Q&A Hero

Q: Banks with the highest efficiency ratios are presumed to be the most efficient.

Q: Mortgage origination is countercyclical to a bank's net interest margin business.

Q: Trading revenue for banks is highly cyclical.

Q: Deposit service charges are a stable source of bank revenue.

Q: Relative to larger banks, smaller banks rely more on non-interest income as a source of revenue.

Q: Demand for checking accounts is generally considered to be price inelastic.

Q: Increased competition, following deregulation, has lead to an increase in bank's net interest margin.

Q: Banks can increase their operating efficiencies by: a. reducing costs and maintaining the existing level of products and services. b. reducing costs and reducing the existing level of products and services. c. decreasing the level of output while maintaining the current level of expenses. d. increasing the level of output while increasing the level of expenses. e. decreasing workflow.

Q: Banks experience diseconomies of scale when: a. marginal costs increase as total costs decrease. b. total costs decrease as output decreases. c. total costs increase as output increases. d. average unit costs increase as output increases. e. average unit costs decrease as output increases.

Q: Banks experience economies of scale when: a. marginal costs increase as total costs decrease. b. total costs decrease as output decreases. c. total costs increase as output increases. d. average unit costs increase as output increases. e. average unit costs decrease as output increases.

Q: Which of the following is not a cost management strategy? a. Investing in resources to improve long-term profitability b. Changing pricing such that total revenues increase c. Identify operating efficiencies d. Burden identification e. Expense reduction

Q: Profitable bank customers: a. make up a small fraction of all bank customers. b. generally shop for the bank with the lowest price. c. have small loan balances. d. always avoid service charges. e. are the most sensitive to changes in price.

Q: Customer profitability data can be beneficial in helping bank management: a. develop new products. b. identify profitable target niches. c. determine changes in product pricing. d. All of the above e. a. and b. only

Q: ______________ transactions are the highest-cost type of transaction for a bank. a. Web-based b. ATM c. Work station d. Live teller e. After-hours

Q: ______________ is/are the primary revenue source for a majority of banks. a. Check-processing fees b. Investment income from deposit balances c. Loan interest d. Earnings credits e. Swaps

Q: In general, _______________ are the major non-credit cost for commercial customers. a. personnel expenses b. check-processing costs c. loan administration expenses d. fraud costs e. default costs

Q: Return on risk-adjusted capital is defined as: a. Income/Allocated Risk Capital. b. Allocated Risk Capital/Adjusted Income. c. (Risk — Adjusted Income)/Capital. d. Capital/Allocated Risk Capital. e. Expenses + Target Profit.

Q: __________ is not a measure of bank productivity? a. Assets per employee b. Average personnel expense c. Loans per employee d. Net income per employee e. Number of customers per employee

Q: Which of the following is considered a measure of bank productivity? a. Return on assets b. Return on equity c. Assets per depositor d. Assets per employee e. All of the above are measures of bank productivity

Q: The operating risk ratio measures: a. cost controls versus fee generation. b. fee income versus net interest margin. c. non-interest expense versus non-interest income. d. depositors versus employees. e. depreciation versus required reserves.

Q: If a bank pays 62 cents in non-interest expense per dollar of net operating revenue, its _______ is equal to 0.62. a. burden b. net non-interest margin c. efficiency ratio d. overhead ratio e. non-interest expense ratio

Q: For most banks, which of the following is the largest component of non-interest expense? a. Personnel expenses b. Rent c. Required reserves held at the Federal Reserve d. Electricity e. Depreciation on buildings and equipment

Q: When two banks that merge have a significant duplication of bank offices such that the merger leads to the elimination of branches and personnel, this is known as a(n): a. out-of-market merger. b. in-market merger. c. new-market merger. d. reduced-branch merger. e. goodwill merger.

Q: All of the following are components of a bank's non-interest expense except:. a. deposit service fees. b. occupancy expense. c. goodwill impairment. d. personnel expense. e. other intangible amortization.

Q: From the following list, which two are the biggest contributors to non-interest income? Fiduciary Activities Deposit Service Charges Trading Revenue Investment Banking Insurance Commission Fees and Income Other Non-Interest Income a. Fiduciary Activities & Deposit Service Charges b. Trading Revenue & Investment Banking c. Insurance Commission Fees and Income & Other Non-Interest Income d. Depository Service Charges and Other Non-Interest Income e. Fiduciary Activities and Investment Banking

Q: Which of the following is not considered a non-interest expense? a. Wages and salaries b. Rent c. Required reserves held at the Federal Reserve d. Electricity e. Employee benefits

Q: Which of the following is not listed on a bank's UBPR as non-interest income? a. Deposit service charges b. Insurance commission fees c. Goodwill impairment d. Net gains on sales of loans. e. Investment banking fees

Q: Smaller banks generally employee fewer people per dollar of assets than larger banks.

Q: Eliminating borrowing from the Federal Reserve at the end of fiscal year is an example or "window dressing."

Q: Banks that use preferred stock understate their ROE relative to banks that do not use preferred stock.

Q: Regarding interest expense, volume effects suggest that the mix of liabilities among banks may differ.

Q: Balance sheet items are calculated for a particular point in time.

Q: When constructing ratios, average balance sheet data should be used.

Q: Retail banks deal primarily with commercial customers.

Q: Total revenue is the same as total operating income.

Q: Subordinated bank debt is federally insured.

Q: Which of the following is not a techniques that banks use to "manage earnings"? a. Window dressing b. Nonrecurring sales of assets c. Adjusting the allowance for loan losses d. Increasing loans classified as non-performing e. All of the above are techniques that banks use to "manage earnings"

Q: In the CAMELS ratings, which reflects the bank's off-balance sheet activities? a. Capital adequacy b. Asset quality c. Earnings quality d. Liquidity e. Sensitivity to market risk

Q: Which of the following is not part of the CAMELS ratings? a. Capital adequacy. b. Asset quality. c. Earnings quality. d. Liabilities quality. e. Sensitivity to market risk.

Q: All of the following are examples of operational risk except: a. fraud. b. compromised security data. c. theft. d. business interruptions. e. default on a loan.

Q: The risk that a bank cannot meet payment obligations in a timely and cost-effective manner is known as: a. credit risk. b. capital risk. c. market risk. d. operating risk. e. liquidity risk.

Q: Classified loans: a. still accrue interest. b. have not had a principle or interest payment made in 90 days. c. exactly offset gross charge-offs. d. are loans in which regulators have forced management to set aside reserves. e. all of the above

Q: Recoveries refer to: a. the dollar value of loans actually written off as uncollectible. b. the dollar amount of loans that were previously charged-off but now collected. c. net charge-offs. d. loans not currently accruing interest. e. loans that regulators have required the bank to "recover".

Q: A savings and loan that sold off their junk bond holdings and issued consumer auto loans with the proceed would most likely be: a. decreasing their market risk. b. increasing their capital risk. c. decreasing their legal risk. d. increasing their operating risk. e. reducing their credit risk.

Q: Which type of risk is the most difficult to quantify? a. Credit risk b. Liquidity risk c. Legal risk d. Operating risk e. Market risk

Q: Which of the following is not one of the risks identified by the Federal Reserve Board? a. Credit Risk b. Market Risk c. Ownership Risk d. Reputation Risk e. Legal Risk

Q: The goal of a bank manager should be: a. to maximize earnings. b. to minimize taxes. c. to minimize risk. d. to maximize shareholder wealth. e. to maximize net interest income.

Q: Which of the following would not be considered an earning asset? a. Cash due from banks b. Municipal securities c. Treasury bills d. Repurchase agreements e. Mortgages

Q: The efficiency ratio measures: a. a bank's ability to control interest expense. b. a bank's ability to control non-interest expense. c. a bank's spread. d. a bank's burden. e. a bank's operating leverage.

Q: What is 1st State's efficiency ratio?a. 2.5%b. 17.5%c. 25.0%d. 74.5%e. 82.5%

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

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

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

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

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

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: 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: 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: 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.

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: 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: 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: 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: 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: 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: 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: 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: 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: Relative to wholesale banks, retail banks: a. focus on individual consumer banking relationships. b. operate with fewer consumer deposits. c. purchase more non-core liabilities. d. hold proportionally more business loans to large firms. e. All of the above.

Q: Relative to retail banks, wholesale banks: a. deal primarily with consumers. b. operate with fewer commercial deposits. c. purchase more non-core liabilities. d. hold proportionally more consumer loans. e. All of the above.

Q: A bank that deals primarily with commercial customers is called: a. an Edge Act bank. b. a retail bank. c. a wholesale bank. d. a uniform bank. e. a liability bank.

Q: A change in net interest income would occur when: a. the composition of the assets of the bank change. b. the average asset yield changes. c. the volume of the assets of the bank change. d. the average interest expense changes. e. All of the above

Q: Total operating expense is comparable to _________ for a non-financial firm. a. sales b. cost of goods sold + other operating expenses c. interest expense d. earnings before taxes e. net income

Q: Net income is defined as: a. Net interest income — burden + provision for loan loss + securities gains or losses — taxes. b. Net interest income + burden + provision for loan loss + securities gains or losses — taxes. c. Net interest income — burden — provision for loan loss + securities gains or losses — taxes. d. Net interest income — burden — provision for loan loss + securities gains or losses + taxes. e. Net interest income + burden — provision for loan loss + securities gains or losses — taxes.

Q: Total operating income is comparable to _________ for a non-financial firm. a. sales b. cost of goods sold c. gross profit d. earnings before interest and taxes e. net income

Q: Which of the following would be considered an extraordinary item on an income statement of a bank? a. Revenue from the sale of the bank's office building. b. Interest income when the spread is greater than 10%. c. Realized security gains. d. Collection on loans already charged off. e. All of the above would be considered extraordinary items.