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Banking
Q:
Days Accruals 10Days Cash 7Days Inventory 33Days Payables 21Days Receivables 35Average Daily COGS 15What is the firm's liability cycle?a. 21 daysb. 31 daysc. 65 daysd. 75 dayse. 121 days
Q:
Days Accruals 10Days Cash 7Days Inventory 33Days Payables 21Days Receivables 35Average Daily COGS 15What is the firm's cash-to-cash asset cycle?a. 31 daysb. 44 daysc. 65 daysd. 75 dayse. 121 days
Q:
What are the firm's estimated working capital needs?a. $90b. $540c. $630d. $1,170e. $2,034
Q:
What is the firm's liability cycle?a. 30 daysb. 59 daysc. 65 daysd. 95 dayse. 113 days
Q:
What is the firm's cash-to-cash asset cycle?a. 30 daysb. 59 daysc. 65 daysd. 95 dayse. 113 days
Q:
Positive working capital for a firm implies:a. the firm has no short-term debt.b. the firm has no seasonal cash flow needs.c. that current assets are completely financed by current liabilities.d. the firm has no long-term debt.e. that current assets are partially financed by long-term debt and equity.
Q:
Loans that finance the construction of roads and public utilities in new subdivisions are labeled:
a. public work loans.
b. take-out loans.
c. domestic loans.
d. land development loans.
e. working capital loans.
Q:
Which of the following would be considered an interim loan?
a. Automobile loan
b. Residential mortgage loan
c. Construction loan
d. Home equity loans
e. Student loans
Q:
All of the following are loan classifications under the Uniform Bank Performance Report except:
a. real estate loans.
b. automobile loans.
c. individual loans.
d. commercial loans.
e. agricultural loans.
Q:
Which of the following would be considered a "positive" loan covenant?
a. Days receivables outstanding cannot exceed 30 days
b. No change in senior management
c. Capital outlays cannot exceed $1,000,000 per year
d. No additional liens may be placed on the collateral
e. The bank must approve any firm mergers or acquisitions
Q:
Which of the following would be considered a "negative" loan covenant?
a. The firm's current ratio cannot fall below 2.0
b. All property must be maintained in good condition
c. The firm's net worth must exceed $10,000,000
d. The firm must carry property insurance on all collateral.
e. Cash dividends cannot exceed 50% of earnings
Q:
When a bank's claim to collateral is superior to all other creditors, the claim is said to be:
a. developed.
b. guaranteed.
c. certified.
d. perfected.
e. endorsed.
Q:
Loan covenants:
a. protect the borrower from lender interference in management.
b. are limited to "negative" provisions.
c. may limit discretionary cash outlays by borrowers.
d. are seldom enforced.
e. often result in the lender's bankruptcy.
Q:
Which of the following refers to a lender's tendency to ignore circumstances in which a loan might default?
a. Complacency
b. Contention
c. Contingencies
d. Competition
e. Carelessness
Q:
Which of the following is not one of the five Cs of bad credit?
a. Complacency
b. Contention
c. Contingencies
d. Competition
e. Carelessness
Q:
The lender's secondary source of repayment in case of default is:
a. capacity.
b. collateral.
c. character.
d. capital.
e. credit.
Q:
The ability to repay a loan is measured by a firm's:
a. capacity.
b. collateral.
c. character.
d. capital.
e. credit.
Q:
Which of the following is not one of the five Cs of (good) credit?
a. Character
b. Collateral
c. Capital
d. Capacity
e. Credit
Q:
A security interest in a loan is said to be perfected if the:
a. bank holds the collateral.
b. loan has no protective covenants.
c. borrower is a low credit risk.
d. government guarantees the loan.
e. bank has never lent to the customer before.
Q:
Which of the following is the primary emphasis of a values-driven credit culture?
a. Annual bank profit
b. Bank soundness and stability
c. Loan volume
d. Loan growth
e. Short-term earnings
Q:
Which of the following refers to the principles that drive a bank's lending activity?
a. Loan policy
b. Credit culture
c. Credit analysis
d. Credit review
e. Loan documentation
Q:
Which of the following formalizes a bank's lending guidelines?
a. Loan policy
b. Credit culture
c. Credit analysis
d. Credit review
e. Loan documentation
Q:
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
Q:
In the credit process, which of the following activities falls under Credit Review?
a. Loan committee reviews
b. Perfecting the security interest
c. Market research
d. Review loan documentation
e. Market research
Q:
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
Q:
A loan that is specifically designed to meet the needs of one or a few companies but has been packaged for resale is known as a:
a. structured note.
b. staggered note.
c. struggling note.
d. marked-for-sale note.
e. specific note.
Q:
Businesses can obtain funds from which of the following?
a. Loans from life insurance companies
b. Issuing commercial paper
c. Issuing junk bonds
d. Loans from commercial banks
e. All of the above
Q:
The risk of potential loss of interest and principal on international loans due to borrowers in a country refusing to make timely payments, as per the loan agreement is known as what type of risk?
a. International risk
b. Foreign risk
c. Continent risk
d. Country risk
e. Government risk
Q:
To be classified as a non-current loan, payments must be past due a minimum of how many days?
a. 30 days
b. 60 days
c. 90 days
d. 120 days
e. 158 days
Q:
The vast majority of FDIC-insured institutions are classified as:
a. credit card banks.
b. agricultural banks.
c. consumer lenders.
d. commercial lenders.
e. mortgage lenders.
Q:
Banks that emphasize lending to commercial customers are labeled:
a. wholesale banks.
b. retail banks.
c. personal banks.
d. non-bank banks.
e. regional banks.
Q:
Banks that emphasize lending to individuals are labeled:
a. wholesale banks.
b. retail banks.
c. personal banks.
d. non-bank banks.
e. regional banks.
Q:
The largest single loan category for all banks is:
a. real estate loans.
b. commercial loans.
c. credit card loans.
d. industrial loans.
e. agricultural loans.
Q:
Smaller banks rely more heavily on internally generated capital than larger banks.
Q:
What constitutes Tier 2 capital varies substantially between countries.
Q:
A bank that holds only U.S. Treasury securities is not required to hold any capital since all the assets are risk-less.
Q:
Under the current risk-based capital requirements, banks must hold capital against standby letters of credit they have issued as guarantees.
Q:
An adequately capitalized bank may obtain brokered deposits without FDIC approval.
Q:
A significantly undercapitalized bank is one that does not meet the minimum levels for all three capital ratios.
Q:
Regulatory capital ratios focus on the book value of equity.
Q:
In general, smaller banks have higher capital ratios than larger banks.
Q:
In general, bank capital ratios have increased over the last 100 years.
Q:
Decreasing capital increases risk by decreasing financial leverage.
Q:
The Basel Committee defines operational risk as the risk of loss resulting from:
a. changes in interest rates.
b. changes in inflation.
c. inadequate internal processes.
d. excessive default risk.
e. inadequate capital.
Q:
Which of the following is not a historical problem with deposit insurance?
a. Deposit insurance is a substitute for some functions of bank capital.
b. Some banks are considered Too-Big-To-Fail.
c. Historically, deposit insurance premium levels have been insufficient to cover potential payouts.
d. Historically, deposit insurance premiums were not assessed against all of a bank's insured liabilities.
e. All of the above are historical problems with deposit insurance.
Q:
For a bank with deficient capital ratios, which of the following actions could be taken to increase the capital ratios, holding everything else the same?
a. Cut the bank's dividend payment.
b. Increase the bank's burden.
c. Repurchase the bank's common stock on the open market.
d. Increase the bank's growth rate by making additional commercial loans.
e. Reduce the bank's holdings of Treasury securities.
Q:
Which of the following is a hybrid form of equity that effectively pays dividends that are tax deductible and is considered Tier 1 capital?
a. Common stock
b. Preferred stock
c. Trust preferred stock
d. Leases
e. Trust subordinated debt
Q:
Which of the following is not true regarding common stock?
a. Common stock has no maturity.
b. New issues of common stock may dilute existing shareholder equity.
c. Common stock is a permanent source of funds.
d. Dividends paid are not tax-deductible.
e. Dividends are considered a fixed charge that must be paid.
Q:
Which of the following is true regarding subordinated debt?
a. Subordinated debt claims come before the claims of depositors.
b. Principal payments are not mandatory.
c. Transaction costs on issuing new debt are lower than when issuing new equity.
d. Interest payments on subordinated debt are tax-deductible.
e. New subordinated debt dilutes existing shareholder equity.
Q:
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
Q:
A bank currently just meets its total capital requirements of 8%. The bank currently has a dividend payout ratio of 35%. Assets are expected to grow at 5%.If the bank expects its ROA to be .45% and the bank does not wish to change its dividend payout ratio from 35%, how much new equity capital (as a percent of total assets) must the bank issue to support the growth in assets?a. 0.001075%b. 0.01075%c. 0.1075%d. 1.075%e. 10.75%
Q:
A bank currently just meets its total capital requirements of 8%. The bank currently has a dividend payout ratio of 35%. Assets are expected to grow at 5%.If the bank expects its ROA to be .45%, what is the maximum dividend payout ratio to support the increase in assets?a. 11.1%b. 22.2%c. 33.3%d. 44.4%e. 89.9%
Q:
A bank currently just meets its total capital requirements of 8%. The bank currently has a dividend payout ratio of 35%. Assets are expected to grow at 5%.What is the required ROA to support the growth in assets?a. 0.62%b. 0.65%c. 0.68%d. 0.72%e. 0.75%
Q:
Approximately what percentage of commercial banks are currently considered well capitalized at the end of 2007?a. 97%b. 87%c. 77%d. 67%e. 57%
Q:
Which of the following is not a weakness of risk-based capital standards?
a. They ignore interest rate risk.
b. They ignore the value of deposit insurance.
c. They ignore changes in the market value of assets.
d. They ignore credit risk.
e. They ignore the value of a bank's charter.
Q:
How do capital requirements constrain bank growth?
a. By discouraging investments in Treasury securities.
b. By disallowing the ownership of mortgage loans.
c. By decreasing a bank's net interest margin.
d. By limiting the amount of new assets that a bank can acquire through debt financing.
e. By reducing a bank's CAMELS ratings.
Q:
Why do banks generally prefer lower capital requirements?
a. To minimize the impact shareholders have on management decisions.
b. To increase the influence of bank regulators.
c. To increase a bank's return on equity.
d. To increase depositor protection.
e. To maximize operating leverage.
Q:
Why do regulators prefer higher capital requirements?
a. It justifies the existence of regulatory agencies.
b. It better protects the deposit insurance fund.
c. It enhances bank asset quality.
d. It decreases bank profitability.
e. It increases bank leverage.
Q:
How does bank capital reduce bank risk?
a. It provides a cushion for firms to absorb losses.
b. It creates unlimited growth opportunities.
c. It limits access to the financial markets.
d. All of the above.
e. a. and b.
Q:
A bank that does not meet the minimum levels for Tier 1 capital, total capital, and leverage capital ratios is classified as:
a. well-capitalized.
b. adequately capitalized.
c. undercapitalized.
d. significantly undercapitalized.
e. critically undercapitalized.
Q:
To be considered adequately capitalized, a bank's minimum Tier 1 capital, total capital, and leverage capital must be:
a. 4%, 8%, and 3%, respectively.
b. 8%, 5%, and 3%, respectively.
c. 10%, 10%, and 10%, respectively.
d. 6%, 10%, and 5%, respectively.
e. 3%, 4%, and 8%, respectively.
Q:
To be considered well-capitalized, a bank's minimum Tier 1 capital, total capital, and leverage capital must be:
a. 4%, 8%, and 3%, respectively.
b. 8%, 5%, and 3%, respectively.
c. 10%, 10%, and 10%, respectively.
d. 6%, 10%, and 5%, respectively.
e. 3%, 4%, and 8%, respectively.
Q:
What is the total amount of the bank's regulatory capital?a. $500b. $700c. $750d. $1,000e. $1,300
Q:
The minimum total capital for this bank is:a. $348b. $450c. $509d. $581e. $696
Q:
The minimum Tier 1 capital for this bank is:a. $348b. $450c. $509d. $581e. $696
Q:
What is the amount of risk-adjusted assets for the bank?a. $7,700b. $8,700c. $9,700d. $14,700e. $15,700
Q:
The minimum leverage capital for this bank is:a. $348b. $450c. $509d. $581e. $696
Q:
How much Tier 1 capital does the bank have?a. $100b. $450c. $700d. $750e. $1000
Q:
Tier 2 capital consists of all of the following except:a. 30-year subordinated debt.b. cumulative perpetual preferred stock.c. mandatory convertible preferred stock.d. preferred stock with a maturity of 7 years.e. equity in subsidiaries.
Q:
Under current capital requirements, Tier 1 Capital takes of all of the following into account except:
a. common stockholder's equity.
b. equity in subsidiaries.
c. goodwill.
d. mandatory convertible debt.
e. non-cumulative perpetual preferred stock.
Q:
Under the current capital requirements, assets in Category 3, such as 1-4 family real estate loans, have an effective total capital-to-total-assets ratio of:
a. 1.6%.
b. 2.0%.
c. 4.0%.
d. 8.0%.
e. 8.6%.
Q:
Under the current capital requirements, assets in Category 2, such as repurchase agreements, have an effective total capital-to-total-assets ratio of:
a. 1.6%.
b. 2.0%.
c. 4.0%.
d. 8.0%.
e. 8.6%.
Q:
Which of the following was not part of the Basle Agreement?
a. Bank's required capital was linked to its composition of assets.
b. Banks are required to operate with a minimum level of equity.
c. The ownership of equity by banks was prohibited.
d. Capital requirements across countries were standardized.
e. The minimum total capital requirements were set to 8% of risk-adjusted assets.
Q:
Prior to the Basle Agreement, secondary capital included which of the following?
a. The allowance for loan losses
b. Limited-life preferred stock
c. Long-term subordinated debt
d. All of the above
e. b. and c.
Q:
Prior to the Basle Agreement, primary capital included all of the following except:
a. long-term subordinated debt.
b. common stock.
c. undivided profits.
d. perpetual preferred stock.
e. the allowance for loan losses.
Q:
Prior to the Basle Agreement, capital requirements were established without regard to:
a. the bank's liquidity risk.
b. the bank's asset quality.
c. the size of the bank's assets.
d. the bank's operational risk.
e. the bank's interest rate risk.
Q:
Community banks are typically considered those banks with assets:
a. over $100 billion.
b. between $50 billion and $99 billion.
c. between $10 billion and $49 billion.
d. between $1 billion and $9 billion.
e. under $1 billion.
Q:
Banks with greater capital can do all of the following except:
a. borrow at lower rates.
b. make larger loans.
c. expand faster through acquisitions.
d. expand faster through internal growth
e. Banks with greater capital can do all of the above.
Q:
The best measure of bank asset liquidity is the core deposits to total asset ratio.
Q:
Core deposits tend to be more interest elastic than volatile liabilities.