If a bank expects interest rates to decrease in the coming year, it should:
a. increase its GAP.
b. issue long-term subordinated debt today.
c. increase the rates paid on long-term deposits.
d. issue more variable rate loans.
e. become more liability sensitive.
Answer:
Which of the following is NOT a way to shorten asset duration?
a. Buy short-term securities and sell long-term securities.
b. Make floating-rate loans and sell fixed-rate loans.
c. Buy securities without call options.
d. All of the above are ways to shorten asset duration.
e. a. and b. only
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:
A negotiable instrument often used in trading goods that guarantees payment to the
owner the instrument is known as (a):
a. bankers acceptance.
b. payment guarantee.
c. commercial paper.
d. bankers payment.
e. repurchase agreement.
Answer:
A 30-year zero coupon bond with a face value of $5,000 is currently selling for
$1,156.88 and has a market rate of interest of 5%. Using the bond’s modified duration,
what is the approximate change in the price of the bond if interest rates fall to 4.25%?
a. Increase of $285.70
b. Increase of $247.90
c. Decrease of $285.70
d. Decrease of $247.90
e. Not enough information is given to answer the question.
Answer:
______________ represent amounts owed to Goldman Group by brokers, the firm’s
customers, and counter-parties to derivative contracts.
a. Collateralized agreements
b. Financial instruments
c. Collateralized financings
d. Receivables
e. Payables
Answer:
Duration gap analysis:
a. applies he the concept of duration to the bank’s entire balance sheet.
b. applies he the concept of duration to the bank’s entire income statement.
c. applies he the concept of duration to the bank’s retained earnings.
d. indicates the difference in the GAP in the time it takes to collect on loan payments
versus the time to attract deposits.
e. estimates when embedded options will be exercised.
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:
Next year, sales at Dylan are expected to increase by 10%. Also next year, the dividend
payout ratio will not change, while gross profit, operating profit, net income, current
assets and current liabilities will be the same percentage of sales as the current year. If
the firm issues no new common stock, what will be the addition to retained earnings
next year?
a. $1,112,000
b. $2,746,200
c. $3,200,000
d. $4,884,000
e. $5,372,400
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:
How much would you pay for a security that pays $150 at the end of each of the next
three years plus another $500 at the end of the third year if the relevant interest rate is
9%?
a. $618
b. $628
c. $765
d. $950
e. None of the above
Answer:
Typically, “call loans” are:
a. residential mortgages.
b. farm loans.
c. demand deposits.
d. payable on demand.
e. automobile loans.
Answer:
In the credit process, which of the following activities falls under Business
Development and Credit Analysis?
a. Loan committee reviews
b. Loan documentation review
c. Officer call programs
d. Perfect security interest
e. Process loan payments
Answer:
Return on assets can be calculated as:
a. return on equity plus the equity multiplier.
b. net interest income divided by earning assets.
c. asset utilization minus the expense ratio and the tax ratio.
d. interest income minus interest expense.
e. earning assets divided by average total assets.
Answer:
A bank’s core deposits are:
a. vault cash.
b. stable deposits that are not typically withdrawn over short periods of time.
c. the bank’s deposits at the Federal Reserve.
d. the most interest rate sensitive liabilities of a bank.
e. deposits held in foreign offices.
Answer:
Which country has not adopted the Euro?:
a. France.
b. Germany.
c. Spain.
d. United Kingdom.
e. All of these countries have adopted the Euro.
Answer:
A loan where the entire principal is due at maturity is called a:
a. installment loan.
b. sinking fund loan.
c. mezzanine loan.
d. bullet loan.
e. highly leverage transaction loan.
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:
_________ own(s) the bulk of demand deposit accounts.
a. Consumers
b. Businesses
c. State governments
d. The federal government
e. Non-profits
Answer:
Which of the following is an example of immediately available funds?
a. Deposits at the Federal Reserve
b. Stock market indexed CDs
c. Demand deposits
d. Money market deposit accounts
e. All of the above
Answer:
______________ transactions are the highest-cost type of transaction for a bank.
a. Web-based
b. ATM
c. Work station
d. Live teller
e. After-hours
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:
Earnings sensitivity analysis does not consider:
a. changes in interest rates.
b. changes in the volume of rate-sensitive assets due to a change in interest rates.
c. changes in the volume of fixed-rate liabilities due to a change in interest rates.
d. mortgage prepayments.
e. Earnings sensitivity analysis considers all of the above.
Answer:
Which of the following loans Treasury securities to primary dealers in exchange for
other securities held by the dealers?
a. Term Auction Facility
b. Term Securities Lending Facility
c. Primary Dealer Credit Facility
d. Troubled Asset Relief Program
e. Housing and Economic Recovery Facility
Answer:
Return on risk-adjusted capital is defined as:
a. Income/Allocated Risk Capital.
b. Allocated Risk Capital/Adjusted Income.
c. (Risk – Adjusted Income)/Capital.
d. Capital/Allocated Risk Capital.
e. Expenses + Target Profit.
Answer:
Which of the following would not be considered a commercial loan?
a. An interim construction loan
b. A working capital loan
c. A loans to another financial institution
d. A loan to purchase a piece of industrial equipment
e. A loan to expand a factory
Answer:
For banks that have insufficient capital, which of the following is not a typical
operating strategy to achieve capital adequacy?
a. Limit asset growth
b. Shrink the bank
c. Increase the dollar amount of commercial loans outstanding
d. Shift more bank assets into lower risk categories.
e. Reprice assets to reflect greater equity support
Answer:
Which of the following is not true regarding Edge Act banks?
a. Edge Act banks may be owned by U.S. banks.
b. Edge Act banks may be owned by foreign banks.
c. Edge Act banks may be owned by bank holding companies.
d. Edge Act banks may be located outside the U.S.
e. Edge Act banks may be located in the U.S.
Answer:
The risk that a foreign government will suspend debt service payments is known as:
a. LC risk.
b. foreign exchange risk.
c. euro risk.
d. sovereign risk.
e. country risk.
Answer:
The parent bank holding company assists bank subsidiaries with all of the following
except:
a. asset and liability management.
b. strategic planning.
c. loan review.
d. deposit insurance.
e. business development.
Answer: