Effective duration considers a security’s embedded options.
Answer:
In general, bank capital ratios have increased over the last 100 years.
Answer:
Speculators focus on avoiding or reducing risk.
Answer:
There is a constant relationship between changes in a bank’s portfolio mix and net
interest income.
Answer:
Non-earning assets are classified as rate-sensitive assets for GAP analysis purposes.
Answer:
Banks can often replicate on-balance sheet transactions with off-balance sheet
contracts.
Answer:
Mortgage origination makes up the largest portion of Goldman Sachs’ business.
Answer:
Before the Great Depression, many U.S. banks operated as universal banks.
Answer:
As more lenders securitize loans, the supply of credit falls.
Answer:
Speculators take a position to reduce their risk profile.
Answer:
Thrifts are supervised by the Office of Thrift Supervision.
Answer:
State-chartered banks must be members of the Federal Reserve System.
Answer:
An investor that matches the duration of an investment with her holding period balances
price risk and reinvestment risk.
Answer:
Static GAP analysis focuses on the market value of stockholder’s equity.
Answer:
Total revenue is the same as total operating income.
Answer:
Consumers are prohibited from disclosing if they receive public assistance when
applying for credit.
Answer:
Smaller banks tended to have more subprime mortgage defaults than larger banks.
Answer:
Negative cash flow will automatically eliminate the possibility that a bank will loan a
firm funds.
Answer:
When an investment bank acts as a broker, it does not take ownership of the underlying
security.
Answer:
Balance sheet items are calculated for a particular point in time.
Answer:
Eliminating borrowing from the Federal Reserve at the end of fiscal year is an example
or “window dressing.”
Answer:
Derivatives can be a cost-effective way to manage interest rate risk.
Answer:
A FICO score summarizes an individual’s credit history in one number.
Answer:
A bank with a negative GAP is said to be liability sensitive.
Answer:
Losses on credit cards are among the highest of all consumer loan types.
Answer:
Economic value of equity analysis focuses on net interest income.
Answer:
An ACH transaction is a sale that uses a smart card.
Answer:
The yield curve is typically inverted at the peak of the business cycle.
Answer:
Banks with the highest efficiency ratios are presumed to be the most efficient.
Answer:
Banks should never assume any interest rate risk.
Answer:
In the credit process, which of the following activities falls under Credit Execution and
Administration?
a. Financial statement analysis
b. Evaluate collateral
c. Officer call programs
d. Review loan documentation
e. Monitor compliance with loan agreement
Answer:
When the net profit on both the futures and cash position equals zero, this is known as
a(n):
a. cross hedge.
b. perfect hedge.
c. imperfect hedge.
d. basis hedge.
e. return hedge.
Answer:
Which of the following is an advantage of static GAP analysis?
a. Static GAP analysis considers the time value of money.
b. Static GAP analysis indicates the specific balance sheet items that are responsible for
the interest rate risk.
c. Static GAP analysis considers the cumulative impact of interest rate changes on the
bank’s position.
d. Static GAP analysis considers the embedded options in loans, such as mortgage
pre-payments.
e. All of the above are advantages of static GAP analysis.
Answer:
Loan covenants:
a. protect the borrower from lender interference in management.
b. are limited to “negative” provisions.
c. may limit discretionary cash outlays by borrowers.
d. are seldom enforced.
e. often result in the lender’s bankruptcy.
Answer:
Covered interest rate arbitrage is possible when:
a. both currencies are appreciating.
b. the actual inflation rates are identical in both countries.
c. the difference in the interest rates in two countries exactly equals the spot-to-forward
exchange rate differential.
d. the difference in interest rates in two countries is out of line with the spot-to-forward
exchange rate differential.
e. none of the above
Answer:
Which of the following allows a security’s cash flows to change when interest rates
change?
a. Modified duration
b. Macaulay’s duration
c. Effective duration
d. Balance sheet duration
e. Income statement duration
Answer:
The only quantitative measure of a consumer loan applicant’s character is their:
a. down payment.
b. home equity.
c. time on the job.
d. credit report.
e. credit card balance.
Answer:
The static spread is:
a. the difference between the yield on a zero coupon bond and the yield on a coupon
bond.
b. the difference between a fixed-rate yield and a floating-rate yield.
c. the difference between the yield on new Treasury bills versus new Treasury bonds.
d. the difference between expected inflation and the current Treasury bill rate.
e. the difference between the yield on a security with options and the yield on a
maturity-matched zero coupon Treasury security.
Answer:
Which of the following is false?
a. As interest rates rise, bond prices rise, everything else the same.
b. Given an absolute change in interest rates, the percentage increase in a bond’s price
will be greater than the percentage decrease, everything else the same.
c. Long-term bonds change proportionately more in price than short-term bonds for a
given rate change, everything else the same.
d. A bond with a lower coupon will change more in price than a bond with a higher
coupon, everything else the same.
e. A bond’s duration is a measure of its price elasticity.
Answer:
Why is liquidating collateral not a preferred means of loan repayment?
a. The bank must manage the repossessed collateral until it is sold.
b. Transaction costs on liquidating collateral are often quite high.
c. Bankruptcy laws may prevent liquidation to occur in a timely manner.
d. All of the above.
e. b. and c. only
Answer:
Savings institutions must maintain what percent of their assets in housing-related assets
to be considered a “Qualified Thrift Lender”?
a. 100%
b. 15%
c. 70%
d. 85%
e. 65%
Answer:
Which of the following is not a characteristic of jumbo CDs?
a. They have a minimum maturity of 7 days.
b. Interest rates are quoted on a 365-day year.
c. They are generally issued at face value.
d. They are only insured up to $100,000 per individual per institution.
e. All of the above are characteristics of jumbo CDs
Answer:
The first type of international office that a bank forms outside its home country that is
exploratory in nature is known as:
a. an Edge Act bank.
b. a head office.
c. a representative office.
d. an agreement corporation.
e. a foreign branch.
Answer:
Federal funds are:
a. secured bank loans from the discount window.
b. unsecured short-term loans that are settled in immediately available funds.
c. secured inter-bank loans of reserves.
d. secured core deposits.
e. secured overnight loans.
Answer:
A 30-year zero coupon bond with a face value of $10,000 is currently selling for
$2,313.77. Using the bond’s modified duration, what is the approximate change in the
price of the bond if interest rates rise by 15 basis points?
a. -15.00%
b. -4.29%
c. -0.43%
d. -0.15%
e. Not enough information is given to answer the question.
Answer:
The Euro is not usable in wholesale financial transactions in:
a. France.
b. Germany.
c. Spain.
d. the United Kingdom.
e. Austria.
Answer:
What is the return on equity for a bank that has an equity multiplier of 14, an interest
expense ratio of 4%, and a return on assets of .9%?
a. 1.3%
b. 4.0%
c. 9.0%
d. 12.6%
e. 8.6%
Answer:
On Goldman Sachs’ balance sheet for 2007, ___________ consist of securities that
Goldman Sachs has borrowed under an agreement to resell at a later date.
a. collateralized agreements
b. financial instruments
c. collateralized financings
d. receivables
e. payables
Answer:
For a bank that has a negative 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, increase, decrease
Answer:
Which of the following is correct about futures contracts?
a. Buyers of futures contracts make a profit when prices fall.
b. Buyers of futures contracts make a profit when interest rates rise.
c. Sellers of futures contracts make a profit when prices fall.
d. Sellers of futures contracts make a profit when prices rise.
e. a. and d.
Answer:
Which of the following is a discretionary factor that will increase a bank’s daily
reserves held at the Federal Reserve?
a. The prior day’s immediate cash letter
b. Federal funds purchased
c. Deposits from the U.S. Treasury
d. Currency received from the Federal Reserve
e. Deficits at the local clearinghouse
Answer:
A legal document that orders a firm to sop an unfair practice under full penalty of law is
a:
a. cease and desist order.
b. capital request.
c. memorandum of understanding.
d. quality assurance directive.
e. national bank order.
Answer:
The lowest rating category for a subprime loan is:
a. A
b. B
c. C
d. D
e. E
Answer:
A bank purchases a new 52-week $1,000,000 face value Treasury bill for $950,000.
What is the discount rate on this T-bill (Hint: A 52-week T-bill has an original maturity
of 364 days)
a. 4.95%
b. 5.00%
c. 5.06%
d. 5.19%
e. 5.26%
Answer:
Under FASB 157, Level _______ assets valuation are based on observable market
prices for the identical instrument.
a. 1
b. 2
c. 3
d. 4
e. 5
Answer:
Overdraft fees:
a. represent a risk charge.
b. are a source of wholesale funding.
c. reduce reserve requirements.
d. increases capital.
e. have increased in maturity.
Answer:
When an interest-bearing security is the underlying asset for a futures contract, it is
called:
a. a forward contract.
b. an interest rate futures.
c. a commission futures.
d. a speculative futures.
e. an interest rate swap.
Answer:
The ease of converting an asset to cash with a minimum of loss is known as:
a. asset liquidity.
b. volatile liquidity.
c. core liquidity.
d. liability liquidity.
e. non-core liquidity.
Answer:
A new charter to start a state bank must be obtained from the:
a. Federal Reserve.
b. Federal Deposit Insurance Corporation.
c. Office of the Comptroller of the Currency.
d. Office of Thrift Supervision.
e. State banking department.
Answer:
Dollar-denominated deposits issued by branches of foreign banks in the United States
are known as:
a. Asian bonds.
b. Eurodollar bonds.
c. Foreign bonds.
d. Yankee bonds.
e. Domestic bonds.
Answer:
Repurchase agreements are:
a. riskier than fed funds loans.
b. unsecured short-term loans.
c. secured overnight loans.
d. secured loans of reserves.
e. secured Fed funds loans.
Answer:
Tier 2 capital consists of all of the following except:
a. 30-year subordinated debt.
b. cumulative perpetual preferred stock.
c. mandatory convertible preferred stock.
d. preferred stock with a maturity of 7 years.
e. equity in subsidiaries.
Answer:
___________ includes federal funds purchased, repurchase agreements and Federal
Home Loan Bank borrowings.
a. Retail funding
b. Wholesale funding
c. Borrowed funding
d. Equity funding
e. Lockbox funding
Answer:
What is Dylan’s cash flow from operations?
a. -$2,874,000
b. $8,126,000
c. $12,210,000
d. $19,126,000
e. $23,210,000
Answer:
