Which of the following describes the process of “netting” in the swap market?A.
Stripping out the “interest rate” sensitive element of total return swaps to reduce the net
portfolio risk.
B. Acting as an intermediary by bringing together two FIs with opposing interest rate
risk exposures to enter into a swap agreement.
C. Turning fixed-rate liabilities into net variable-rate liabilities.
D. Calculating the net difference between the two payments, and making a single
payment for the net difference.
E. Squaring off contracts on or before expiry.
Answer:
What is the end-of-year profit or loss to the bank if in one year the exchange rate falls
to US $0.765 per Canadian dollar? (Assume that there is no change in interest rates.) A.
Loss of US $75,000.
B. Profit of C $274,000.
C. Loss of US $7,000.
D. Profit of C $9,000.
E. Loss of US $5,000.
Answer:
Calculate the duration of a two-year corporate loan paying 6 percent interest annually,
selling at par. The $30,000,000 loan is 100 percent amortizing with annual payments.
A. 2 years.
B. 1.89 years.
C. 1.94 years.
D. 1.49 years.
E. 1.73 years.
Answer:
Which of the following is a mechanism used by DI managers to impact withdrawal
rates of NOW accounts.A. Implicit interest payments.
B. Minimum balance requirements.
C. Explicit interest payments.
D. All of the above.
E. There is no way to impact withdrawal rates.
Answer:
As of 2011, approximately ________ of the industry total brokerage fee income was
generated by firms operating as subsidiaries of commercial bank holding companies.
A. 15 percent
B. 25 percent
C. 40 percent
D. 50 percent
E. 65 percent
Answer:
The FDIC establishes risk-based deposit insurance premiums by considering all of the
following EXCEPT A. the deposit insurer’s revenue needs.
B. different categories and concentrations of assets.
C. the frequency of examinations.
D. different categories and concentrations of liabilities.
E. other factors that affect the probability of loss.
Answer:
The following represents two yield curves.
What is the implied
probability of repayment on one-year B-rated debt? A. 95.00 percent.
B. 97.17 percent.
C. 94.00 percent.
D. 97.00 percent.
E. 97.09 percent.
Answer:
Which of the following is a mechanism used by DI managers to reduce demand deposit
withdrawal rates?A. Implicit interest payments.
B. Minimum balance requirements.
C. Explicit interest payments.
D. All of the above.
E. There is no way to mitigate withdrawal risk.
Answer:
For a DI in the U.S. with $200 in assets and $180 in deposits, a liquid assets ratio of 15
percent A. would require $27.00 in cash and liquid government securities.
B. would require $27.00 in liquid government securities.
C. would require $30.00 in cash and liquid government securities.
D. would require $30.00 in liquid government securities.
E. None of the above.
Answer:
Which approach used in calculating capital to cover operational risk allow banks to rely
on internal data for the calculation of regulatory capital requirements? A. Standardized
approach.
B. Advanced measurement approach.
C. Basic indicator approach.
D. Internal ratings-based approach.
E. All of the above.
Answer:
Which of the following is a primitive form of asset securitization? A. Loan sales.
B. Pass-through security.
C. Collateralized mortgage obligation.
D. Mortgage-backed bond.
E. Timing insurance.
Answer:
Moral hazard at FIs may A. result when actions and consequences are separated.
B. occur when interest rates are very high and volatile.
C. occur when commodity prices are very high and volatile.
D. be a consequence of strict regulatory supervision.
E. be a consequence of an erosion of family values.
Answer:
The largest asset category on the balance sheet of U.S. life insurance companies as of
2012 was A. government securities.
B. corporate bonds.
C. corporate stock.
D. cash.
E. mortgages.
Answer:
What will be the net after-swap yield on assets for the bank? A. Variable-rate at
LIBOR.
B. Fixed-rate at 8 percent.
C. Fixed-rate at 1 percent.
D. Fixed-rate at 2 percent.
E. None of the above.
Answer:
Creating a secondary market in an asset by a securities firm involves the function of A.
cash management.
B. investing.
C. market making.
D. trading.
E. investment banking.
Answer:
In a crisis, which of the following are relatively less likely to withdraw funds quickly
from banks and thrifts? A. Correspondent banks.
B. Small business corporations.
C. Individual depositors.
D. Mutual funds.
E. Pension funds.
Answer:
Where are the contingent items disclosed in the financial statements? A. On the assets
side of the balance sheet.
B. On the liabilities side of the balance sheet.
C. As footnotes to financial statements.
D. In the income statement.
E. In the director’s report.
Answer:
The allocation of country resources between present and future consumption is
measured by which of the following variables of the credit scoring model of sovereign
country risk exposure? A. The debt service ratio.
B. The import ratio.
C. The variance of export revenue.
D. The investment ratio.
E. Domestic money supply growth.
Answer:
What is the duration of an 8 percent annual payment two-year note that currently sells
at par? A. 2 years.
B. 1.75 years.
C. 1.93 years.
D. 1.5 years.
E. 1.97 years.
Answer:
The liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) proposed by the
Bank for International Settlements are scheduled to take effect in A. 2011 for LCR and
2014 for NSFR.
B. 2012 for both LCR and NSFR.
C. 2015 for LCR and 2018 for NSFR.
D. 2013 for LCR and 2016 for NSFR.
E. 2014 for both LCR and NSFR.
Answer:
What is the credit equivalent amount of the off-balance-sheet letters of credit, both
standby and commercial? A. $9.6 million.
B. $16.0 million.
C. $48 million.
D. $72 million.
E. $80 million.
Answer:
Why are credit unions less affected by financial crises experienced by other thrifts such
as savings associations?A. They hold almost 30 percent of their assets in government
securities.
B. They hold relatively high amounts of residential mortgages.
C. Less than 10 percent of their assets are in small consumer loans.
D. They are more diversified than other DIs.
E. Their customers have no other options for their banking needs.
Answer:
Which of the following completes the statement: All else equal, the higher the duration
of a loan, A. the lower the current level of interest rates, the higher the RAROC.
B. the lower the expected change in risk premium, the lower the RAROC.
C. the higher the expected change in risk premium, the higher the RAROC.
D. the higher the loan amount, the lower the RAROC.
E. the lower the loan amount, the lower the RAROC.
Answer:
As compared to purchasing an individual stock, a no-load mutual fund investor will
usually get A. commission less reinvestment opportunities.
B. better diversification.
C. no-cost switching between funds within the same fund family.
D. lower commission costs.
E. All of the above
Answer:
The measurement of credit risk under the Basel II Accord allows banks to choose
betweenA. a standardized approach similar to that used under Basel I.
B. a basic indicator approach that will cause banks to hold an additional 12 percent of
capital.
C. an internal rating system in which they must adhere to strict methodological and
disclosure standards.
D. All of the above.
E. Answers A and C only.
Answer:
Which of the following is the result of using ‘sweep accounts” in which high reserve
ratio demand deposits are ‘swept” out of customers’ accounts on Friday into higher
interest-bearing savings accounts? A. Increased reserve requirements for the bank.
B. Higher average balances in a DI’s demand deposit.
C. Lower required reserve holdings at the Federal Reserve.
D. Lower interest burden for the bank.
E. None of the above.
Answer:
How can noninterest operating income of an FI be increased by improved technological
efficiency? A. By improving the efficiency of management of information flows.
B. By obtaining access to low cost sources of funds.
C. By linking services to the quality of the FI’s technology.
D. By innovating new interest earning products.
E. By complying with all government regulations.
Answer:
Use the following information and the option valuation model for the next two
problems. Onyx Corporation has a $200,000 loan that will mature in one year. The risk
free interest rate is 6 percent. The standard deviation in the rate of change in the
underlying asset’s value is 12 percent, and the leverage ratio for Onyx is 0.8 (80
percent). The value for N(h1) is 0.02743, and the value for N(h2) is 0.96406.
What is the current market value of the loan? A. $160,000.
B. $189,932.
C. $200,000.
D. $188,352.
E. $178,571.
Answer:
An agreement to allow competition from certain geographic areas, usually in return for
the ability to compete within those areas, is A. a federal charter.
B. an integrated agreement.
C. a holding company agreement.
D. an interstate banking pact.
E. a state charter.
Answer:
An investment banker agrees to underwrite an issue of 5 million shares of stock for
NetChoice, Inc. on a firm commitment basis. The investment banker pays $31.50 per
share to NetChoice, Inc. for the 5 million shares of stock. It then sells those shares to
the public for $30.00 per share.
If the investment bank can sell the shares for $34 per share, what is the profit (loss) to
the investment banker? A. Profit of $12,500,000.
B. Profit of $10,000,000.
C. Profit of $7,000,000.
D. Loss of $7,500,000.
E. Loss of $12,500,000.
Answer:
Which of the following is NOT an off balance sheet activity for U.S. banks? A.
Derivative contracts.
B. Loan commitments.
C. Standby letters of credit.
D. Trust services.
E. When-issued securities.
Answer:
Duties of a mutual fund chief compliance officer include A. policing the trading by
non-fund managers.
B. ensuring the accuracy of information provided to fund managers.
C. reviewing fund business practices such as marketing and administration.
D. reporting any wrongdoing directly to fund directors.
E. All of the above.
Answer:
Which of the following repealed the 1933 Glass-Steagall barriers between commercial
banking, insurance, and investment banking? A. Financial Institutions Reform
Recovery and Enforcement Act (1989).
B. Financial Services Modernization Act (1999).
C. Competitive Equality in Banking Act (1987).
D. The Bank Holding Company Act (1956).
E. Garn-St. Germain Depository Institutions Act (1982).
Answer: