The Federal Reserve may prevent the formation of a financial holding company if one
of its insured depository institution subsidiaries is not well capitalized.
Answer:
On the cash-based income statement, depreciation is a source of funds.
Answer:
Core deposits tend to be more interest elastic than volatile liabilities.
Answer:
The greater the compounding frequency, the higher the future value, everything else the
same.
Answer:
Increased competition, following deregulation, has lead to an increase in bank’s net
interest margin.
Answer:
When futures prices falls, buyers gain at the expense of sellers.
Answer:
All leveraged buyouts (LBOs) are labeled highly leveraged transactions.
Answer:
A function of investment banking is to facilitate corporate mergers and acquisitions.
Answer:
Most consumer loans are secured.
Answer:
A bank holding company is a shell organization that owns subsidiary firm.
Answer:
Respondent banks buy services from correspondent banks.
Answer:
Today, most demand deposit accounts are owned by individuals.
Answer:
Larger banks have lower efficiency ratios, on average, than smaller banks.
Answer:
An asset that is rate-sensitive is generally not price sensitive.
Answer:
Trading revenue for banks is highly cyclical.
Answer:
Every balance sheet and income statement item must be recognized on a cash-based
income statement.
Answer:
Foreign banks generally operate with higher capital ratios than U.S. banks.
Answer:
A bank with a duration gap of 1 is more sensitive to changes in the economic value of
equity than a bank with a duration gap of 1.5.
Answer:
Regarding interest expense, volume effects suggest that the mix of liabilities among
banks may differ.
Answer:
Consumer loans are typically very similar such that a comprehensive analytical format
can be used for all loans.
Answer:
A significantly undercapitalized bank is one that does not meet the minimum levels for
all three capital ratios.
Answer:
In general, smaller banks have higher capital ratios than larger banks.
Answer:
The largest banks have, on average, reduced their dependence on loans relative to
smaller banks.
Answer:
Fixed-rate mortgages and adjustable-rate mortgages prepay at different rates.
Answer:
In general, banks are less willing to sell securities when the market value is greater than
the book value.
Answer:
Vault cash generally satisfies a bank’s liquidity needs.
Answer:
Interest rate risk for banks arises largely from assets and liabilities that do not reprice at
the same time.
Answer:
GAP is defined as the difference between fixed-rate assets and fixed-rate liabilities.
Answer:
Duration gap analysis focuses on changes in net interest income.
Answer:
Today, many banks target individuals as the primary source of growth in attracting new
business.
Answer:
All other things the same, low coupon bonds have greater relative price volatility than
high coupon bonds.
Answer:
Retail banks deal primarily with commercial customers.
Answer:
A brokered deposit would most likely take which of the following forms?
a. Demand deposit
b. NOW account
c. Jumbo CDs
d. Savings account
e. Small time deposit
Answer:
The risk that a bank cannot meet payment obligations in a timely and cost-effective
manner is known as:
a. credit risk.
b. capital risk.
c. market risk.
d. operating risk.
e. liquidity risk.
Answer:
At the end of June 2008, there were approximately ______ FDICinsured banking
organizations in the United States.
a. 1,400
b. 3,400
c. 5,400
d. 7,400
e. 9,400
Answer:
Small time deposits are characterized by all of the following except:
a. they have denominations are less than $100,000.
b. they have substantial interest penalties for early withdrawal.
c. banks can pay market interest rates on them.
d. there is a substantial interest penalty for early withdrawal.
e. they have a minimum maturity of 3 days.
Answer:
A security might exhibit negative convexity because:
a. its duration is greater than its maturity.
b. it has a fixed interest rate below current market rates.
c. a bank has a negative GAP.
d. it has embedded options.
e. markets are not efficient.
Answer:
Prior to the Basle Agreement, capital requirements were established without regard to:
a. the bank’s liquidity risk.
b. the bank’s asset quality.
c. the size of the bank’s assets.
d. the bank’s operational risk.
e. the bank’s interest rate risk.
Answer:
A bond’s Macaulay duration is 95 years. If the current annual interest rate is 7%, what is
the modified duration of this bond?
a. 7.00 years
b. 7.88 years
c. 7.43 years
d. 7.95 years
e. 8.51 years
Answer:
To decrease liability sensitivity, a bank can:
a. buy longer-term securities.
b. attract more non-core deposits.
c. increase the number of floating rate loans.
d. pay premiums on longer-term deposits.
e. All of the above.
Answer:
Non-interest income includes all of the following except:
a. monthly fee income on checking accounts.
b. late fees on loans.
c. trust income.
d. insufficient funds service charges.
e. all of the above are considered non-interest income.
Answer:
Federal Reserve Reg. ____ makes it illegal for any lender to discriminate on the basis
of national origin.
a. AA
b. BB
c. Z
d. C
e. B
Answer:
The check-clearing services of correspondent banks are often used because:
a. the respondent bank is required to purchase a minimum amount of services.
b. it reduces required reserves.
c. the correspondent bank may be marketing their own services in a local community.
d. it often reduces float.
e. it decreases interest income.
Answer:
Core deposits consist of all of the following except:
a. demand deposits.
b. NOW accounts.
c. jumbo certificates of deposit.
d. savings accounts.
e. money market demand accounts.
Answer:
Days Accruals 10
Days Cash 7
Days Inventory 33
Days Payables 21
Days Receivables 35
Average Daily COGS 15
What are the firm’s estimated working capital needs?
a. $90
b. $315
c. $660
d. $1,125
e. $2,250
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%.
What is the required ROA to support the growth in assets?
a. 0.62%
b. 0.65%
c. 0.68%
d. 0.72%
e. 0.75%
Answer:
The primary federal regulator of state banks that are not members of the Fed is the:
a. FDIC.
b. Office of the Comptroller of the Currency.
c. Office of Thrift Supervision.
d. state banking department.
e. National Credit Union Administration.
Answer:
Which of the following is false regarding community banks?
a. They typically have assets in excess of $1 billion.
b. They typically operate in a limited geographic area.
c. Community banks often focus on lending to small businesses.
d. A bulk of their funding comes from deposits.
e. They tend to grow at a modest rate.
Answer:
If the spot rate is 1.67CAN$/US$ and the 1-month forward rate is 1.70CAN$/US$:
a. the Canadian dollar is selling at a premium.
b. the Canadian dollar is selling at a discount.
c. the U.S. dollar is selling at a discount.
d. the U.S. dollar is selling at par.
e. none of the above
Answer:
The minimum total capital for this bank is:
a. $348
b. $450
c. $509
d. $581
e. $696
Answer:
Which of the following would a bank generally classify as a short-term investment?
a. Demand deposits
b. Deposits at the Federal Reserve
c. Repurchase agreements
d. Fed Funds purchased
e. Vault cash
Answer:
For which of the following classes of securities are unrealized gains and losses included
as a component of capital?
a. Held-to-maturity
b. Available-for-sale
c. Trading
d. all of the above
e. a. and c. only
Answer:
Which of the following will cause a bank’s 1-year cumulative GAP to decrease,
everything else the same.
a. An increase in 3-month loans and an offsetting increase in 9-month loans.
b. A decrease in 6-month loans and an offsetting increase in 2-year CDs.
c. An increase in 9-month CD’s and an offsetting increase in 5-year CDs.
d. a. and c.
e. b. and c.
Answer:
Which type of financial institution has seen the largest drop in their share of U.S.
financial assets?
a. Depository institutions
b. Mutual funds
c. Insurance companies
d. Pension plans
e. Finance companies
Answer:
Typically, “Call loans” are:
a. residential mortgages.
b. farm loans.
c. demand deposits.
d. payable on demand.
e. automobile loans.
Answer:
All of the following would be generally be considered acceptable commercial loan
purposes except:
a. seasonal cash needs.
b. paying off other bank debts.
c. purchasing new equipment.
d. acquiring another firm.
e. expanding plant capacity.
Answer:
The _________ expanded the FDIC’s authority for open bank assistance.
a. Depository Institutions Act (Garn-St. Germain)
b. Competitive Equality Banking Act
c. Financial Institutions Reform, Recovery and Enforcement Act
d. Federal Deposit Insurance Corporation Improvement Act
e. Depository Institutions Deregulation and Monetary Control Act
Answer:
Which of the following wishes to reduce risk?
a. Scalper
b. Local
c. Arbitrageur
d. Hedger
e. Day trader
Answer:
The GAP ratio:
a. is always greater than one for bank’s with a negative periodic GAP.
b. is equal to the volume of rate-sensitive liabilities times the volume of rate-sensitive
assets.
c. is equal to the volume of rate-sensitive liabilities divided by the volume of
rate-sensitive assets.
d. is equal to the volume of rate-sensitive assets divided by the volume of rate-sensitive
liabilities.
e. is always less than one for bank’s with a positive cumulative GAP.
Answer:
For most banks, which of the following is the largest component of non-interest
expense?
a. Personnel expenses
b. Rent
c. Required reserves held at the Federal Reserve
d. Electricity
e. Depreciation on buildings and equipment
Answer:
The largest financial company in the United States is:
a. J.P. Morgan Chase & Co.
b. Citigroup Inc.
c. Bank of America Corp.
d. Wells Fargo & Co.
e. Wachovia Corp.
Answer:
A bank that does not meet the minimum levels for Tier 1 capital, total capital, and
leverage capital ratios is classified as:
a. well-capitalized.
b. adequately capitalized.
c. undercapitalized.
d. significantly undercapitalized.
e. critically undercapitalized.
Answer: