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Banking
Q:
A contract that requires the investor to sell securities on a future date is called a
A. short contract.
B. long contract.
C. hedge.
D. micro hedge.
Q:
What is the equity multiplier for a bank where equity is equal to 12% of total assets?
a. 83.33
b. 1.12
c. 0.88
d. 12.00
e. 8.33
Q:
What is the equity multiplier for a bank where equity is equal to 10% of total assets?a. 90.00b. 10.00c. 1.10d. 110.00e. 1.00
Q:
A short contract requires that the investor
A. sell securities in the future.
B. buy securities in the future.
C. hedge in the future.
D. close out his position in the future.
Q:
A person who agrees to buy an asset at a future date is going
A. long.
B. short.
C. back.
D. ahead.
Q:
What is the equity multiplier for a bank where equity is equal to 8% of total assets?
a. 1.08
b. 8.00
c. 0.92
d. 12.5
e. 1.25
Q:
A long contract requires that the investor
A. sell securities in the future.
B. buy securities in the future.
C. hedge in the future.
D. close out his position in the future.
Q:
Everything else the same, financial leverage works to a bank's advantage when:
a. the return on assets is positive.
b. the return on assets is negative.
c. fixed assets are high.
d. fixed assets are low.
e. a. and d.
Q:
A contract that requires the investor to buy securities on a future date is called a
A. short contract.
B. long contract.
C. hedge.
D. cross.
Q:
What is the return on equity for a bank that has an equity multiplier of 12, an interest expense ratio of 5%, and a return on assets of 1.1%?
a. 5.0%
b. 13.2%
c. 8.2%
d. 26.4%
e. 0.66%
Q:
Hedging risk for a long position is accomplished by
A. taking another long position.
B. taking a short position.
C. taking additional long and short positions in equal amounts.
D. taking a neutral position.
Q:
What is the return on equity for a bank that has an equity multiplier of 9, an interest expense ratio of 6%, and a return on assets of 1.2%?
a. 10.8%
b. 6.0%
c. 8.0%
d. 4.8%
e. 0.65%
Q:
Hedging risk for a short position is accomplished by
A. taking a long position.
B. taking another short position.
C. taking additional long and short positions in equal amounts.
D. taking a neutral position.
Q:
What is the return on equity for a bank that has an equity multiplier of 14, an interest expense ratio of 4%, and a return on assets of .9%?
a. 1.3%
b. 4.0%
c. 9.0%
d. 12.6%
e. 8.6%
Q:
By hedging a portfolio, a bank manager
A. reduces interest-rate risk.
B. increases reinvestment risk.
C. increases exchange-rate risk.
D. increases the probability of gains.
Q:
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.
Q:
Which of the following is not a financial derivative?
A) stock
B) futures
C) options
D) forward contracts
Q:
Return on equity can be decomposed into:
a. the sum of return on assets and the equity multiplier.
b. the product of return on assets and the equity multiplier.
c. the product of the profit margin and the equity multiplier.
d. the sum of the profit margin and the equity multiplier.
e. the sum of the profit margin, equity multiplier, and the interest ratio.
Q:
The payoffs for financial derivatives are linked to
A. securities that will be issued in the future.
B. the volatility of interest rates.
C. previously issued securities.
D. government regulations specifying allowable rates of return.
Q:
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.
Q:
Both ________ and ________ were financial innovations that occurred because of interest rate volatility.
A. adjustable-rate mortgages; commercial paper
B. adjustable-rate mortgages; financial derivatives
C. sweep accounts; financial derivatives
D. sweep accounts; commercial paper
Q:
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.
Q:
Financial instruments whose payoffs are linked to previously issued securities are called
A. grandfathered bonds.
B. financial derivatives.
C. hedge securities.
D. reversible bonds.
Q:
Unsecured liabilities created from the exchange of immediately available funds are known as:
a. federal funds purchased.
b. repurchase agreements.
c. federal funds sold.
d. pledged securities.
e. brokered deposits.
Q:
An instrument developed to help investors and institutions hedge interest-rate risk is
A. a debit card.
B. a credit card.
C. a financial derivative.
D. a junk bond.
Q:
Jumbo certificates of deposit (CDs) typically:
a. have maturities greater than 10 years..
b. are negotiable.
c. are $1 million in size.
d. All of the above
e. b. and c.
Q:
The agreement to provide a standardized commodity to a buyer on a specific date at a specific future price is
A. a put option.
B. a call option.
C. a futures contract.
D. a mortgage-backed security.
Q:
Jumbo CDs that a bank obtains from a third-party broker are called:
a. money market demand accounts.
b. time deposit accounts.
c. mortgage loans.
d. brokered deposits.
e. core deposits.
Q:
Adjustable rate mortgages
A. reduce the interest-rate risk for financial institutions.
B. benefit homeowners when interest rates rise.
C. generally have higher initial interest rates than conventional fixed-rate mortgages.
D. allow borrowers to avoid paying interest on portions of their mortgage loans.
Q:
Checking accounts with unlimited check-writing and pay interest are known as:
a. demand deposit accounts.
b. money market deposit accounts.
c. NOW accounts.
d. certificates of deposit.
e. time deposits.
Q:
Adjustable rate mortgages
A. protect households against higher mortgage payments when interest rates rise.
B. keep financial institutions' earnings high even when interest rates are falling.
C. benefit homeowners when interest rates are falling.
D. generally have higher initial interest rates than on conventional fixed-rate mortgages.
Q:
Which of the following is are only available to non-commercial customers?
a. Money Market Demand Accounts
b. Demand deposit accounts
c. Mortgage loans
d. Negotiable Orders of Withdrawal (NOW) accounts
e. Auto leases
Q:
Rising interest-rate risk
A. increased the cost of financial innovation.
B. increased the demand for financial innovation.
C. reduced the cost of financial innovation.
D. reduced the demand for financial innovation.
Q:
_________ own(s) the bulk of demand deposit accounts.
a. Consumers
b. Businesses
c. State governments
d. The federal government
e. Non-profits
Q:
Uncertainty about interest-rate movements and returns is called
A. market potential.
B. interest-rate irregularities.
C. interest-rate risk.
D. financial creativity.
Q:
The volume of net deferred credit is commonly referred to as:
a. the burden.
b. NOW balances.
c. reserve requirements.
d. equity.
e. float.
Q:
In the 1950s the interest rate on three-month Treasury bills fluctuated between 1 percent and 3.5 percent; in the 1980s it fluctuated between ________ percent and ________ percent.
A. 5; 15
B. 4; 5
C. 4; 18
D. 5; 10
Q:
The largest component of "non- interest cash and due from banks" is:
a. cash items in process of collection.
b. deposits held at other financial institutions.
c. federal funds sold.
d. vault cash.
e. loans from the Federal Reserve.
Q:
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.
Q:
The most significant change in the economic environment that changed the demand for financial products in recent years has been
A. the aging of the baby-boomer generation.
B. the dramatic increase in the volatility of interest rates.
C. the dramatic increase in competition from foreign banks.
D. the deregulation of financial institutions.
Q:
Securities that require unrealized gains or losses to be recorded on the income statement are called:
a. held-to-maturity securities.
b. trading account securities.
c. available-for-sale securities.
d. revenue securities.
e. repurchase agreements
Q:
________ is the process of researching and developing profitable new products and services by financial institutions.
A. Financial engineering
B. Financial manipulation
C. Customer manipulation
D. Customer engineering
Q:
Financial innovations occur because of financial institutions search for
A. profits.
B. fame.
C. stability.
D. recognition.
Q:
Securities that require unrealized gains or losses to be recorded as a change in stockholder's equity are called:
a. held-to-maturity securities.
b. trading account securities.
c. available-for-sale securities.
d. revenue securities.
e. repurchase agreements
Q:
State banking authorities have sole jurisdiction over state banks
A. without FDIC insurance.
B. that are not members of the Federal Reserve System.
C. operating as bank holding companies.
D. chartered in the 21st century.
Q:
Securities that are "held-to-maturity" are:
a. trading account securities.
b. recorded on the balance sheet at amortized cost.
c. marked-to-market.
d. a. and b.
e. a. and c.
Q:
State banks that are not members of the Federal Reserve System are most likely to be examined by the
A. Federal Reserve System.
B. FDIC.
C. FHLBS.
D. Comptroller of the Currency.
Q:
Which of the following would a bank generally classify as a long-term investment?
a. Treasury bill
b. Vault cash
c. Cash items in process of collection
d. Municipal bond
e. Repurchase agreements
Q:
All other things constant, securities that are extremely liquid:
a. earn higher rates of return than securities that are less liquid.
b. have a longer maturity than less liquid securities.
c. have lower risk than less liquid securities.
d. a. and b.
e. b. and c.
Q:
Which bank regulatory agency has the sole regulatory authority over bank holding companies?
A. the FDIC
B. the Comptroller of the Currency
C. the FHLBS
D. the Federal Reserve System
Q:
Which of the following would a bank generally classify as a short-term investment?
a. Demand deposits
b. Deposits at the Federal Reserve
c. Repurchase agreements
d. Fed Funds purchased
e. Vault cash
Q:
Which of the following statements concerning bank regulation in the United States is TRUE?
A. The Office of the Comptroller of the Currency has the primary responsibility for state banks that are members of the Federal Reserve System.
B. The Federal Reserve and the state banking authorities jointly have responsibility for the state banks that are members of the Federal Reserve System.
C. The Office of the Comptroller of the Currency has sole regulatory responsibility over bank holding companies.
D. The state banking authorities have sole regulatory responsibility for all state banks.
Q:
The legislation that separated investment banking from commercial banking until its repeal in 1999 is known as the
A. National Bank Act of 1863.
B. Federal Reserve Act of 1913.
C. Glass-Steagall Act.
D. McFadden Act.
Q:
Which of the following bank assets is the most liquid?
a. Long-term investments
b. Short-term investments
c. Loans
d. Demand deposits
e. Unearned income
Q:
An example of a contra-asset account is:
a. the loan and lease loss allowance.
b. unearned income.
c. buildings and equipment.
d. revenue bonds.
e. the provision for loan loss.
Q:
The Glass-Steagall Act, before its repeal in 1999, prohibited commercial banks from
A. issuing equity to finance bank expansion.
B. engaging in underwriting and dealing of corporate securities.
C. selling new issues of government securities.
D. purchasing any debt securities.
Q:
Which of the following adjustments are made to gross loans and leases to obtain net loans and leases?
a. The loan and lease loss allowance is subtracted from gross loans
b. Unearned income is subtracted from gross interest received
c. Investment income is added to gross interest received
d. a. and b.
e. a. and c.
Q:
With the creation of the Federal Deposit Insurance Corporation
A. member banks of the Federal Reserve System were given the option to purchase FDIC insurance for their depositors, while non-member commercial banks were required to buy deposit insurance.
B. member banks of the Federal Reserve System were required to purchase FDIC insurance for their depositors, while non-member commercial banks could choose to buy deposit insurance.
C. both member and non-member banks of the Federal Reserve System were required to purchase FDIC insurance for their depositors.
D. both member and non-member banks of the Federal Reserve System could choose, but were not required, to purchase FDIC insurance for their depositors.
Q:
Loans typically fall into each of the following categories except:
a. real estate.
b. individual.
c. commercial.
d. agricultural.
e. municipal.
Q:
With the creation of the Federal Deposit Insurance Corporation, member banks of the Federal Reserve System ________ to purchase FDIC insurance for their depositors, while non-member commercial banks ________ to buy deposit insurance.
A. could choose; were required
B. could choose; were given the option
C. were required, could choose
D. were required; were required
Q:
Banks generate their largest portion of income from:
a. loans.
b. short-term investment.
c. demand deposits.
d. long-term investments.
e. certificates of deposit.
Q:
Probably the most significant factor explaining the drastic drop in the number of bank failures since the Great Depression has been
A. the creation of the FDIC.
B. rapid economic growth since 1941.
C. the employment of new procedures by the Federal Reserve.
D. better bank management.
Q:
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
Q:
The Federal Reserve Act of 1913 required all ________ banks to become members of the Federal Reserve System, while ________ banks could choose to become members of the system.
A. state; national
B. state; municipal
C. national; state
D. national; municipal
Q:
Most banks have the ability to easily raise new capital by issuing new equity.
Q:
The Federal Reserve Act of 1913 required that
A. state banks be subject to the same regulations as national banks.
B. national banks establish branches in the cities containing Federal Reserve banks.
C. national banks join the Federal Reserve System.
D. state banks could not join the Federal Reserve System.
Q:
A function of investment banking is to facilitate corporate mergers and acquisitions.
Q:
The U.S. banking system is considered to be a dual system because
A. banks offer both checking and savings accounts.
B. it actually includes both banks and thrift institutions.
C. it is regulated by both state and federal governments.
D. it was established before the Civil War, requiring separate regulatory bodies for the North and South.
Q:
A memorandum of understanding is a legal document that orders a firm to stop an unfair practice.
Q:
Today the United States has a dual banking system in which banks supervised by the ________ and by the ________ operate side by side.
A. federal government; municipalities
B. state governments; municipalities
C. federal government; states
D. municipalities; states
Q:
The McFadden Act of 1927 forbids national banks from underwriting equities.
Q:
The regulatory system that has evolved in the United States whereby banks are regulated at the state level, the national level, or both, is known as a
A. bilateral regulatory system.
B. tiered regulatory system.
C. two-tiered regulatory system.
D. dual banking system.
Q:
Which of the following statements is/are correct?
a. Higher capital requirements often result in a higher cost of capital for banks.
b. Small banks have greater access to the equity markets than large banks.
c. Higher capital requirements encourage small banks to consolidate into larger banks.
d. All of the above are correct.
e. Only a. and c. are correct.
Q:
Which regulatory body charters national banks?
A. the Federal Reserve
B. the FDIC
C. the Comptroller of the Currency
D. the U.S. Treasury
Q:
The _________ authorized the Treasury to purchase debt securities issued by the Fannie Mae, Freddie Mac, and the Federal Home Loan Banks and to purchase common stock.
a. Treasury Emergency Authority Provisions
b. Foreclosure Prevention Act
c. Troubled Asset Relief Program
d. Primary Dealer Credit Facility
e. Check 21 Act
Q:
The National Bank Act of 1863, and subsequent amendments to it
A. created a banking system of state-chartered banks.
B. established the Office of the Comptroller of the Currency.
C. broadened the regulatory powers of the Federal Reserve.
D. created insurance on deposit accounts.
Q:
The _________ created a fund originally designed to allow the U.S. Treasury to purchase distressed assets from financial institutions.
a. Capital Purchase Program
b. Foreclosure Prevention Act
c. Troubled Asset Relief Program
d. Primary Dealer Credit Facility
e. Check 21 Act
Q:
Although the National Bank Act of 1863 was designed to eliminate state-chartered banks by imposing a prohibitive tax on banknotes, state banks were able to stay in business by
A. issuing credit cards.
B. ignoring the regulations.
C. acquiring funds through deposits.
D. branching into other states.
Q:
_________ allowed any institution to "truncate" the paper check at any point in the check clearing process.
a. Riegle-Neal Interstate Banking and Branching Efficiency Act
b. Fair and Accurate Credit Transactions Act
c. Troubled Asset Relief Program
d. Sarbanes-Oxley Act
e. Check 21 Act
Q:
Prior to 1863, all commercial banks in the United States
A. were chartered by the U.S. Treasury Department.
B. were chartered by the banking commission of the state in which they operated.
C. were regulated by the Federal Reserve.
D. were regulated by the central bank.