooling of equity method.
E. pooling of accounting method.
Answer:
There are 10 banks in a particular market area all with a market share of 10 percent.
Two of the banks plan to merge. What would the Herfindahl-Hirschman Index be after
the merger?
A. 5,000
B. 1,200
C. 1,000
D. 0
E. None of the options is correct
Answer:
The lesson(s) of the credit crisis of 2007-2009 is that the “bankruptcy remote”
arrangement of the special-purpose entity (SPE): A. reduces the need for securitization.
B. eliminates the probability of bankruptcy of the originator institution.
C. may create problems if the underlying loans go bad in great numbers.
D. eliminates the need for a trustee.
E. All of the options are correct.
Answer:
A call currency option:
A. obligates the holder to purchase currency or currency futures contracts at a fixed
price any time before the option expires.
B. gives the holder the right to purchase currency or currency futures contracts at a
fixed price any time before the option expires.
C. obligates the holder to sell currency or currency futures contracts at a fixed price
any time before the option expires.
D. gives the holder the right to sell currency or currency futures contracts at a fixed
price any time before the option expires.
E. None of options is correct.
Answer:
The Northwest Bank of Charlotte has decided to issue new securities that have five
years to maturity that have claims to assets that follow the claims of depositors. What
way of meeting their capital needs is the bank taking?
A. Issuing common stock
B. Issuing preferred stock
C. Issuing subordinated notes and debentures
D. Selling assets and leasing facilities
E. Swapping stock for debt instruments
Answer:
A buyer of a call option on fixed-income securities is most likely to:
A. exercise the option if interest rates rise.
B. let the option expire if the interest rates fall.
C. exercise the option if interest rates fall.
D. exercise the option if interest rates remain constant.
E. buy a put option also on the same securities.
Answer:
Carson County State Bank has a ratio of equity capital to total assets of 2.5%. The
regulators have asked all banks of similar size to maintain a capital adequacy ratio of
8%. They are making the bank issue new stock in the market. In addition, they are not
allowing the bank to issue dividends to their current stockholders. Which type of risk
would this be an example of?
A. Operational risk
B. Legal risk
C. Compliance risk
D. Strategic risk
E. Reputation risk
Answer:
Which of the following is not one of the capital market instruments?
A. U.S. Treasury notes
B. Corporate notes and bonds
C. U.S. Treasury bonds
D. Municipal bonds
E. Commercial paper
Answer:
“Core deposits”, “hot money”, and “vulnerable money” are categories of funds under
which of the following methods of estimating a bank’s liquidity needs?
A. Sources and uses of funds approach
B. Structure of funds approach
C. Liquidity indicator approach
D. Sources and uses of funds approach and liquidity indicator approach
E. None of the options is correct
Answer:
Suppose a bank has found bank-qualified municipal bonds which have a nominal gross
rate of return of 8 percent and that it can borrow funds needed for this purchase at a rate
of 6.25 percent. The bank is in the 35 percent tax bracket. What is the net after-tax
return on this bond?
A. 5.20 percent
B. 3.5 percent
C. 1.75 percent
D. 0 percent
E. None of the options is correct
Answer:
In recent years security dealers have assembled pools of federal agency securities
whose interest yield may be periodically reset based on what happens to a stated
interest rate, or may carry multiple coupon rates that are periodically adjusted; the
foregoing describes a: A. financial futures contract.
B. revenue-anticipation note.
C. zero coupon instrument.
D. structured note.
E. None of the options is correct.
Answer:
Drew Davis goes to his local bank to get help developing a financial plan and making
investment decisions. Which of the more recent services banks offer is Drew taking
advantage of?
A. Getting a consumer loan
B. Getting financial advice
C. Managing cash
D. Getting venture capital services
E. Buying a retirement plan
Answer:
The Fed funds market is most volatile on a bank:
A. computation day.
B. settlement day.
C. reserve day.
D. maintenance day.
E. holiday.
Answer:
The Goodknight Company has issued securities with 45 days to maturity. What type of
security has it issued?
A. Commercial Paper
B. Banker’s Acceptance
C. Corporate Bond
D. Treasury Bonds
E. Municipal Bond
Answer:
Dan Cross is a junior loan officer with First State Bank of Durant. He has been busy
visiting local businesses to see if any of them need credit. Which step in the lending
process is Dan performing?
A. Finding prospective customers
B. Evaluating a customer’s character and sincerity
C. Making a site visit and evaluating a customer’s credit history
D. Evaluating a prospective customer’s financial condition
E. Assessing possible collateral and signing the loan agreement
Answer:
When a bank issues a standby credit guarantee on behalf of one of its customers, the
party receiving the guarantee is known as the:
A. account party.
B. beneficiary.
C. obligator.
D. servicing agent.
E. None of the options is correct.
Answer:
A bank which manages the investment portfolio and pays the bills of an elderly
customer who is unable to do it for him or herself is carrying out the __________ of
banks.
A. intermediation role
B. payment role
C. guarantor role
D. agency role
E. policy role
Answer:
The law that requires banks to make ‘an affirmative effort’ to meet the credit needs of
individuals and businesses in their trade territories is called:
A. The Sarbanes-Oxley Act.
B. The Community Reinvestment Act.
C. The Equal Credit Opportunity Act.
D. The Truth in Lending Act.
E. None of the options is correct.
Answer:
The Government National Mortgage Association (GNMA, or Ginnie Mae):
A. guarantees the issuance of securities by private lenders.
B. creates its own mortgage-backed securities.
C. acquires pools of home-mortgage loans from private lenders.
D. developed a new mortgage-backed instrumentthe CMO.
E. is not a government-sponsored enterprise.
Answer:
Suppose a $100,000 T-Bond futures contract whose underlying’s duration is 9 years and
has a current market price of $98,750. Market interest rates are 6 percent today but are
expected to rise to 7.5 percent. What is the expected change in this futures contract’s
market price as a result of this change in interest rates?
A. $12,577
B. -$12,577
C. $62,883
D. -$62,883
E. None of the options are correct
Answer:
________________ are a type of municipal bond that are paid only from certain
stipulated sources of funds.
Answer:
A variable rate loan on a residential mortgage is known as a(n)
______________________.
Answer:
The type of discount window loan with generally the lowest rate of interest is known as
__________ credit.
Answer:
One of the advantages offered by mutual funds is having a ____________ who
monitors the performance of each security held by the fund.
Answer:
The __________________________ was created in 1913 in response to a series of
economic depressions and failures. Its principal role is to serve as the lender of last
resort and to stabilize the financial markets.
Answer:
_____________________________ are those liabilities that mature or must be repriced
within the planning period.
Answer:
Answer:
The spread between current and expected loans and investments and the current and
expected inflows from deposits and other sources of funds is known as the
__________.
Answer:
________________ are a type of municipal bond that are backed by the full faith and
credit of the issuing government.
Answer:
When dealers speculate on trends in the prices of selected currencies, it is called
______________.
Answer:
When a bank purchases a whole loan or a piece of a loan from another bank, they are
purchasing what is known as a ___________________________.
Answer:
For decades, depository institutions offered only one type of savings
plan____________. One that could be opened with as little as $5 and withdrawal
privileges were unlimited.
Answer:
The ___________________________________________ is an agreement between the
U.S., Japan, Canada, and several other nations of Western Europe to adopt common
capital standards for all of their banks.
Answer:
When a financial institution sells assets to manage liquidity, it faces
________________________. It loses future earnings on those assets, incurs
transaction costs on those sales, and the assets most easily sold often have the lowest
return.
Answer:
__________ CDs allow depositors to switch to a higher interest rate if market interest
rates rise.
Answer:
If total legal reserves held are less than required reserves, a bank has ___________.
Answer:
________________________ is the uncertainty associated with public opinion.
Negative publicity (whether true or not) can affect a financial firm’s earnings by
dissuading customers from using the services of the institution.
Answer: