Q&A Hero

Q: If the Fed decides to reduce bank reserves, it can A. purchase government bonds. B. extend discount loans to banks. C. sell government bonds. D. print more currency.

Q: Firms may need cash for all of the following except: a. operating purposes. b. pay taxes. c. pay employee salaries. d. pay overdue suppliers. e. liquidate fixed assets.

Q: When the Federal Reserve calls in a discount loan from a bank, the monetary base ________ and reserves ________. A. remains unchanged; decrease B. remains unchanged; increase C. decreases; decrease D. decreases; remains unchanged

Q: All leveraged buyouts (LBOs) are labeled highly leveraged transactions.

Q: When the Federal Reserve extends a discount loan to a bank, the monetary base ________ and reserves ________. A. remains unchanged; decrease B. remains unchanged; increase C. increases; increase D. increases; remain unchanged

Q: Loans that are seasonal in nature should be self-liquidating.

Q: All else the same, when the Fed calls in a $100 discount loan previously extended to the First National Bank, reserves in the banking system A. increase by $100. B. increase by more than $100. C. decrease by $100. D. decrease by more than $100.

Q: National banks can directly take equity positions in real estate projects.

Q: When the Fed extends a $100 discount loan to the First National Bank, reserves in the banking system A. increase by $100. B. increase by more than $100. C. decrease by $100. D. decrease by more than $100.

Q: As more lenders securitize loans, the supply of credit falls.

Q: When the Fed sells $100 worth of bonds to a primary dealer, reserves in the banking system A. increase by $100. B. increase by more than $100. C. decrease by $100. D. decrease by more than $100.

Q: Real estate lending is popular with bank, in part, due to the growth of the secondary mortgage market.

Q: The research document given to the Federal Open Market Committee that contains information on the state of the economy in each Federal Reserve district is called the A. beige book. B. green book. C. blue book. D. black book.

Q: Which of the following is a non-discretionary factor that will increase a bank's daily reserves held at the Federal Reserve? a. Federal funds sold. b. Receiving a discount window loan c. Remittances charged d. Security sales e. Deposits from the U.S. Treasury

Q: Although reserve requirements and the discount rate are not actually set by the ________, decisions concerning these policy tools are effectively made there. A. Federal Reserve Bank of New York B. Board of Governors C. Federal Open Market Committee D. Federal Reserve Banks

Q: Which of the following is a discretionary factor that will decrease a bank's daily reserves held at the Federal Reserve? a. Remittances charged b. Federal funds purchased c. The previous day's immediate cash letter d. Currency received from the Federal Reserve e. Deficits at the local clearinghouse

Q: Each Fed bank president attends FOMC meetings; although only ________ Fed bank presidents vote on policy, all ________ provide input. A. three; ten B. five; ten C. three; twelve D. five; twelve

Q: 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

Q: The majority of members of the Federal Open Market Committee are A. Federal Reserve Bank presidents. B. members of the Federal Advisory Council. C. presidents of member banks. D. the seven members of the Board of Governors.

Q: The check-clearing services of correspondent banks are often used because: a. the respondent bank is required to purchase a minimum amount of services. b. it reduces required reserves. c. the correspondent bank may be marketing their own services in a local community. d. it often reduces float. e. it decreases interest income.

Q: The Federal Open Market Committee consists of the A. five senior members of the seven-member Board of Governors. B. seven members of the Board of Governors and seven presidents of the regional Fed banks. C. seven members of the Board of Governors and five presidents of the regional Fed banks. D. twelve regional Fed bank presidents and the chairman of the Board of Governors.

Q: A bank is currently exactly meeting its reserve requirements of 10%. If the bank has a deposit inflow of $10,000,000, what is the impact on its required reserve position? a. It now has excess reserves in the amount of $9,000,000. b. It now has excess reserves in the amount of $10,000,000. c. It is now deficient $1,000,000 in required reserves. d. It is now deficient $9,000,000 in required reserves. e. There would be no impact on the bank's required reserves.

Q: The Federal Reserve entity that makes decisions regarding the conduct of open market operations is the A. Board of Governors. B. chairman of the Board of Governors. C. Federal Open Market Committee. D. Open Market Advisory Council

Q: The two-week period during which a bank must hold sufficient legal reserves is called the: a. deposit computation period. b. deposit maintenance period. c. vault cash computation period. d. base computation period. e. maintenance period.

Q: The Federal Open Market Committee usually meets ________ times a year. A. four B. six C. eight D. twelve

Q: In determining reserves, the banks and the Federal Reserve currently use: a. a leading reserve accounting system. b. a contemporaneous reserve accounting system. c. a lagging reserve accounting system. d. an actual reserve accounting system. e. a holding reserve accounting system.

Q: Which of the followings is NOT a current duty of the Board of Governors of the Federal Reserve System? A. setting margin requirements, the fraction of the purchase price of the securities that has to be paid for with cash B. setting the maximum interest rates payable on certain types of time deposits under Regulation Q C. approving the discount rate "established" by the Federal Reserve banks D. voting on the conduct of open market operations

Q: Which of the following does not directly influence the amount of required reserves a bank must hold? a. The required reserve ratio. b. The dollar amount of cash items in process of collection. c. The dollar amount of demand deposits outstanding. d. The dollar amount of money market deposit accounts outstanding. e. The dollar amount of NOW accounts outstanding.

Q: Which of the followings is a duty of the Board of Governors of the Federal Reserve System? A. setting margin requirements, the fraction of the purchase price of the securities that has to be paid for with cash B. setting the maximum interest rates payable on certain types of time deposits under Regulation Q C. regulating credit with the approval of the president under the Credit Control Act of 1969 D. All governors advise the president of the United States on economic policy.

Q: The Federal Reserve has reduced the use of reserve requirements as a monetary policy tool because: a. the Fed has focused on controlling short-term interest rates. b. of the increased use of sweep accounts. c. reserve requirements are a "tax" on banks . d. All of the above. e. a. and c. only.

Q: While the discount rate is "established" by the regional Federal Reserve Banks, in truth, the rate is determined by A. Congress. B. the president of the United States. C. the Senate. D. the Board of Governors.

Q: Which of the following is not considered a monetary policy tool of the Federal Reserve? a. Changing float requirements b. Open market operations c. Changing the discount rate d. Changing reserve requirements e. All of the above are considered to be monetary policy tools

Q: The Chairman of the Board of Governors is chosen from among the seven governors and serves a ________, renewable term. A. one-year B. two-year C. four-year D. eight-year

Q: Which of the following is not an advantage of larger cash balances for a bank? a. Larger cash balances reduce the need to borrow at the discount window. b. Larger cash balances reduce the risk of bank runs. c. Larger cash balances reduce the risk of paying penalties to the Federal Reserve. d. Larger cash balances increase reserve balances. e. Larger cash balances reduce a bank's interest expense.

Q: Which policy measure requires investment banks to make public their analysts' recommendations? A. Sarbanes-Oxley Act of 2002 B. Global Legal Settlement of 2002 C. Gramm-Leach-Bliley Act of 1999 D. Riegle-Neal Act of 1994

Q: If a hedger is owns the underling security, he will be long the futures position.

Q: Which policy measure bans spinning? A. Sarbanes-Oxley Act of 2002 B. Global Legal Settlement of 2002 C. Gramm-Leach-Bliley Act of 1999 D. Riegle-Neal Act of 1994

Q: A long hedge would be appropriate for a bank that wants to reduce its cash market risk associated with .a decline in interest rates.

Q: Which policy measure requires investment banks to sever the links between research and securities underwriting? A. Sarbanes-Oxley Act of 2002 B. Global Legal Settlement of 2002 C. Gramm-Leach-Bliley Act of 1999 D. Riegle-Neal Act of 1994

Q: Forward contracts rarely require a performance guarantee or collateral.

Q: Which of the following is a part of the Global Legal Settlement of 2002? A. The establishment of a Public Company Accounting Oversight Board (PCAOB) to supervise accounting firms and thus insure that audits are independent and controlled for quality. B. Increased penalties for white-collar crime and obstruction of official investigations. C. Requires a CEO and CFO to certify that periodic financial statements and disclosure of the firm are accurate. D. Requires investment banks to make public their analysts' recommendations.

Q: Derivatives can be a cost-effective way to manage interest rate risk.

Q: Which policy measure increases the punishment for white-collar crime and obstruction of official investigations? A. Sarbanes-Oxley Act of 2002 B. Global Legal Settlement of 2002 C. Gramm-Leach-Bliley Act of 1999 D. Riegle-Neal Act of 1994

Q: Speculators take a position to reduce their risk profile.

Q: Which policy measure makes it unlawful for a registered public accounting firm to provide any nonaudit service to a client contemporaneously with an impermissible audit? A. Sarbanes-Oxley Act of 2002 B. Global Legal Settlement of 2002 C. Gramm-Leach-Bliley Act of 1999 D. Riegle-Neal Act of 1994

Q: Banks can often replicate on-balance sheet transactions with off-balance sheet contracts.

Q: Which policy measure increased the SEC budget to supervise securities markets? A. Sarbanes-Oxley Act of 2002 B. Global Legal Settlement of 2002 C. Gramm-Leach-Bliley Act of 1999 D. Riegle-Neal Act of 1994

Q: Every futures contract has a formal expiration date.

Q: Which of the following is not a part of the Sarbanes-Oxley Act of 2002? A. the establishment of a Public Company Accounting Oversight Board (PCAOB) to supervise accounting firms and thus insure that audits are independent and controlled for quality B. increased penalties for white-collar crime and obstruction of official investigations C. requires a CEO and CFO to certify that periodic financial statements and disclosure of the firm are accurate D. requires investment banks to make public their analysts' recommendations

Q: "Locals" trade futures for their own account.

Q: Explain how the market can reduce the incentive for credit-rating firms to take advantage of conflicts of interest.

Q: When futures prices falls, buyers gain at the expense of sellers.

Q: Reputational rents refer to A. the profit earned by a firm when it captures economies of scope. B. the costs associated with building credibility of a firm. C. the profit earned solely based on the credibility of a firm. D. the costs associated with the firm's achievement of economies of scale.

Q: A zero cost collar: a. is risk-free. b. is designed to offset margin requirements. c. has a larger premium than a reverse collar. d. designed so the buyer has no net premium payment. e. None of the above.

Q: Evidence suggests that the market ________ take into account the credibility of analyst's recommendations of IPOs that were underwritten at the analyst's investment bank because the performance of these recommendations was about 50% ________ compared to recommendations made by other analysts at different investment banks. A. does; better B. does; worse C. does not; better D. does not; worse

Q: A bank can establish a floor on interest rate costs by: a. buying a call option on Eurodollar futures. b. selling Eurodollar futures contracts. c. selling a call option on Eurodollar futures. d. a. and b. e. b. and c.

Q: If, for a $1000 premium, you buy a $100,000 call option on bond futures with a strike price of 110, and at the expiration date the price is 114, your ________ is ________. A. profit; $4000 B. loss; $4000 C. profit; $3000 D. loss; $3000

Q: What is 1st State's burden?a. 2.7%b. 17.5%c. 25.0%d. 75.5%e. 82.5%

Q: If you buy a put option on treasury futures at 110, and at expiration the market price is 115, the ________ will ________ exercised. A. call; be B. put; be C. call; not be D. put; not be

Q: What is the earnings base at 1st State?a. 12.5%b. 17.0%c. 58.5%d. 75.5%e. 82.0%

Q: If you buy a put option on Treasury futures at 115, and at expiration the market price is 110, the ________ will ________ exercised. A. call; be B. put; be C. call; not be D. put; not be

Q: What is 1st State's net interest margin?a. 0.6%b. 3.8%c. 4.9%d. 8.2%e. 9.8%

Q: If you buy a call option on Treasury futures at 110, and at expiration the market price is 115, the ________ will ________ exercised. A. call; be B. put; be C. call; not be D. put; not be

Q: What is 1st State's return on equity?a. 0.6%b. 3.8%c. 5.0%d. 8.2%e. 13.0%

Q: If you buy a call option on Treasury futures at 115, and at expiration the market price is 110, the ________ will ________ exercised. A. call; be B. put; be C. call; not be D. put; not be

Q: What is 1st State's efficiency ratio?a. 2.53%b. 17.51%c. 0.83%d. 0.45%e. 83.3%

Q: An option allowing the owner to sell an asset at a future date is a A. put option. B. call option. C. futures contract. D. forward contract.

Q: What is 1st State's burden?a. 2.5%b. 17.5%c. 25.0%d. 75.5%e. 82.5%

Q: A put option gives the seller the A. right to sell the underlying security. B. obligation to sell the underlying security. C. right to buy the underlying security. D. obligation to buy the underlying security.

Q: What is the earnings base at 1st State?a. 12.5%b. 17.5%c. 58.5%d. 75.5%e. 82.5%

Q: A put option gives the owner the A. right to sell the underlying security. B. obligation to sell the underlying security. C. right to buy the underlying security. D. obligation to buy the underlying security.

Q: What is 1st State's net interest margin?a. 0.6%b. 3.8%c. 5.0%d. 8.2%e. 9.8%

Q: An option that gives the owner the right to sell a financial instrument at the exercise price within a specified period of time is a A. call option. B. put option. C. American option. D. European option.

Q: What is 1st State's return on equity?a. 0.6%b. 3.8%c. 5.0%d. 8.2%e. 9.8%

Q: An option allowing the holder to buy an asset in the future is a A. put option. B. call option. C. swap. D. forward contract.

Q: Interest expense varies between banks because of:a. rate effects.b. composition effects.c. volume effects.d. all of the above.e. a. and c.

Q: A call option gives the seller the A. right to sell the underlying security. B. obligation to sell the underlying security. C. right to buy the underlying security. D. obligation to buy the underlying security.

Q: The expense ratio is calculated as: a. total revenue — total operating expenses. b. total revenue — total operating expenses — taxes. c. interest expense ratio — non-interest expense ratio — provision for loan loss ratio. d. asset utilization — expense ratio — tax ratio. e. interest expense ratio + non-interest expense ratio + provision for loan loss ratio.

Q: To say that the forward market lacks liquidity means that A. forward contracts usually result in losses. B. forward contracts cannot be turned into cash. C. it may be difficult to make the transaction. D. forward contracts cannot be sold for cash.

Q: Net income is calculated as: a. total revenue — total operating expenses. b. total revenue — total operating expenses — taxes. c. asset utilization — expense ratio. d. asset utilization — expense ratio — tax ratio. e. interest expense ratio — non-interest expense ratio — provision for loan loss ratio.