Archives: Quiz

A customer is seeking a $150,000 home mortgage. The bank requires the customer to pay 1¾ points up front. How much of the loan amount will actually be available to the customer if the bank approves the loan? A. $150,000 […]

The concentration of U.S. bank deposits in the hands of the largest banks has _________ recently. A. declined B. increased C. remained essentially unchanged D. exhibited large fluctuations in both directions E. None of the options are correct Answer: Which […]

Which of the following created the Truth in Savings Act? A. The FDIC Improvement Act B. The International Banking Act C. The Sarbanes-Oxley Act D. The Gramm-Leach-Bliley Act E. The Financial Institutions Reform, Recovery and Enforcement Act Answer: A bank […]

_____________ indicators tend to be highly sensitive to the season of the year and stage of the business cycle. A. Stored liquidity B. Purchased liquidity C. Balanced liquidity D. Asset liquidity E. Liability liquidity Answer: When an investor first purchases […]

When an issuer of securitized loans divides them into different risk classes or tranches, they are providing an: A. internal credit enhancement B. external credit enhancement C. internal liquidity enhancement D. external liquidity enhancement E. None of the options is […]

The method for figuring out the loan rate wherein the interest amount owed on a loan is added to the principal amount of the loan to determine a borrowing customer’s required installment payments is known as: A. simple interest. B. […]

Recent federal guidelines put in place by the Federal Deposit Insurance Corporation require banks to develop written procedures to protect against loss from environmental damage. These procedures are known as the: A. lender protection program. B. environmental risk assessment program. […]

The Smith-James Bank has an ROE of 17.5%, an asset utilization ratio of 13%, and a net profit margin of 9%. What is the bank’s ROA? A. 14.96 percent B. 1.58 percent C. 1.17 percent D. 134.62 percent E. None […]

A treasury bill currently sells for $9,845, has a face value of $10,000 and has 46 days to maturity. What is the bank discount rate on this security? A. 12.49 percent B. 12.13 percent C. 12.30 percent D. 2 percent […]

Fee income arising from fiduciary transactions include all of the following except: A. fees for checking account maintenance. B. fees for managing and protecting a customer’s property. C. fees for recordkeeping for corporate security. D. fees for dispersing interest and […]

A bank that is examining the ratio of annual costs of goods sold to average inventory, is examining which category of ratios? A. Expense control measures B. Operating efficiency measures C. Coverage measures D. Liquidity measures E. Leverage measures Answer: […]

If a bank in the United States runs a legal reserve deficit of more than 2 percent of its required daily average legal reserve position, it will be assessed an interest penalty equal to the Federal Reserve’s discount rate plus […]

Mergers with anticompetitive effects cannot go unchallenged by federal authorities unless the banks can show that the combined bank would have significant public benefits. Answer: A put option on currency futures is often used to protect against a rise in […]

“Pyramiding of debt” refers to borrowing from one lender to repay another lender. Answer: The basic strength of the below-prime market pricing model is that there are narrow margins or markups on loans. Answer: TRUE Working-capital loans, unlike most other […]

If a financial institution makes an offsetting sale and purchase of the same futures contract, it has no obligation either to deliver or take delivery of the contract. Answer: Weighted interest-sensitive gap is less accurate than interest-sensitive gap in determining […]

The basic strength of the below-prime market pricing model is that it allows the bank to lend at low money market interest rates plus a small margin to cover risk exposure and provide a profit margin. Answer: FNMA purchases home […]

The change in the market price of an asset due to a change in market interest rates is roughly equal to the asset’s duration times the relative change in interest rates attached to that particular asset. Answer: Under FNMA rules […]

To avoid environmental liability under recent EPA guidelines, a lender must hold a deed of trust, lien, or mortgage. Answer: One of the significant disadvantages of using futures contracts to hedge against interest rate risk is the high commissions that […]

Bank holding companies that want to achieve some reduction in earnings risk through interstate banking, can achieve the same level of risk reduction by entering any of the fifty states. Answer: One investment maturity strategy popular among smaller institutions is […]

One of the most popular methods of neutralizing duration gap risks is to buy and sell financial futures contracts. Answer: Under the terms of the International Lending and Supervision Act, the size of loan rescheduling fees that U.S. banks charge […]

A bank with a positive duration gap experiencing a rise in interest rates will experience an increase in its net worth. Answer: Competition lowers the expected return to a bank from putting its deposits to work. Answer: TRUE Asset conversion […]

The cost of nondeposit borrowings is a financial input on a bank’s income statement or Report of Income. Answer: The ratio of cash and government securities to total assets is considered to be a measure of liquidity risk in banking. […]

In general, the longer the maturity of a deposit, the lower the yield a financial institution must offer to its depositors because of the greater interest-rate risk the bank faces with longer-term deposits. Answer: Liquid assets generally have a stable […]

Applying for a bank charter from the Comptroller of the Currency is simultaneously followed by an application for FDIC insurance, to expedite the formation process and save duplication of efforts. Answer: In a period of rising interest rates, the times-prime […]

Under current federal law, commercial banks in the United States can issue commercial paper as direct obligations of the banks. Answer: Foreign banks taking retail deposits in the U.S. can qualify for federal deposit insurance. Answer: TRUE Lenders in the […]

Under the international capital (Basel) agreement, Tier 2 capital must be raised to a minimum of 4 percent of risk-weighted assets. Answer: Recent research indicates that some merger activity may actually stimulate “de novo” bank entry into the marketplace. Answer: […]

According to the text, no-fee savings accounts are on the decline. Answer: Seasonal credit discount window loans generally have the highest interest rates. Answer: FALSE Basis risk exists on interest rate swaps because the interest rate on the swap agreement […]

Recoveries on loans previously charged off are added to the Provision for Loan Losses (PLL) account on a bank’s income statement. Answer: Current theory suggests that banks exist because of imperfections in our financial system. Answer: TRUE The oldest approach […]

Under the simple interest method, a customer saves on interest as an installment loan approaches maturity. Answer: Banks should concentrate their lending on those types of loans in which they have the greatest cost advantage. Answer: TRUE Only federal regulators […]

In comparing money to shares of Apple stock, we can say that A) money is a store of value, but shares of Apple stock are not. B) shares of Apple stock are a store of value, but money is not. […]

An unsterilized intervention in which the central bank sells foreign assets to purchase domestic currency will result in A) higher domestic interest rates. B) lower domestic interest rates. C) an increase in the money supply. D) lower domestic interest rates […]

Suppose nominal GDP is $14 trillion and the money supply is $2 trillion. What is the velocity of money? A) 0.143 B) 7 C) 12 D) 28 Answer: The process by which investment banks guarantee a certain price to a […]

Which of the following statements concerning seasonal credit is true? A) It tends to have a lower interest rate than federal funds. B) It has become increasingly more important in recent years. C) Only firms receiving secondary credit are eligible […]

Marking to market involves A) changing the futures price to the spot price each day. B) engaging in arbitrage so as to reduce the risk involved with futures contracts. C) crediting or debiting the margin account based on the net […]

Which of the following can be described as when a bank buying securities owned by a business while agreeing to sell them back at a later date? A) repurchase agreement B) reverse repurchase agreement C) federal funds D) discount loans […]

A bank lending depositors’ money to a local business and a pension fund investing contributions in shares of a company are similar financial activities in that A) both involve the use of financial markets. B) both involve funds being channeled […]

International capital mobility refers to A) the ease with which manufacturing equipment can be transported across countries. B) the ease with cash may be transferred from one country to another without having to be converted into a foreign currency. C) […]

A coupon bond has an annual coupon of $75, a par value of $1000, and a market price of $900. Its current yield equals A) 50%. B) 33%. C) its yield to maturity. D) Not enough information has been provided […]

During a banking panic, a lender of last resort will A) purchase banks which are having difficulty but appear sound. B) make loans to solvent but temporality illiquid banks. C) make loans to insolvent but liquid banks. D) make loans […]

A system of barter has substantial transactions costs because A) taxes under such a system are generally a large fraction of the value of output. B) traders must spend considerable time searching for trading partners. C) the uncertainties of trade […]

Which of the following is the most efficient means of trade? A) barter B) money C) government rationing D) the combination of barter with some government rationing Answer: Studies by economists suggest that A) households do not increase their saving […]

Which best describes the relationship between the cost of acquiring information and return? A) A high return must compensate for a high cost of acquiring information. B) A higher cost of information corresponds with a low return. C) A low […]

How does the Fed reach its target for the federal funds rate? A) by changing the discount rate B) by changing reserve requirements C) by adjusting the level of reserves D) by directly setting the federal funds rate Answer: All […]

The interest rate at which international banks loan to each other is called A) LIBOR B) federal funds rate C) prime rate D) international bank lending rate Answer: According to the efficient markets hypothesis, who should earn the highest risk-adjusted […]

Automatic teller machines and debit cards are examples of A) electronic funds transfer systems. B) commodity monies. C) legal tender in the United States. D) modern barter systems. Answer: Smaller firms tend to rely on financial intermediaries instead of financial […]

At an interest rate of 6%, how much will need to be invested today to have $10,000 in 5 years? A) $5,000 B) $7,473 C) $10,000 D) $13,382 Answer: How did Operation Twist affect the monetary base? A) reduced B) […]

For simple loans, the yield to maturity A) is always less than the specified simple interest rate. B) is always greater than the specified simple interest rate. C) is always equal to the specified simple interest rate. D) may be […]

The interest rate on interbank loans is called the A) discount rate. B) federal funds rate. C) repo rate. D) prime rate. Answer: A put option is said to be “in the money” if A) it is written on a […]

As of October 2012, the amount of money as measured by M2 was about A) $880 billion. B) $1700 billion. C) $10.2 trillion. D) $14 trillion. Answer: The period over which a call or put option exists is A) determined […]

A syndicate is A) a group of brokers illegally making use of insider information. B) a group of commercial banks that agrees to accept the checks of each other’s depositors. C) a group of investment banks underwriting a large security […]