The Federal Reserve directly controls the discount rate.
Answer:
Credit cards typically provide lower risk-adjusted returns than other types of consumer
loans.
Answer:
The greater the compounding frequency, the higher the present value, everything else
the same.
Answer:
Forward contracts rarely require a performance guarantee or collateral.
Answer:
The effective annual interest rate will never be less than the simple interest rate.
Answer:
Universal banks were originally centered in Western Europe.
Answer:
Every futures contract has a formal expiration date.
Answer:
Foreign banks generally pay higher deposit rates than U.S. banks.
Answer:
The primary focus of a values driven bank is on the bank’s annual profit plan.
Answer:
In 2008, the U.S. Treasury committed over $50 trillion dollars in financial support for
financial institutions.
Answer:
Static GAP analysis focuses on managing net interest income in the short-run.
Answer:
When loan demand is weak, banks should keep investments short-term.
Answer:
“Hot money” represents Goldman Sachs’ greatest credit risk..
Answer:
Banks labeled “consumer lenders” have the heaviest concentration of loans in credit
cards.
Answer:
The security activities of large banks and small banks are fundamentally different.
Answer:
The duration of any security with interim cash flows will be less than the security’s
maturity.
Answer:
Pro forma analysis is a form of sensitivity analysis.
Answer:
National banks can directly take equity positions in real estate projects.
Answer:
More liquid assets tend to earn lower returns, everything else the same.
Answer:
The most prominent risk banks assume in making loans is interest rate risk.
Answer:
An adequately capitalized bank may obtain brokered deposits without FDIC approval.
Answer:
A long hedge would be appropriate for a bank that wants to reduce its cash market risk
associated with .a decline in interest rates.
Answer:
A security’s bid price will be greater than its ask price.
Answer:
Demand for checking accounts is generally considered to be price inelastic.
Answer:
Loans that are seasonal in nature should be self-liquidating.
Answer:
Net interest income made up a significant portion of Goldman Sachs’ net revenue in
2007.
Answer:
For a given absolute change in interest rates, the percentage increase in an option free
bond’s price will be less than the percentage decrease.
Answer:
On an unadjusted basis, yields on municipal securities are greater than the yields on
corporate securities, everything else the same.
Answer:
Banks that use preferred stock understate their ROE relative to banks that do not use
preferred stock.
Answer:
Decreasing capital increases risk by decreasing financial leverage.
Answer:
What constitutes Tier 2 capital varies substantially between countries.
Answer:
Foreign branches of U.S. banks are subject to U.S. reserve requirements.
Answer:
The _______________ repealed the restriction son banks affiliating with securities
firms under the Glass-Steagall Act.
a. Sarbanes-Oxley Act
b. Bank Holding Company Act
c. Competitive Equality Banking Act
d. Gramm-Leach-Bliley Act
e. Financial Institutions Reform, Recovery and Enforcement Act
Answer:
To increase asset sensitivity, a bank can:
a. buy longer-term securities.
b. pay premiums on subordinated debt.
c. shorten loan maturities.
d. make more fixed rate loans.
e. All of the above.
Answer:
Which of the following executes trades for other parties?
a. Local
b. Day trader
c. Scalper
d. Position trader
e. Commission broker
Answer:
What is the bank’s weighted average cost of liabilities?
a. $44
b. $76
c. $80
d. $94
e. $102
Answer:
What is the bank’s expected economic net interest income?
a. $14.75
b. $32.25
c. $44.00
d. $76.25
e. $120.25
Answer:
Regulators generally prohibit banks from purchasing ____________ for income
purposes.
a. Treasury bills
b. commercial paper
c. common stock
d. repurchase agreements
e. bankers’ acceptances
Answer:
Loans that finance the construction of roads and public utilities in new subdivisions are
labeled:
a. public work loans.
b. take-out loans.
c. domestic loans.
d. land development loans.
e. working capital loans.
Answer:
The least expensive source of funds for a typical bank is:
a. certificates of deposit.
b. negotiable order of withdrawal accounts.
c. savings accounts.
d. demand deposit accounts.
e. federal funds purchased.
Answer:
High interest rates in the late 1990’s on large CDs lead to the introduction of:
a. zero coupon CDs.
b. variable rate CDs.
c. callable CDs.
d. stock market indexed CDs.
e. immediately available funds CDs
Answer:
A bank owns a zero coupon bond with 5 years to maturity and a face value of $10,000.
If interest rates increase from 6% to 7%, what is the approximate change in price, using
Macaulay’s duration?
a. $343
b. $352
c. -$343
d. -$352
e. not enough information is given to answer the question.
Answer:
Which of the following would not be considered “hot money”?
a. Jumbo CDs
b. Fed funds purchased
c. Eurodollar time deposits
d. Retail demand deposits
e. Repurchase agreements
Answer:
Which of the following is correct about futures contracts?
a. Buyers of futures contracts make a profit when prices rise.
b. Buyers of futures contracts make a profit when interest rates rise.
c. Sellers of futures contracts make a profit when prices rise.
d. Sellers of futures contracts make a profit when prices interest rates fall.
e. b. and d.
Answer:
Under FASB 157, the valuation of Level 1 assets is labeled:
a. marking to market.
b. marking to matrix.
c. marking to myth.
d. marking to major.
e. marking to minor.
Answer:
Which of the following is considered an active investment strategy?
a. Barbell maturity strategy
b. Riding the yield curve
c. Laddered maturity strategy
d. Interest maturity strategy
e. Risk maturity strategy
Answer:
A bank’s equity multiplier measures the bank’s:
a. financial leverage.
b. operating leverage.
c. credit leverage.
d. interest rate exposure.
e. duration gap.
Answer:
Banks generate their largest portion of income from:
a. loans.
b. short-term investment.
c. demand deposits.
d. long-term investments.
e. certificates of deposit.
Answer:
Which of the following had the greatest net interest margin in 2008?
a. International banks
b. Agricultural banks
c. Credit card lenders
d. Consumer lenders
e. Mortgage lenders
Answer:
To buy a futures contract, one must post a(n):
a. maintenance margin.
b. variation margin.
c. market margin.
d. initial margin.
e. marked margin.
Answer:
A bank quotes you an effective annual rate of 10% on a semi-annual investment. What
is the annual simple interest rate?
a. 9.76%
b. 10.00%
c. 10.25%
d. 10.79%
e. 10.96%
Answer:
Which of the following is not represented in the CAMELS ratings.
a. Cash adequacy
b. Asset quality
c. Management quality
d. Liquidity
e. Sensitivity to market risk.
Answer:
Which of the following would be considered an interim loan?
a. Automobile loan
b. Residential mortgage loan
c. Construction loan
d. Home equity loans
e. Student loans
Answer:
Everything else the same, a bank’s “burden” would most likely increase given:
a. a decrease in overhead expenses.
b. an increase in interest rates.
c. a decrease in interest rates.
d. an increase in executive salaries.
e. an increase in service charges collected by the bank.
Answer:
A cross hedge often has greater risk then a perfect hedge because:
a. futures and cash interest rates are perfectly positively correlated.
b. futures and cash interest rates are perfectly negatively correlated.
c. cross hedging uses a contract based on the identical underlying asset.
d. futures and cash interest rates may not move together.
e. b. and d.
Answer:
For a bank that has a positive duration gap, an increase in interest rates will cause a(n)
_______ in the economic value of assets, a(n) _______ in the economic value of
liabilities, and a(n) _______ in the economic value of equity.
a. increase, decrease, increase
b. increase, increase, decrease
c. increase, increase, increase
d. decrease, decrease, increase
e. decrease, decrease, decrease
Answer:
All of the following are considered transaction accounts except:
a. negotiable orders of withdrawal.
b. automatic transfer from savings.
c. demand deposit accounts.
d. money market deposit accounts.
e. all of the above are considered transaction accounts.
Answer:
When selling securities to meet liquidity needs, a bank should consider all of the
following except:
a. brokerage fees.
b. lost interest income.
c. the gains or losses on the securities.
d. the impact on taxes.
e. A bank should consider all of the above when selling securities to meet liquidity
needs.
Answer:
Cash flows from a firm’s normal business activities are reflected in:
a. cash flows from investing.
b. cash flows from financing.
c. cash flows from operations.
d. cash flows from income.
e. cash flows from budgeting.
Answer:
What does a bank’s duration gap measure?
a. The duration of short-term buckets minus the duration of long-term buckets.
b. The duration of the bank’s assets minus the duration of its liabilities.
c. The duration of all rate-sensitive assets minus the duration of rate-sensitive liabilities.
d. The duration of the bank’s liabilities minus the duration of its assets.
e. The duration of all rate-sensitive liabilities minus the duration of rate-sensitive assets.
Answer:
Which of the following is not listed on a bank’s UBPR as non-interest income?
a. Deposit service charges
b. Insurance commission fees
c. Goodwill impairment
d. Net gains on sales of loans.
e. Investment banking fees
Answer:
A __________ is an investment fund that is limited to a small number of sophisticated
investors.
a. money market mutual fund
b. private equity fund
c. risk management fund
d. hedge fund
e. market development fund
Answer:
Revolving credit may take the form of:
a. overdraft protection.
b. demand deposit accounts.
c. excess reserves.
d. automobile loans.
e. interchange credit.
Answer:
Which type of risk is the most difficult to quantify?
a. Credit risk
b. Liquidity risk
c. Legal risk
d. Operating risk
e. Market risk
Answer: