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Banking
Q:
At the center of the debate of the Basel Agreement is the ____________, headquartered in Basel, Switzerland, which assists central banks in their transactions with each other and serves as a forum for international financial issues.
Q:
_________________ risk measures are being developed to be used when Basel III takes effect.
Q:
____________ models measure a lender's exposure to defaults or credit downgrades.
Q:
The latest revision to the Basel accord is known as __________ and will cover capital, liquidity, and debt positions of individual international banks and also the much broader issues associated with controlling global business cycles and financial system-wide risks.
Q:
____________ models attempt to measure price or market risk of a portfolio of assets and attempt to determine the maximum loss they might sustain over a designated period of time.
Q:
The largest component of capital among commercial banks is ___________.
Q:
The largest component of capital among thrift institutions is ____________.
Q:
When all else fails, the ultimate defense against risk in banking is ________________________.
Q:
One defense against risk for a bank is to seek out customers located in different communities or in different countries. This defense is known as ________________________.
Q:
One defense against risk for a bank is to spread out its credit accounts and deposits among a wide variety of customers, including large and small business accounts, different industries, etc. This defense is known as ________________________.
Q:
The fact that a bank may suffer deficiencies in quality control, inefficiencies in producing and delivering of services, natural disasters, terrorist acts, weather damage, aging or faulty computer systems, errors in judgment by management, and fluctuations in economy that could adversely affect the bank's performance, is known as _________________________ risk.
Q:
When the assets items on a bank's balance sheet and each off-balance-sheet commitment it has made are multiplied by the appropriate risk-weighting factor, they are often called ________________________.
Q:
Supplemental capital such as the allowance for loan and lease losses, subordinated debt capital instruments, mandatory convertible debt, intermediate-term preferred stock, cumulative perpetual preferred stock with unpaid dividends, and equity notes and other long-term capital instruments that combine both debt and equity features is more commonly known as ________________________.
Q:
The international treaty involving representatives from the U.S. and 12 other leading industrialized countries to impose common capital requirements on all banks is known as the ________________________.
Q:
Core capital such as common stock and surplus, undivided profits, qualifying noncumulative perpetual preferred stock, etc. is referred to as __________________ capital, as defined by the Basel agreement.
Q:
_________________________ are the net earnings of a bank, which have been kept by the bank rather than being distributed as dividends to stockholders.
Q:
__________________ is the amount in excess of stock's par value paid by the bank's shareholders.
Q:
_________________________ is measured by the par value of the shares of common equity outstanding.
Q:
The risk that has to do with fraud, embezzlement and bank robberies is called _________________.
Q:
The risk that has to do with banks trading in foreign currencies is called ________________________.
Q:
The trust department can be a significant source of ____________ for a bank or financial holding company.
Q:
Trust department activities usually center upon establishing a ____________ relationship with a customer.
Q:
__________________ are one of the earliest services provided by banks and involves the management of customer's property and other assets.
Q:
The most rapidly growing source of income for banks is ________ income.
Q:
A(n) _________________________ is a contract that promises to reimburse policy holders for personal injury, property damage, and other losses, in exchange for the policy holder's premium payments.
Q:
A(n) _________________________ is a contract that promises to make a cash payment to the beneficiary in the event of the death of the policy holder.
Q:
_________________________ arise from the potential cost savings that result from being able to use the same management, advertising, and physical resources to offer multiple services.
Q:
_______________________ emerge when financial organization grows in size and is able to reduce its cost of production per unit of output.
Q:
The _________________________ effect brings more than one financial-service industries together to reduce the overall risk of the revenue flows through the company.
Q:
_________________________ is the bringing together of two or more firms from different industries in order to offer multiple services.
Q:
A(n) _________________________ is a savings instrument in which the customer makes cash payments to an investment manager who invests them in an earning asset. Later the purchaser receives a stream of income from those assets.
Q:
A(n) _________________________ gives the bank the right to manage the estate of a living person without a court order. This can be amended by the customer as desired.
Q:
A(n) _________________________ promises a customer, who deposits a lump sum, a guaranteed rate of return over the life of the contract.
Q:
When a financial institution offers a(n) __________________ mutual fund, it acts as broker for an unaffiliated mutual fund or group of funds and does not act as an investment advisor.
Q:
A(n) __________________ fund, is a type of mutual fund offered through a bank's affiliated company. The bank acts as a transfer agent, custodian, and offers investment advice in this type of mutual fund.
Q:
When bank purchases stocks, bonds, mutual funds, and annuities on behalf of their customers, these products are referred to as _______________________.
Q:
Which of the following activities of investment banking often leads to large speculative gains or losses during the first few hours of the sale of offering new shares of stock?
A. Leveraged buyouts
B. Security underwriting
C. Initial public offering
D. Hedge funds
E. Annuities
Q:
Which of the following activities of a bank falls under the insurance sales and underwriting services?
A. Providing risk management services for persons and property.
B. Security underwriting.
C. Brokering securities for clients.
D. Providing credit guarantees.
E. Distributing new securities and interest.
Q:
For which of the following banking services can the bank be legally liable for losses due to failure to act as a prudent decision maker?
A. Underwriting insurance services
B. Insurance sales services
C. Trust services
D. Exchange-traded-funds services
E. None of the options is correct
Q:
The trusts that arise under a probated will and are often used to save on estate taxes are called:
A. revocable trusts.
B. irrevocable trusts.
C. indenture trusts.
D. testamentary trusts.
E. living trusts.
Q:
Recently, both investment banks and commercial banks have come under a pressure to raise large amounts of capital, which is designed to:
A. increase their interest income.
B. reduce their high volume of assets.
C. increase their leverage ratio.
D. reduce their non-performing assets.
E. reduce their high debt ratio.
Q:
A bank is considering adding security brokerage services to the services it offers. It has estimated that the expected return and standard deviation of its traditional service are 6% and 14% respectively. It has estimated that the expected return and standard deviation of its new securities brokerage services are 14% and 24% respectively. The correlation between these services has been estimated to be -0.4 and the bank estimates that 60% of its business will be from traditional services and 40% from the new services. What is the standard deviation of the new combined firm?
A. 24.00 percent
B. 18.00 percent
C. 15.07 percent
D. 14.00 percent
E. 9.91 percent
Q:
A bank is considering adding security underwriting services to the services it offers. It has estimated that the expected return and standard deviation of its traditional service are 8% and 10% respectively. It has estimated that the expected return and standard deviation of its new securities underwriting services are 16% and 20% respectively. The correlation between these services has been estimated to be -0.3 and the bank estimates that 80% of its business will be from traditional services and 20% from the new services. What is the standard deviation of the new combined firm?
A. 7.8 percent
B. 10.0 percent
C. 12.0 percent
D. 15.5 percent
E. 20.0 percent
Q:
A virtually regulated private investment pool, which primarily offers its wealthy investors and large institutions, the possibility of higher investment returns by taking on relatively risky assets is called:
A. a mutual fund.
B. an annuity.
C. the net asset value.
D. a hedge fund.
E. None of the options is correct.
Q:
A customer's pro rata value of a share in a mutual fund, if the assets of the fund were liquidated and liabilities paid off, is called:
A. a mutual fund.
B. an annuity.
C. the net asset value.
D. a hedge fund.
E. None of the options is correct.
Q:
A savings instrument where the customer makes a lump sum payment to the investment manager who invests the payment in earning assets and later receives a stream of income from the assets is called:
A. a leveraged buyout.
B. an annuity.
C. the net asset value.
D. a hedge fund.
E. None of the options is correct.
Q:
A company that offers shares in a pool of securities and the returns to the shareholders flow through any earnings generated is called:
A. a mutual fund.
B. an annuity.
C. the net asset value.
D. a leveraged buyout.
E. None of the options is correct.
Q:
If the correlation between revenues from traditional banking and nontraditional services offered by a bank rises, potential diversification benefits:
A. will rise.
B. will fall.
C. will remain the same.
D. will remain the same but only under certain conditions.
E. cannot be determined.
Q:
Among potential advantages of combining various financial services activities in one FHC, all of the following can be included except:
A. supplementing traditional sources of funds with new funds.
B. supplementing traditional revenue with new revenue sources.
C. lowering the cost of service production through economies of scale and scope.
D. reducing the risk of failure.
E. increasing earnings fluctuations.
Q:
A financial holding company may include all of the following services except:
A. corporate liquidation.
B. consumer lending.
C. trust services.
D. investment banking.
E. insurance.
Q:
Trust department activities include all of the following except:
A. safeguarding customers' assets.
B. generating earnings.
C. generating large deposits.
D. lending.
E. preparing wills.
Q:
When a bank is expecting to be able to employ the same managers, employees, and physical resources to offer multiple products and generate costs savings they are expecting which of the following effects?
A. Product-line diversification effect
B. Economies of scope effect
C. Economies of scale effect
D. Geographic diversification effect
E. None of the options is correct.
Q:
When a bank is expecting that the overall risk of FHC will be reduced when they combine investment banking services with the traditional banking services, what type of effect are they expecting?
A. Product-line diversification effect
B. Market diversification effect
C. Income diversification effect
D. Geographic diversification effect
E. None of the options is correct.
Q:
A bank is considering adding life insurance underwriting to the services it offers. It has estimated that the expected return and standard deviation of its traditional services are 12 percent and 6 percent respectively. It has also estimated that the expected return and standard deviation of its new underwriting services are 18 percent and 10 percent respectively. The correlation between these services has been estimated to be +0.10 and the bank estimates that 90 percent of its business will be from traditional services and 10 percent from the new underwriting services. If the bank is expecting that the overall risk of the bank will be reduced by adding the life insurance underwriting to the bank, what type of effect are they expecting?
A. Product-line diversification effect
B. Income diversification effect
C. Market diversification effect
D. Geographic diversification effect
E. None of the options is correct.
Q:
Which of the following trust agreements is used to back the issue of securities by a corporation?
A. Revocable trust
B. Irrevocable trust
C. Charitable trust
D. Indenture trust
E. None of the options is correct.
Q:
Which of the following trust agreements allows the bank trust officer to act on behalf of a living customer?
A. Revocable trust
B. Irrevocable trust
C. Charitable trust
D. Indenture trust
E. None of the options is correct.
Q:
Which of the following trust agreements allows wealth to be passed free of gift and estate taxes?
A. Revocable trust
B. Irrevocable trust
C. Charitable trust
D. Indenture trust
E. None of the options is correct.
Q:
Which of the following is an example of a nondeposit investment product of the bank?
A. Time deposit
B. NOW account
C. Passbook savings account
D. Proprietary mutual fund
E. All of the options are correct.
Q:
A bank would offer insurance services in addition to traditional banking services if it believed in the potential benefits of:
A. reputation.
B. economies of scale.
C. economies of scope.
D. investment services.
E. None of the options is correct.
Q:
A trust department's activities often center around establishing:
A. an independent relationship with the customer.
B. a partnership relationship with the customer.
C. a fiduciary relationship with the customer.
D. a subservient relationship with the customer.
E. None of the options is correct.
Q:
Customers purchasing nondeposit investment accounts sold by a bank operating in the United States must be told in writing that:
A. investment accounts are not federally insured.
B. investment accounts are neither deposits nor guaranteed by a depository institution.
C. investment accounts could suffer loss of principal.
D. All of the options are correct.
E. None of the options is correct.
Q:
A Chinese wall' is supposed to prevent the transfer of insider information about clients between the investment banker's security underwriting division and the internal unit where proprietary trading of stocks and bonds takes place.
Q:
The prohibition against combining investment banking and commercial banking activity during the Depression-era, centered on possibly forcing customers seeking loans to buy securities that the IB was trying to sell and increasing the risk exposure of commercial banking firms.
Q:
Traditionally, the most profitable and best-known investment banking activity is providing client advice.
Q:
Investment bankers are financial advisors to individuals and act as brokers and dealers for those individuals.
Q:
As a consequence of recent legislation, banks, securities firms, and insurance companies have the right to apply to the Federal Reserve Board to become financial holding companies.
Q:
As a consequence of recent legislation, banks cannot offer insurance products or services.
Q:
An insurance product or annuity sold by a depository institution is not insured by the FDIC.
Q:
State Street Bank in Boston is a good example of a fee-focused banking company.
Q:
Mutual funds were first set up in France.
Q:
One attractive feature of investment banking is that it is generally less risky than commercial banking.
Q:
Customers have no rights to opt out of having their private information collected by banks and other financial-service firms and being shared with other financial-service firms.
Q:
A mutual fund is a savings instrument where the customer makes cash payments to an investment manager who invests them in earning assets. Later the purchaser receives a stream of income from these assets.
Q:
An annuity is a product that offers shares in a pool of securities (stocks, bonds, etc.) and flows through any earnings generated to the shareholding customer.
Q:
A proprietary mutual fund is where the bank sells a mutual fund through one of their affiliated companies and where the bank can act as an investment advisor.
Q:
While the trust department performs a variety of roles, their activities center on establishing a fiduciary relationship with the customer.
Q:
The product-line diversification effect occurs when the revenues generated by traditional banking service and a nontraditional banking service are not very correlated with each other and reduce the overall risk of the bank.
Q:
Trust services are a relatively new service for banks.
Q:
Trust services have no impact on the deposits of the bank.
Q:
A nonproprietary mutual fund is where the bank acts as a broker for a nonaffiliated mutual fund but does not act as an investment advisor.