Interest rate risk:
a. varies inversely with a bank’s GAP.
b. can be measured by the volatility of a bank’s net interest income given changes in the
level of interest rates.
c. can be eliminated by matching fixed rate assets with variable rate liabilities.
d. rarely has an impact on bank earnings.
e. All of the above
Answer:
A formal regulatory document that prescribes corrective action for a problem institution
is a:
a. cease and desist order.
b. capital request.
c. memorandum of understanding.
d. quality assurance directive.
e. national bank order.
Answer:
__________ control at least two commercial banks.
a. One-bank holding company
b. State holding company
c. National holding company
d. Multibank holding company
e. None of the above
Answer:
Days Accruals 10
Days Cash 7
Days Inventory 33
Days Payables 21
Days Receivables 35
Average Daily COGS 15
What is the firm’s liability cycle?
a. 21 days
b. 31 days
c. 65 days
d. 75 days
e. 121 days
Answer:
Which of the following is a discretionary factor that will decrease a bank’s daily
reserves held at the Federal Reserve?
a. Remittances charged
b. Federal funds purchased
c. The previous day’s immediate cash letter
d. Currency received from the Federal Reserve
e. Deficits at the local clearinghouse
Answer:
Which of the following could be used to identify a potential increase in borrowing by
customers that might deplete a bank’s cash reserves?
a. The amount of insured versus uninsured deposits
b. Large deposits held by a single entity
c. Volume of Fed Funds sold
d. The sensitivity of deposits to changes in the level of interest rates
e. Unused commercial credit lines outstanding
Answer:
What is 1st State’s efficiency ratio?
a. 2.53%
b. 17.51%
c. 0.83%
d. 0.45%
e. 83.3%
Answer:
Which of the following is not one of the five Cs of bad credit?
a. Complacency
b. Contention
c. Contingencies
d. Competition
e. Carelessness
Answer:
Community banks are typically considered those banks with assets:
a. over $100 billion.
b. between $50 billion and $99 billion.
c. between $10 billion and $49 billion.
d. between $1 billion and $9 billion.
e. under $1 billion.
Answer:
A bank estimates that their average balance on demand deposit accounts is $2,000, net
of float. Each account costs the bank $150 per year in processing costs. The bank
collects an average of $7.50 per month on each account in service charges. Assume
reserve requirements are 10%.
What is the net cost of an average demand deposit?
a. 3.0%
b. 3.3%
c. 3.6%
d. 3.9%
e. 4.2%
Answer:
What is 1st State’s burden?
a. 2.7%
b. 17.5%
c. 25.0%
d. 75.5%
e. 82.5%
Answer:
Why do regulators prefer higher capital requirements?
a. It justifies the existence of regulatory agencies.
b. It better protects the deposit insurance fund.
c. It enhances bank asset quality.
d. It decreases bank profitability.
e. It increases bank leverage.
Answer:
Most repurchase agreements are secured by:
a. municipal securities.
b. commercial paper.
c. Treasury securities.
d. discount window loans.
e. cash.
Answer:
Common size financial statements convert figures to a common size by:
a. dividing balance sheet items by total assets and income statement items by net
income.
b. dividing balance sheet items by sales and income statement items by net income.
c. dividing balance sheet items by total assets and income statement items by sales.
d. dividing balance sheet items by sales and income statement items by total assets.
e. dividing balance sheet items by total equity and income statement items by sales.
Answer:
Banks can effectively improve their portfolios by:
a. shortening maturities when yields are expected to fall.
b. obtaining less call protection when rates are expected to fall.
c. reducing diversification when the economy is slowing down.
d. increasing bond quality when quality yield spreads are low.
e. all of the above
Answer:
Classified loans:
a. still accrue interest.
b. have not had a principle or interest payment made in 90 days.
c. exactly offset gross charge-offs.
d. are loans in which regulators have forced management to set aside reserves.
e. all of the above
Answer:
Collateral is required against each of the following liabilities except ________.
a. securities sold under agreement to repurchase
b. borrowings from the Federal Reserve discount window
c. U.S. Treasury securities
d. public deposits owned by the U.S. Treasury
e. Federal Home Loan Bank advances
Answer:
Short-term working capital loans are generally repaid with funds from:
a. investing cash flows.
b. issuing new debt.
c. reductions in inventory and receivables.
d. issuing new equity
e. redeeming marketable securities.
Answer:
A bank customer is granted credit for a $2,000 loan at 10% to be repaid in 12 equal
installments. If the loan is a discount loan, what are the net proceeds of the loan?
a. $2,200
b. $2,100
c. $2,000
d. $1,800
e. Cannot be determined
Answer:
When increasing liabilities to meet liquidity needs, a bank should consider all of the
following except:
a. brokerage fees.
b. required reserves.
c. FDIC insurance premiums.
d. lost interest income.
e. A bank should consider all of the above when increasing liabilities to meet liquidity
needs.
Answer:
Loans typically fall into each of the following categories except:
a. real estate.
b. individual.
c. commercial.
d. agricultural.
e. municipal.
Answer:
Which of the following is an example of an indirect loan?
a. An automobile dealer negotiates the loan terms with the individual and then presents
the agreement to the bank. The bank then makes the loan.
b. An automobile dealer refers a customer to the local credit union. The customer goes
to the credit union and gets an auto loan secured by the customer’s certificates of
deposit.
c. A homebuyer gets a mortgage over the Internet.
d. A student gets a student loan guaranteed by Sallie Mae.
e. None of the above.
Answer:
Securities that require unrealized gains or losses to be recorded as a change in
stockholder’s equity are called:
a. held-to-maturity securities.
b. trading account securities.
c. available-for-sale securities.
d. revenue securities.
e. repurchase agreements
Answer:
Under the Equal Credit Opportunity Act, for which of the following is it illegal for a
bank to discriminate against borrowers?
a. The applicant’s income
b. The applicant’s credit history
c. The applicant’s national origin
d. The applicant’s job history
e. A civil judgement against the applicant
Answer:
What is the strength of static GAP analysis relative to duration gap analysis?
a. Static GAP analysis recognizes the time value of money of each cash flow.
b. Static GAP analysis provides a measure of the total portfolio’s interest rate risk.
c. Static GAP analysis is easier to understand.
d. Static GAP analysis takes the long-run view while duration gap analysis takes a
shorter-run view.
e. The static GAP measure directly correlates with the risk of the bank, i.e., a bank with
twice the static GAP is twice as risky.
Answer:
What is the amount of risk-adjusted assets for the bank?
a. $7,700
b. $8,700
c. $9,700
d. $14,700
e. $15,700
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 2-year security and
holds it until maturity?
a. 4.00%
b. 5.48%
c. 5.94%
d. 6.01%
e. 6.85%
Answer:
If a bond is selling at a discount, then:
a. the yield to maturity is less than the coupon rate.
b. the yield to maturity is greater than the coupon rate.
c. the yield to maturity is equal to the coupon rate.
d. its duration must be greater than its maturity.
e. its duration must be equal to its maturity.
Answer:
A forward market exchange in foreign currencies is an agreement to exchange:
a. currencies in the future at an unspecified time at an exchange rate determined at the
time the contract is agreed to.
b. currencies in the future at a specified time at an unknown exchange rate.
c. currencies in the future at an unspecified time at an unknown exchange rate.
d. a product for a foreign currency in the future at a specified time.
e. currencies in the future at a specified time at an exchange rate determined at the time
the contract is signed.
Answer:
Banks with greater capital can do all of the following except:
a. borrow at lower rates.
b. make larger loans.
c. expand faster through acquisitions.
d. expand faster through internal growth
e. Banks with greater capital can do all of the above.
Answer:
The yield curve tends to be inverted:
a. at the trough of the business cycle.
b. during periods of rapid inflation.
c. at the end of a contractionary period.
d. at the peak of the business cycle.
e. at the beginning of an expansionary period.
Answer: