The “provision for loan and lease losses”:
a. are the realized losses from the previous accounting period.
b. represents management’s estimate of potential lost revenue from bad loans.
c. determined by the Federal Reserve for all banks.
d. does not affect net income.
e. is another name for a bank’s “burden.”
Answer:
When you buy a futures contract, your futures position is:
a. flat.
b. long.
c. short.
d. the same as the cash position.
e. a. and d.
Answer:
Transit checks deposited are:
a. checks drawn on any bank other than the bank into which it was deposited.
b. the accounting transaction for selling fed funds.
c. discount window loans.
d. illegal.
e. checks drawn on a bank’s own customer’s account.
Answer:
A universal bank can engage in:
a. making commercial loans.
b. making consumer loans.
c. selling insurance.
d. all of the above
e. a. and b. only
Answer:
The parent bank holding company assists bank subsidiaries with all of the following
except:
a. asset and liability management.
b. strategic planning.
c. loan review.
d. deposit insurance.
e. business development.
Answer:
What is 1st State’s efficiency ratio?
a. 2.5%
b. 17.5%
c. 25.0%
d. 74.5%
e. 82.5%
Answer:
Which of the following is not considered a cash asset?
a. Marketable securities
b. Cash items in process of collection
c. Demand deposits at private financial institutions
d. Demand deposits at the Federal Reserve
e. Vault cash
Answer:
A bank’s GAP is defined as:
a. the dollar amount of rate-sensitive assets divided by the dollar amount of
rate-sensitive liabilities.
b. the dollar amount of earning assets divided by the dollar amount of total liabilities.
c. the dollar amount of rate-sensitive assets minus the dollar amount of rate-sensitive
liabilities.
d. the dollar amount of rate-sensitive liabilities minus the dollar amount of
rate-sensitive assets.
e. the dollar amount of earning assets times the average liability interest rate.
Answer:
What is 1st State’s return on equity?
a. 0.6%
b. 3.8%
c. 5.0%
d. 8.2%
e. 13.0%
Answer:
A security interest in a loan is said to be perfected if the:
a. bank holds the collateral.
b. loan has no protective covenants.
c. borrower is a low credit risk.
d. government guarantees the loan.
e. bank has never lent to the customer before.
Answer:
A primary difference between “intelligent” smart cards and “memory” smart cards is
that:
a. intelligent smart cards can store information, while memory smart cards cannot.
b. intelligent smart cards are larger than memory smart cards.
c. memory cards can only store information.
d. intelligent smart cards are “digital”, while memory smart cards are not.
e. intelligent smart cards are used in ACH transactions, while memory smart cards are
not.
Answer:
The Tax Reform Act of 1986 made home equity loans more appealing by:
a. eliminating the tax deduction of interest on consumer loans not secured by real estate.
b. allowing banks to lend up to 125% of the equity in a home.
c. preventing homes from being liquidated in Chapter 13 bankruptcy cases.
d. reducing bank income taxes on mortgage loan income.
e. all of the above.
Answer:
Which of the following is an example of immediately available funds?
a. Deposits at the Federal Reserve
b. Stock market indexed CDs
c. Demand deposits
d. Money market deposit accounts
e. All of the above
Answer:
Which of the following is the most flexible of the Fed’s tools for implementing
monetary policy?
a. Changes in the fed funds rate
b. Changes in the required reserve ratio
c. Changes in the discount rate
d. Open market operations
e. Private placements
Answer:
A trader buys a 90-day Eurodollar futures contract at 95.25. The next day, interest rates
rise 5.25%. Which of the following is true? Assume that the initial and maintenance
margins are $5,000.
a. The trader would have to deposit an additional $62,500 into her account.
b. The trader would have to deposit an additional $1,500 into her account.
c. The trader would have to deposit an additional $625 into her account.
d. The trader could withdraw $1,250 from her margin account.
e. The trader could withdraw $625 from her margin account.
Answer:
In loan participations, the _____ makes the original loan and sells participations.
a. lead bank
b. interbank
c. loan production office
d. holding firm
e. originate bank
Answer:
Which of the following is NOT a type of credit enhancement?
a. Excess cash flow
b. Credit derivatives
c. Loan guarantees
d. All of the above are a type of credit enhancements
e. a. and b. are NOT credit enhancements
Answer:
What is the primary motivation today of forming a financial holding company?
a. To increase speculation.
b. To branch across state lines.
c. To engage in activities not permitted in a bank holding company.
d. To branch within a particular states boundaries.
e. To reduce the risk of bank failures.
Answer:
During the underwriting process, the investment bank receives payment for all of the
following except:
a. flotation costs.
b. legal costs.
c. Federal Reserve costs.
d. accounting costs.
e. marketing costs.
Answer:
Which of the following is a disadvantage of using a debit card?
a. The consumer is charged higher finance charges than on a credit card.
b. The consumer loses float.
c. They have higher processing costs than ATMs.
d. They have lower processing costs than checks.
e. They are not widely available.
Answer:
A bond with a par value of $1,000 and a 10% semi-annual coupon rate has 9 years to
maturity. Assuming it is priced to yield 8%, compounded semi-annually, what is the
market price of the bond, to the nearest dollar?
a. $1,074
b. $1,127
c. $1,450
d. $1,510
e. None of the above
Answer:
Goldman Sachs listed all of the following key risk faced by the firm in its 2007 annual
report except:
a. widening credit spreads..
b. an increase in the number of securities underwritings.
c. declines in equity values.
d. declines in the number of mergers and acquisitions.
e. an increase in market volatility.
Answer:
A bank’s cumulative GAP will always be:
a. greater than the periodic GAP.
b. less than the periodic GAP.
c. positive.
d. negative.
e. the sum of the interim periodic GAPs.
Answer:
How much Tier 1 capital does the bank have?
a. $100
b. $450
c. $700
d. $750
e. $1000
Answer:
The risk that a foreign government will suspend debt service payments is known as:
a. LC risk.
b. foreign exchange risk.
c. euro risk.
d. sovereign risk.
e. country risk.
Answer:
Businesses can obtain funds from which of the following?
a. Loans from life insurance companies
b. Issuing commercial paper
c. Issuing junk bonds
d. Loans from commercial banks
e. All of the above
Answer:
Banks experience economies of scale when:
a. marginal costs increase as total costs decrease.
b. total costs decrease as output decreases.
c. total costs increase as output increases.
d. average unit costs increase as output increases.
e. average unit costs decrease as output increases.
Answer:
Under the current capital requirements, assets in Category 3, such as 1-4 family real
estate loans, have an effective total capital-to-total-assets ratio of:
a. 1.6%.
b. 2.0%.
c. 4.0%.
d. 8.0%.
e. 8.6%.
Answer:
Which passive investment strategy differentiates between bonds that have been
purchased for liquidity versus income purposes?
a. Barbell maturity strategy
b. Riding the yield curve
c. Laddered maturity strategy
d. Timing maturity strategy
e. Cycle maturity strategy
Answer:
Which act separated commercial banking, investment banking and insurance into three
separate industries?
a. Glass-Steagall Act
b. Bank Holding Company Act
c. McFadden Act
d. Federal Reserve Act
e. Competitive Equality Banking Act
Answer:
When is interest rate risk for a bank greatest?
a. When interest rates are volatile.
b. When interest rates are stable.
c. When inflation is high.
d. When inflation is low.
e. When loan defaults are high.
Answer:
___-corporations have favorable tax treatment because a qualifying firm does not pay
corporate income taxes.
a. C
b. Q
c. S
d. V
e. Z
Answer:
If rate-sensitive assets equal $600 million and rate-sensitive liabilities equals $800
million, what is the expected change in net interest income if rates fall by 1%?
a. Net interest income will increase by $2 million.
b. Net interest income will fall by $2 million.
c. Net interest income will increase by $20 million.
d. Net interest income will fall by $20 million.
e. Net interest income will be unchanged.
Answer:
Which of the following is not a disadvantage of static GAP analysis?
a. Static GAP analysis depends on the forecasted interest rates.
b. Static GAP analysis often considers demand deposits as non-rate sensitive.
c. Static GAP analysis does not consider the cumulative impact of interest rate changes
on the bank’s position.
d. Static GAP analysis does not consider a depositor’s early withdrawal option.
e. All of the above are disadvantages of static GAP analysis.
Answer:
A bank has a planned 2-year investment horizon. It is considering investing in a 2-year
bond that pays 6% annually versus investing in a 4-year bond that pays 6.5% annually
and then selling it after two years. The annual coupon payments can be reinvested at
4%.
What will be the realized compound yield if the bank invests in the 4-year security and
sells it at the end of two years, assuming interest rates remain unchanged?
a. 4.00%
b. 5.48%
c. 5.94%
d. 6.01%
e. 6.85%
Answer: