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Banking
Q:
Which of the following is considered an active investment strategy?
a. Barbell maturity strategy
b. Riding the yield curve
c. Laddered maturity strategy
d. Interest maturity strategy
e. Risk maturity strategy
Q:
A portfolio is equally invested in securities with 1-, 2-, and 3-years to maturity. Each year as the 1-year securities mature, the funds are reinvested in 3-year securities. This is an example of which investment strategy?
a. Barbell maturity strategy
b. Riding the yield curve
c. Laddered maturity strategy
d. Timing maturity strategy
e. Cycle maturity strategy
Q:
Which passive investment strategy differentiates between bonds that have been purchased for liquidity versus income purposes?
a. Barbell maturity strategy
b. Riding the yield curve
c. Laddered maturity strategy
d. Timing maturity strategy
e. Cycle maturity strategy
Q:
Municipal bonds whose primary source of repayment are the revenues from the underlying financed project are known as:
a. general obligation bonds.
b. credit free bonds.
c. revenue bonds.
d. exempt bonds.
e. liquidity bonds.
Q:
Mortgage prepayment risk:
a. is greatest for stripped securities.
b. increases as interest rates increase.
c. is eliminated in Z-tranche CMOs.
d. is eliminated by buying stripped mortgage backed securities that mature when the bank needs the funds.
e. is larger on high-rate mortgages.
Q:
Which of the following is not true regarding collateralized mortgage obligations (CMOs)?
a. Interest earned on CMOs is exempt from state income taxes.
b. CMO yields are generally higher than comparable Treasury yields.
c. CMOs exhibit little default risk.
d. All of the above are true.
e. Only a. and c. are true.
Q:
The underlying mortgages in Ginnie Mae mortgage pools include:
a. Federal Housing Association (FHA) mortgages.
b. Veterans Administration (VA) mortgages.
c. privately issued mortgages.
d. all of the above
e. a. and b. only
Q:
Which of the following U.S. government agencies can borrow directly from the U.S. Treasury?
a. Government National Mortgage Association (Ginnie Mae)
b. Student Loan Marketing Association (Sallie Mae)
c. Small Business Administration (SBA)
d. all of the above
e. a. and c. only
Q:
Interest on bonds issued by the ____________ are not exempt from state and local taxes.
a. Farm Credit System
b. Federal Home Loan Banks
c. Government National Mortgage Association (Ginnie Mae)
d. United States Postal Service
e. Student Loan Marketing Association (Sallie Mae)
Q:
Which of the following U.S. government agency securities are backed by the full faith and credit of the U.S. Government?
a. Government National Mortgage Association (Ginnie Mae)
b. Student Loan Marketing Association (Sallie Mae)
c. Small Business Administration (SBA)
d. all of the above
e. a. and c. only
Q:
All of the following are capital market instruments except:
a. Treasury bonds.
b. Government National Mortgage Association (Ginnie Mae) bonds.
c. mortgage backed securities.
d. Treasury notes.
e. bankers acceptances.
Q:
All of the following are money market instruments except:
a. Treasury bills.
b. Eurodollar deposits.
c. commercial paper.
d. Treasury bonds.
e. bankers acceptances.
Q:
A short-term interest-bearing time draft created by a high-quality bank is called:
a. commercial paper.
b. a bankers acceptance.
c. a Eurodollar deposit.
d. a reverse repurchase agreement.
e. a negotiable CD.
Q:
In general, commercial paper:
a. is rated by the various rating agencies.
b. has a maturity of 270 days or less.
c. sells at a premium to face value.
d. all of the above
e. a. and b. only
Q:
Dollar-denominated deposits issued by branches of foreign banks in the United States are known as:
a. Asian bonds.
b. Eurodollar bonds.
c. Foreign bonds.
d. Yankee bonds.
e. Domestic bonds.
Q:
Eurodollar:
a. deposits are dollar-denominated deposits issued outside the United States.
b. markets are less regulated than U.S. security markets.
c. rates generally are lower than comparable U.S. CD rates.
d. all of the above
e. a. and b. only
Q:
A bank purchases a new 52-week $1,000,000 face value Treasury bill for $950,000. What is the discount rate on this T-bill (Hint: A 52-week T-bill has an original maturity of 364 days)
a. 4.95%
b. 5.00%
c. 5.06%
d. 5.19%
e. 5.26%
Q:
Which of the following is true of Treasury bills?
a. Interest on Treasury bills is exempt from state income taxes.
b. Interest on Treasury bills is exempt from federal income taxes.
c. Treasury bills pay a lower pretax yield than comparable corporate securities.
d. All of the above are true.
e. a. and c. only
Q:
Most repurchase agreements are secured by:
a. municipal securities.
b. commercial paper.
c. Treasury securities.
d. discount window loans.
e. cash.
Q:
Which of the following is not an objective of a bank's investment portfolio?
a. Meeting capital requirements
b. Maintaining liquidity
c. Diversifying credit risk
d. Managing interest rate exposure
e. Preserving capital
Q:
All of the following are basic functions of a bank's trading activities except:
a. offering investment advice to customers.
b. maintaining an inventory of securities for possible sale to investors.
c. speculating on short-term interest rate movements.
d. All of the above are basic functions of a bank's trading activities.
e. None of the above are basic functions of a bank's trading activities.
Q:
For which of the following classes of securities are unrealized gains and losses included as income?
a. Held-to-maturity
b. Available-for-sale
c. Trading
d. all of the above
e. b. and c. only
Q:
For which of the following classes of securities are unrealized gains and losses included as a component of capital?
a. Held-to-maturity
b. Available-for-sale
c. Trading
d. all of the above
e. a. and c. only
Q:
Which of the following classes of securities are carried at market value on the balance sheet?
a. Held-to-maturity
b. Available-for-sale
c. Trading
d. all of the above
e. b. and c. only
Q:
Which of the following classes of securities are recorded at amortized cost on the balance sheet?
a. Held-to-maturity
b. Available-for-sale
c. Trading
d. all of the above
e. a. and b. only
Q:
Regulators generally prohibit banks from purchasing ____________ for income purposes.
a. Treasury bills
b. commercial paper
c. common stock
d. repurchase agreements
e. bankers' acceptances
Q:
On an unadjusted basis, yields on municipal securities are greater than the yields on corporate securities, everything else the same.
Q:
If interest rates fall, a callable bond at par has the potential for large increases in price.
Q:
When loan demand is weak, banks should keep investments short-term.
Q:
Under a passive investment strategy, secondary reserves are invested in short-term securities.
Q:
The yield curve is generally inverted at the top of the business cycle.
Q:
Most long-term municipal bonds are serial bonds.
Q:
Fixed-rate mortgages and adjustable-rate mortgages prepay at different rates.
Q:
In general, banks are less willing to sell securities when the market value is greater than the book value.
Q:
A security's bid price will be greater than its ask price.
Q:
The security activities of large banks and small banks are fundamentally different.
Q:
Which of the following would not be considered a bank qualified municipal security?
a. A Hays County general obligation bond to modernize the county fire department.
b. A Lubbock County general obligation bond to build a new sewer plant.
c. A City of San Marcos general obligation bond to pay for street repairs.
d. A City of El Paso general obligation bond to pay for a new city jail.
e. A State of Texas bond to finance road repairs.
Q:
Banks can effectively improve their portfolios by:
a. shortening maturities when yields are expected to fall.
b. obtaining less call protection when rates are expected to fall.
c. reducing diversification when the economy is slowing down.
d. increasing bond quality when quality yield spreads are low.
e. all of the above
Q:
An investor can invest in either a tax-exempt security that pays 5% or a taxable corporate security of comparable risk and maturity that pays 8%. At what marginal tax rate will the investor be indifferent between these two securities?
a. 25.0%
b. 32.5%
c. 37.5%
d. 57.5%
e. 62.5%
Q:
Securities with embedded options:
a. often have higher yields than comparable Treasury securities.
b. generally have no prepayment risk.
c. are always free of default risk.
d. all of the above.
e. a. and b. only
Q:
The static spread is:
a. the difference between the yield on a zero coupon bond and the yield on a coupon bond.
b. the difference between a fixed-rate yield and a floating-rate yield.
c. the difference between the yield on new Treasury bills versus new Treasury bonds.
d. the difference between expected inflation and the current Treasury bill rate.
e. the difference between the yield on a security with options and the yield on a maturity-matched zero coupon Treasury security.
Q:
As market rates rise, prepayment speed _______, while modified duration _________.
a. slows, lengthens
b. slows, shortens
c. accelerates, lengthens
d. accelerates, shortens
e. accelerates, is unaffected
Q:
A security might exhibit negative convexity because:
a. its duration is greater than its maturity.
b. it has a fixed interest rate below current market rates.
c. a bank has a negative GAP.
d. it has embedded options.
e. markets are not efficient.
Q:
Which of the following is not true regarding prepayments?
a. The greater the prepayments, the shorter the security's duration.
b. Prepayments are relatively low during the first two years of a mortgage.
c. Mortgages to older people tend to have more prepayments than mortgages to younger people.
d. Prepayments increase as interest rates fall.
e. all of the above are true
Q:
A bond that has positive convexity:
a. is more price sensitive when rates fall then when rates rise.
b. is more price sensitive when rates rise then when rates fall.
c. has a negative duration.
d. has a duration greater than maturity.
e. a. and d.
Q:
Which of the following is/are true?
a. For rate increases, the estimated price based on duration will be below the actual price.
b. For rate increases, the estimated price based on duration will be above the actual price.
c. For rate decreases, the estimated price based on duration will be below the actual price.
d. a. and c.
e. b. and c.
Q:
A bank owns a zero coupon bond with 5 years to maturity and a face value of $10,000. If interest rates increase from 6% to 7%, the approximate change in price, using Macaulay's duration is $352.48, what is the approximate pricing error when using Macaulay's duration?a. $8b. $10c. $12d. $14e. $16
Q:
A bank owns a zero coupon bond with 5 years to maturity and a face value of $10,000. If interest rates increase from 6% to 7%, what is the approximate change in price, using Macaulay's duration?
a. $343
b. $352
c. -$343
d. -$352
e. not enough information is given to answer the question.
Q:
If the economy is entering into a recessionary period, you would expect the yield curve to be:a. upward sloping.b. flat.c. inverted.d. humped.e. none of the above
Q:
If the Federal reserve is easing monetary policy at the end of a recession, you would expect the yield curve to be:
a. upward sloping.
b. flat.
c. inverted.
d. humped.
e. none of the above
Q:
Long-term interest rates tend to be higher than short-term interest rates:
a. at the bottom of the business cycle.
b. at the end of an expansionary period.
c. at the beginning of a contractionary period.
d. at the peak of the business cycle.
e. during periods of rapid deflation.
Q:
The yield curve tends to be inverted:
a. at the trough of the business cycle.
b. during periods of rapid inflation.
c. at the end of a contractionary period.
d. at the peak of the business cycle.
e. at the beginning of an expansionary period.
Q:
A bank has a planned 2-year investment horizon. It is considering investing in a 2-year bond that pays 6% annually versus investing in a 4-year bond that pays 6.5% annually and then selling it after two years. The annual coupon payments can be reinvested at 4%.What will be the realized compound yield if the bank invests in the 4-year security and sells it at the end of two years, assuming interest rates remain unchanged?a. 4.00%b. 5.48%c. 5.94%d. 6.01%e. 6.85%
Q:
A bank has a planned 2-year investment horizon. It is considering investing in a 2-year bond that pays 6% annually versus investing in a 4-year bond that pays 6.5% annually and then selling it after two years. The annual coupon payments can be reinvested at 4%.What will be the realized compound yield if the bank invests in the 2-year security and holds it until maturity?a. 4.00%b. 5.48%c. 5.94%d. 6.01%e. 6.85%
Q:
Consumers are prohibited from disclosing if they receive public assistance when applying for credit.
Q:
A FICO score summarizes an individual's credit history in one number.
Q:
Credit scoring models are less objective than judgmental evaluations.
Q:
Credit cards are profitable for banks because many customers are prince insensitive.
Q:
Losses on credit cards are among the highest of all consumer loan types.
Q:
Credit cards typically provide lower risk-adjusted returns than other types of consumer loans.
Q:
Consumer loans are typically very similar such that a comprehensive analytical format can be used for all loans.
Q:
Today, many banks target individuals as the primary source of growth in attracting new business.
Q:
Banks labeled "consumer lenders" have the heaviest concentration of loans in credit cards.
Q:
Most consumer loans are secured.
Q:
Salomon Brothers' collateralized automobile receivables securities are labeled:
a. AUTOs.
b. CARDs.
c. VANs.
d. CARs.
e. RACs.
Q:
Consumer loans differ from commercial loans in all of the following ways except:
a. consumer loans are generally smaller than commercial loans.
b. consumer loans are generally for longer terms than commercial loans.
c. consumer loans are generally less expensive to administer on a unit basis than commercial loans.
d. individuals are more likely to default than businesses.
e. consumer loans in some states are still covered by usury laws.
Q:
Who is at risk if an indirect loan defaults on a loan with full recourse?
a. The bank
b. The borrower
c. The dealer
d. The credit bureau
e. All of the above
Q:
The national average FICO score is:
a. 370
b. 470
c. 570
d. 670
e. 770
Q:
When a bank keeps dealer reserves, the reserves are primarily used:
a. to cover charge-offs.
b. to increase bank profits.
c. to increase dealer profits.
d. to reduce taxes.
e. to increase advertising revenues.
Q:
Which of the following would be considered an unacceptable consumer loan?
a. A home improvement loan, secured by a first mortgage
b. A home improvement loan, secured by a second mortgage
c. A $10,000 loan on a new $30,000 boat, secured by the boat
d. A loan on for 80% of the value on a new automobile, secured by the automobile
e. A loan for 95% of the value of used skydiving equipment, secured by the equipment
Q:
Which of the following are two of the "additional Cs" of consumer credit?
a. Customer relationships
b. Competition
c. Continuous employment
d. a. and b. only.
e. b. and c. only.
Q:
The only quantitative measure of a consumer loan applicant's character is their:
a. down payment.
b. home equity.
c. time on the job.
d. credit report.
e. credit card balance.
Q:
Which of the five Cs refers to an individual's wealth?
a. cash.
b. capacity.
c. character.
d. conditions.
e. capital
Q:
The most important of the five Cs of credit when evaluating a consumer loan application is:
a. cash.
b. capacity.
c. character.
d. conditions.
e. competition.
Q:
Individuals work out a court supervised repayment plan under:
a. Chapter 7
b. Chapter 9
c. Chapter 13
d. Chapter 17
e. Chapter 21
Q:
Under current bankruptcy law, which of the following debts are not dischargeable under Chapter 7?
a. Past due child support
b. Past due mortgage payments
c. Past due credit card payments
d. Past due auto loan payments
e. All of the above are dischargeable under Chapter 7 bankruptcy law
Q:
Which regulation requires out-of-state-banks that acquire local banks to commit to continued lending in the area and not use the acquired banks simply as deposit gatherers?
a. Equal Credit Opportunity Act
b. National Bank Act
c. Federal Lending Act
d. Fair Credit Reporting Act
e. Community Reinvestment Act
Q:
Redlining is a lending practice of not extending credit:
a. to minimum wage earners.
b. to finance low-income housing.
c. to students.
d. to targeted minority groups.
e. within a geographic area that is believed to be deteriorating.
Q:
Which of the following has the lowest weight in determining a consumer's FICO score?
a. Types of credit
b. Amounts owed
c. Payment history
d. Length of credit history
e. Number of delinquencies
Q:
Which of the following has the greatest weight in determining a consumer's FICO score?
a. Current credit use
b. Credit mix
c. Payment history.
d. Length of credit history
e. Number of applications for new credit