68. If a future credit crunch is possible, a loan commitment may expose the FI to
69. What is seen as a possible reason behind restricted supply of spot loans to borrowers during a credit
crunch?
70. Which of the following situations is similar to the externality effect?
71. An exporter demands a letter of credit in order to
72. FIs are competing directly with loan commitments, one of their own OBS products, when they also offer:
73. Off-balance-sheet items are
74. As of June 2009, the vast majority of OBS activities of commercial banks was
75. Which of the following statements best describes a derivative contract?
76. As of 2009, the top 25 U.S. commercial banks accounted for ________ percent of OBS derivative contracts
among FDIC-insured institutions.
77. The effect to an FI of default by the counterparty to a derivative contract is LEAST serious with
78. Which of the following is the newest addition to the derivative securities markets?
80. Which of the following is true of the market price of an options contract over time?
81. What is a swap?
82. Which of the following ratios do FIs and regulators often use as a simple measure of solvency?
83. What are commercial letters of credit?
84. In economic terms, the LCs and SLCs sold by an FI
85. Which of the following are contracts that give the holder the right, but not the obligation, to buy or sell an
underlying asset at a prespecified price for a specified time period?
86. Which of the following is true of the delta of an option?
87. If an option’s price increases 1.4 percent for every 2 percent change in the price of the underlying security,
what is the value of the option’s delta?
88. The delta of an option is
89. Which of the following is an out-of-the-money counterparty?
90. In the early 1980s
91. Why is the default risk much more serious for forward contracts than for futures contracts?
92. Which of the following is a non-schedule L off-balance-sheet risk?
93. Which of the following observations is NOT true?
94. The up-front fee is
95. If 50 percent of the commitment is taken down, the back-end fee is
96. If 25 percent of the commitment is taken down, the total fees are
97. What is the balance sheet capital?
98. If the FI bought call options on bonds with a face value of $50 million, what is the minimum amount of the
stockholder’s true net worth?
99. If the FI had contingent assets of $40 million and contingent liabilities of $160 million, calculate the
stockholder’s true net worth.
100. What is expected return on the loan to the bank if 50 percent of the loan is drawn? Do not take future
values of fee or interest income received.
101. What is the expected return on the loan at the end of the year if 50 percent of the loan is drawn? Estimate
using future values of fee and interest income received, that is, return is defined as all fee and interest income
earned at year-end as a percentage of funds used. Assume the cost of funds to the bank is 8 percent.
102. What is the expected return on the loan to the bank if 50 percent of the loan is drawn and there are no
reserve requirements on demand deposits? Do not take future values of fees or interest income received.
103. What is the expected return on the loan to the bank if 50 percent of the loan is drawn using discounted cash
flows? That is, the return has to be estimated at the beginning of the loan period using present values. Assume
there are reserve requirements of 10 percent on demand deposits.
104. Assume 50 percent of the loan is drawn and that there are reserve requirements of 10 percent on demand
deposits. What should the bank charge as back-end fees if they require an expected return of 13.63 percent? Do
not take future values of fees or interest income received.
105. What are the savings to the corporation if it obtains a standby letter of credit to back its $10 million issue
of commercial paper?
106. What are the savings to the corporation if it obtains a loan commitment to back its $10 million issue of
commercial paper?
107. Which method is preferable, between the loan commitment and the standby letter of credit?