94. Should the bank invest in this project if the discount rate is 12 percent?
95. Should the bank invest in this project if the discount rate is 18 percent?
96. What is the IRR for this investment?
97. Should the bank undertake the project given the above information?
98. On further analysis, it is estimated that the project has a finite life of 5 years, i.e. further investment will be
required to generate the same savings. Should they undertake the project if they assume a five-year horizon for
evaluating the project?
99. What must be the minimum annual cost savings in order to accept this project? Assume a five-year horizon.
100. The maximum cost savings that can be generated with this new equipment has been estimated to be
$264,237. In order to accept this project, what is the minimum number of years the projected savings must be
realized before the project breaks even?
101. The above figures indicate that
102. Bank B plans to acquire Bank A and in the process cut costs by $100,000. What is the combined bank’s
average costs?
103. By how much should operating costs of the combined entity (Bank A + Bank B) be reduced in order to
stay competitive in the local market, ceteris paribus?
104. Two important input factors in financial intermediation are capital and labor.
105. Technological efficiency focuses exclusively on the cost side of financial intermediation.
106. According to Hitachi Data Systems, recovery time from system failures averages 12 hours.
107. As of the first quarter 2009, non-interest expense was 250 percent larger than interest expense for all FDIC
insured banks.
108. Noninterest expense has increased faster than interest expense for all U.S. insured commercial banks in
recent years.
109. The U.S. Treasury has recently proposed that banks carry a capital cushion against losses resulting from
operational risk.
110. Bernie Madoff and his infamous Ponzi scheme is an example of external operational risk to the hedge
funds he managed.
111. In recent years, U.S. banks have alone spent $20 billion per year in technology related expenditures.
112. The initial steps of cross selling financial products can easily occur with computer technology.
113. Wholesale cash management services allow corporate customers to minimize cash balances and to monitor
quickly cash transactions and balances.
114. Controlled disbursement accounts are designed to reduce the delay in check clearing.
115. Appropriate technology may allow an FI to achieve lower-cost funding.
116. Cash management services include the collection, disbursement, and transfer of funds.
117. Account reconciliation redirects funds from accounts in a large number of different banks to a few
centralized accounts at one bank.
118. Retail banking services and products in recent years have moved strongly toward electronic payment
technology.
119. New retail products and services based heavily on technology often are risky because of the high usage
rate necessary to make them positive net present value projects.
120. The success in technologically related innovation often is dependent on changes in regulations and
regulatory procedures.
121. Cross-market selling of financial products requires production of the products within the same branch or
bank office.
122. Increases in the rate of innovation of new financial products, whether successful or not, is often credited to
advances in technology.
123. The increased use of technology may have positive and negative effects on the perceived service quality
provided to retail customers.
124. According to economic theory involving economies of scale, larger and more cost-efficient Is should
prevail over smaller, less cost-efficient FIs.
125. If ACX+Y < ACX + ACY, where AC is average production cost and X and Y are products, economies of
scope are present.
126. An increase in the cost of the joint production of services as compared to the production of those services
independently is an example of diseconomies of scale.
127. Recent evidence suggests that economies of scale may exist for banks up to the $10 billion to $25 billion
range.
128. Recent evidence strongly suggests that economies of scope exist for both asset and liability products, but
not for off-balance-sheet products.
129. Banks in given size classes tend to have very little difference in cost structures.
130. In the U.S., electronic methods of payment account for a larger number of transactions, but a lower
aggregate dollar value than nonelectronic methods of payment.
131. Compared to the United States, the use of electronic methods of payment is lower in other major developed
countries.
132. As of August 2009, credit cards used in either a credit or debit function accounted for over 50 percent of
the number of payments made in the U.S.
133. As of August 2009, credit cards used in either a credit or debit function accounted for less than 5 percent of
the dollar value of payments made in the U.S.
134. Fedwire is a wire transfer network operated through the Federal Reserve System to assist banks in making
financial transactions among themselves, on behalf of themselves and customers.
135. Fedwire is a wire transfer network of over 6,300 international FIs with the Federal Reserve System.
136. Daily Fedwire and CHIPS transaction volume never exceeds the amount of bank reserves.
137. As of 2009, the combined value of payments sent over Fedwire and CHIPS often exceeded $4.5 trillion a
day.
138. Funds transferred on CHIPS are settled at the end of the day.
139. Funds transferred on the Fedwire are settled immediately.
140. Daylight overdraft risk occurs because banks often provide immediate credit to customers for deposits,
even though the funds may not arrive until later in the day or the next day.
141. CHIPS guarantees that any wire transfer is final at the time it is made.
142. The Fed has begun to charge either a fee or an interest rate for daylight overdrafts.
143. Regulation F requires financial institutions to develop internal procedures to limit settlement exposures to
correspondent banks.
144. The use of ATMs in European countries has grown at a slower rate than in the U.S.
145. The increased use of wire transfers as a replacement for check and cash payments has increased the risk of
fraud.
146. Delaware and South Dakota have become leading states in the distribution of some financial services
because of liberal regulations.
147. Usury ceilings placing ceilings on interest rates that FIs can charge on certain types of loans are always
established by federal regulatory authorities.
148. The U.S. tax burden faced by domestic FIs has been minimized, in part, by the ability to use international
wire networks for the transfer of funds.
149. The operational risk faced by an FI includes sources other than technology.
150. Regulators have proposed that operational risk should be measured for the purpose of meeting overall
capital adequacy.
151. How can operating income of an FI be increased by improved technological efficiency?
152. How can operating expenses of an FI be reduced by improved technological efficiency?
153. How can interest expense of an FI be reduced by improved technological efficiency?
154. How can interest income of an FI be increased by improved technological efficiency?
155. Which of the following is NOT a source of operational risk for an FI?
156. Which of the following are potential benefits of technology for an FI?
157. Which of the following occur when managers undertake growth-oriented investments to increase an FI’s
size that may be inconsistent with stockholders’ value-maximizing objectives?
158. The dollar amount of which of the following items has been increasing in the U.S. banking industry in
recent years?
159. What is float?
160. Which of the following is a centralized collection service for corporate payments that helps reduce the
float?
161. Which of the following wholesale services offered by FIs allows businesses to transfer and transact
invoices, purchase orders, and shipping notices automatically?