Q&A Hero

Q: A bank's nondeposit investment products include IRAs, Keoghs, and MMDAs.

Q: According to the textbook, one likely outcome of the 2007-2009 financial crisis for both commercial and investment banks is _________________.

Q: One of the advantages offered by mutual funds is having a ____________ who monitors the performance of each security held by the fund.

Q: ______________ are private investment pools which primarily offer to wealthy investors and major institutions higher investment returns by taking on relatively risky assets.

Q: ________________ is the value of a share in a mutual fund. It is the value of the assets held by the mutual fund less any liabilities, divided by the number of mutual fund shares outstanding.

Q: Passage of the __________________ of 1999 granted banks, securities firms, and insurance companies the right to apply to the Federal Reserve Board to become financial holding companies (FHCs).

Q: Under law and industry practice, a __________ is supposed to be set up between an IB's security underwriting and client advising divisions and the internal unit where proprietary trading of stocks and bonds take place, to prevent the transfer of insider information about clients.

Q: _________________ is the purchase for resale of new stocks, bonds, and other financial instruments in the money and capital markets on behalf of clients who need to raise new money.

Q: _______________ are financial advisors to corporations, governments, and other large institutions. They advise their clients on issues relating to raising new capital, entering new market areas, etc.

Q: The largest unregulated financial market place in the world is the: A. U.S. treasuries. B. Eurocurrency market. C. agro-commodities market. D. inter-bank loan market. E. Fed funds market.

Q: In the United States, legal reserve requirements on certificates of deposits is currently: A. zero. B. 5 percent. C. 10 percent. D. 15 percent. E. 10 percent of the instruments maturing in the next three months.

Q: Which of the following is an advantage of a General Collateral Finance RP? A. The securities pledged in the first leg need not necessarily be the same to be returned. B. It can be settled on the books of the FICC which allows for netting of transactions. C. It entails lower transaction costs. D. It helps make RP market more liquid. E. All of the options are correct.

Q: The interest rate on a Fed funds loan is: A. decided by the Federal Reserve Board. B. based on LIBOR. C. decided by the U.S. Treasury Department. D. subject to negotiation between the borrower and the lender. E. based on Euribor.

Q: With liability management, institutions in need of more funds to cover expanding loan commitments or deficiencies in the cash reserves can ______________________ to reduce their volume of money market borrowings. A. lower their offer rate B. lower their bid rate C. raise their bid rate D. raise their offer rate E. reduce cutoff for minimum credit score required to grant loans

Q: Money market suppliers of funds typically have a(n) ______________ response to changes in the market interest rates. A. elastic B. inelastic C. slow D. marginal E. opposite

Q: Which of the following is one of the disadvantages of following the customer relationship doctrine? A. High interest costs on loans B. Negative returns on loans C. Poor credit scores of customers D. Fewer loyal customers E. Low service fees

Q: Setting the Federal Reserve primary-credit discount rate above the Fed Funds rate mirrors what credit facilities used by several European central banks? A. The Vince credit facilities B. The Adam Smith credit facilities C. The Lombard credit facilities D. The Lower Back credit facilities E. None of the options is correct

Q: The Carter State Bank is planning on raising $600 million in a new offering of commercial paper through its holding company. It plans on using $500 million of it to fund new loans. The current interest rate for similar commercial paper is 4.85 percent and it expects 0.3 percent in issuing costs. What is the effective rate of interest on this issue of commercial paper? A. 5.15 percent B. 6.18 percent C. 5.82 percent D. 4.85 percent E. None of the options is correct

Q: The HTR Bank is planning on raising $750 million in a new offering of commercial paper through its holding company. It plans on using $725 million of it to fund new loans. The current interest rate for similar commercial paper is 7.15 percent and it expects 0.15 percent in issuing costs. What is the effective rate of interest on this issue of commercial paper? A. 7.30 percent B. 7.15 percent C. 7.40 percent D. 7.55 percent E. None of the options is correct

Q: A bank promises an annual return of 4.85 percent on a 60 day, $300,000 CD. What will be the total amount due to the customer at the end of the two-month period? A. $302,425 B. $314,550 C. $14,550 D. $2,425 E. None of the options is correct

Q: A bank plans on borrowing $450 million for 20 days through a RP transaction collateralized by T-Bills. The current RP rate is 6.25 percent. What is the bank's total interest cost in dollars? A. $28,125,000 B. $78,125 C. $1,406,250 D. $1,562,500 E. None of the options is correct

Q: A bank plans on borrowing $225 million for 10 days through an RP transaction collateralized by T-Bills. The current RP rate is 4.5 percent. What is the bank's total interest cost in dollars? A. $10,125,000 B. $1,125,000 C. $281,250 D. $28,125 E. None of the options is correct

Q: A Fed Funds loan that is an unwritten agreement, negotiated via wire or telephone, and with the borrowed funds returned the next day is known as a(n): A. overnight loan. B. continuing contract. C. term loan. D. daytime loan. E. None of the options is correct.

Q: When a foreign branch lends a Euro deposit to its home office in the U.S., how is this listed on the balance sheet of the home office? A. Loan from subsidiary B. Liabilities to foreign branches C. Securities sold under agreement to repurchase D. Bankers acceptance E. None of the options is correct

Q: CDs issued by nonbank savings institutions are called: A. thrift CDs. B. domestic CDs. C. EURO CDs. D. Yankee CDs. E. variable rate CDs.

Q: The Lawrence Bank of Cleveland is planning on issuing $60 million in negotiable CDs. Currently other similar CDs bear an interest rate of 5.15 percent. The bank has estimated that its noninterest costs of issuing these CDs will be 0.2 percent, and expects to pay a deposit insurance premium of 0.0023 per dollar of insured funds. Due to other immediate cash needs, only $50 million of the funds raised will be fully invested. What is the effective cost rate for the Lawrence Bank of Cleveland to borrow in the CD market? (Round your answer to the nearest .01 percent) A. 6.70 percent B. 6.42 percent C. 5.58 percent D. 5.15 percent E. None of the options is correct

Q: The Bank of Boulder is planning on issuing $45 million in negotiable CDs. Currently other similar CDs bear an interest rate of 4.75 percent. The bank has estimated that its noninterest costs of issuing these CDs are 0.15 percent, and it expects to pay a deposit insurance premium of 0.0023 per dollar of insured funds. Due to other immediate cash needs, only $40 million of the funds raised will be fully invested. What is the effective cost rate for the Bank of Boulder to borrow in the CD market? (Round your answer to the nearest 0.01 percent) A. 4.75 percent B. 4.90 percent C. 5.10 percent D. 5.77 percent E. None of the options is correct

Q: Bank of America is concerned that the Federal Reserve Board may impose legal reserve requirements on money borrowed in the Fed funds market. Which factor that affects a bank's use of nondeposit sources of funds is this bank concerned about? A. The relative cost of raising the funds B. The length of time the funds will be required C. The risk associated with each source of funds D. The size of the bank E. Regulations

Q: The First State Bank of Summerville needs to raise $500,000 in nondeposit sources of funds. It knows that the Eurodollar market requires a minimum denomination of $1 million. What factor that affects a bank's use of nondeposit sources of funds is this bank concerned about? A. The relative cost of raising the funds B. The length of time the funds will be required C. The risk associated with each source of funds D. The size of the bank E. Regulations

Q: The First State Bank of Summerville knows that, if it issues a large amount of the negotiable CD, the interest cost on the CD may be very high due to tight money supply conditions. As a result, it chooses to ration the credit and lend only to its most loyal clients. What risk factor that affects a bank's use of nondeposit sources of funds is the concern here? A. Interest rate changes B. The length of time the funds will be required C. The relative cost of raising the funds D. Credit availability E. Regulations

Q: The First State Bank of Summerville knows that, if it issues commercial paper through a subsidiary, tight money supply conditions in the market may result in the interest rate on the commercial paper to be very high. What factor that affects a bank's use of nondeposit sources of funds is the bank concerned about? A. The relative cost of raising the funds B. The length of time the funds will be required C. The risk associated with each source of funds D. The size of the bank E. Regulations

Q: The Willis Savings Bank is comparing the prevailing interest rate in the Fed Funds market with that of the negotiable CD market. It is making sure to include the noninterest costs, the deposit insurance costs, and the amount of money that will actually be available for new loans. Which factor that affects a bank's use of nondeposit sources of funds is the bank examining? A. The relative cost of raising the funds B. The length of time the funds will be required C. The risk associated with each source of funds D. The size of the bank E. Regulations

Q: The Williams National Bank has new loan requests of $585 million, needs to purchase $160 in U.S. Treasury securities for reserve requirements, and anticipates draws on lines of credit in the amount of $120 million. If deposits received today total $300 million and it expects to bring in an additional $340 million in deposits next week, what is the estimated funds gap of the Williams National Bank? A. $225 million B. $585 million C. $640 million D. $865 million E. None of the options is correct

Q: The Bridges State Bank has new loan requests of $315, needs to purchase $125 million in U.S. Treasury securities for reserve requirements, and anticipates draws on lines of credit in the amount of $65 million. If total deposits received today are $205 million and the bank expects to bring in an additional $185 million in deposits next week, what is the estimated funds gap for the Bridges State Bank? A. $505 million B. -$390 million C. $115 million D. -$315 million E. None of the options is correct

Q: In addition to the Federal Reserve, the other governmental agency that has also been loaning large amounts of money to banks and thrift institutions is the: A. FDIC. B. OCC. C. OTS. D. FHLB. E. RTC.

Q: All of the following types of loans are available through the discount window except: A. adjustment credit. B. primary credit. C. secondary credit. D. seasonal credit. E. None of the options is correct.

Q: A conventional Repurchase Agreement (RP) is ________ for the borrower than (as) a General Collateral Finance RP. A. more flexible B. less flexible C. as flexible D. less rigid E. None of the options is correct

Q: A repurchase agreement (RP) in which the collateral is specifically identified is known as a(n): A. conventional RP. B. General Collateral Finance RP. C. specific RP. D. general RP. E. individual RP.

Q: Dollar denominated CDs issued by banks outside the United States are known as: A. Domestic CDs. B. Euro CDs. C. Yankee CDs. D. Commercial paper. E. None of the options is correct.

Q: Suppose a bank expects to issue 45-day negotiable CDs for $150 million. The interest rate on these CDs is 6.35 percent. What is the dollar amount in interest the bank will owe on these CDs at the end of the 45-day period? A. $9,525,000 B. $1,190,625 C. $76,200,000 D. $6,750,000 E. None of the options is correct

Q: Which of the following is an example of a longer-term nondeposit funding source? A. Money market funds B. Repurchase agreements C. Capital notes and debentures D. Negotiable CDs E. None of the options is correct

Q: Which of the following is not an advantage of using a repurchase agreement? A. The bank gains excess reserves which can be used to make new deposits. B. The bank makes use of high-quality but low yielding assets without losing them permanently. C. If the agreement is made with a bank which keeps a checkable deposit with another bank, it can reduce both the bank's deposits and reserve requirements. D. The interest rate the bank has to pay is usually low. E. All of the options are advantages of using a repurchase agreement.

Q: An agreement where one party agrees to sell T-bills to another party and at the same time agrees to buy them back at a future date for set price is known as a: A. repurchase agreement. B. commercial paper. C. term loan. D. negotiable CD. E. None of the options is correct

Q: The TRC Bank is planning on raising $500 million in a new offering of commercial paper through its holding company. It plans on using $475 million of it to fund new loans. The current interest rate for similar commercial paper is 6.45 percent and it expects 0.25 percent in issuing costs. What is the effective rate of interest on this issue of commercial paper? A. 6.65 percent B. 6.45 percent C. 7.05 percent D. 6.79 percent E. None of the options is correct

Q: Short-term notes, with maturities ranging from 3 days to 9 months, issued by well-known companies are known as: A. negotiable CDs. B. commercial paper. C. federal funds. D. repurchase agreements. E. None of the options is correct.

Q: Suppose a bank promises an annual return of 6.5 percent on a three month (90-day $150,000 CD), what will be the total amount due to the customer at the end of the three month period? A. $152,437.50 B. $2,437.50 C. $150,000 D. $152,404.11 E. None of the options is correct

Q: A bank plans on borrowing $150 million through an RP transaction collateralized by T-bills. It plans on borrowing the money for 5 days and the current RP rate is 5.25 percent. What is the bank's total interest cost in dollars? A. $7,875,000 B. $107,877 C. $21,875 D. $109,375 E. None of the options is correct

Q: Which of the following source of bank funding is considered a hybrid account because though legally a deposit, it is considered as just another form of IOU? A. Federal funds loan B. Repurchase agreement C. Negotiable CD D. Eurodollar deposit E. None of the options is correct

Q: Which of the following laws restricts Federal Reserve lending to undercapitalized banks and allows for long-term Fed support only to borrowing institutions that are considered "viable entities"? A. Riegle Community Development and Regulatory Improvement Act B. FDIC Improvement Act C. Financial Institutions Reform, Recovery, and Enforcement Act D. Depository Institutions Deregulation and Monetary Control Act E. None of the options is correct

Q: Longer-term federal funds contracts lasting several days, weeks, or months, often accompanied by a written contract, are known as: A. term loans. B. continuing contracts. C. rollover loans. D. federal funds mutuality agreements. E. None of the options is correct.

Q: A federal funds loan that is automatically renewed each day unless either the borrower or the lender decides to end the loan agreement is known as a(n): A. overnight loan. B. continuing contract. C. term loan. D. rollover loan agreement. E. None of the options is correct.

Q: Which of the following is the role performed by accommodating banks? A. They act as intermediaries in the Eurodollar market. B. They issue negotiable CDs for themselves and for other banks. C. They sell commercial paper to raise funds for themselves and other firms belonging to their bank holding company. D. They buy and sell federal funds simultaneously in order to make a market for reserves of customer banks. E. None of the options is correct.

Q: CDs that are sold by some of the largest foreign banks through their U.S. branches are called: A. thrift CDs. B. domestic CDs. C. EuroCDs. D. Yankee CDs. E. None of the options is correct.

Q: First National Bank is planning to raise $30 million through an offering of negotiable CDs. The current rate for similar CDs is 5.5 percent. Noninterest cost rate for CDs is 0.25 percent. First National pays a deposit insurance premium of 0.0023 per dollar of insured deposits. Due to other immediate cash needs, only $25 million will be fully invested. What is the effective cost rate of borrowing in the CD market for the bank? A. 6.9 percent B. 7.2 percent C. 6.0 percent D. 5.5 percent E. None of the options is correct.

Q: Which of the following is a factor that affects a bank's decision as to which nondeposit sources of funds to use to cover its projected funds gap? A. The relative cost of raising the funds. B. The length of time the funds will be required. C. The risk associated with each source of funds. D. The size of the bank. E. All of the options are correct.

Q: First National Bank has new loan requests of $175 million, needs to purchase $50 million in U.S. Treasury securities to meet pledging requirements, and anticipates draws against credit lines of $45 million. Deposits received today total $140 million and the bank expects to bring in an additional $230 million next week. What is First National's estimated funds gap for the coming week? A. $225 million. B. -$145 million. C. $135 million. D. -$100 million. E. None of the options is correct.

Q: The source of short-term funds for commercial banks that was developed to tap temporary surplus funds held by large corporate and wealthy individual customers is: A. Federal funds. B. commercial paper. C. Eurodollar deposits. D. negotiable CDs. E. None of the options is correct.

Q: Time deposits with minimum denominations of $100,000 are generally referred to as: A. mini CDs. B. jumbo CDs. C. large CDs. D. giant CDs. E. super CDs.

Q: Depository institutions hold deposits with the Federal reserve: A. to satisfy legal reserve requirements. B. to clear checks. C. to pay for purchases of government securities. D. for inter-bank lending through Fed's wire system. E. All of the options are correct.

Q: The most popular domestic source of borrowed reserves for U.S. banks is: A. Federal funds market. B. money market negotiable CDs. C. Eurodollar market. D. borrowings from the Federal Reserve Banks. E. commercial paper market.

Q: As per liability management banking, the control lever to regulate the liabilities and assets on the balance sheet is A. management discretion. B. the volume of loan demand the bank faces. C. deposit growth. D. market interest rates. E. None of the options is correct.

Q: The strategy that banks should buy the reserves they need to cover good-quality loan requests is known as: A. funds management. B. asset management. C. liability management. D. asset-liability coordinated management. E. None of the options is correct.

Q: The doctrine that the first priority of a bank is to make loans to all those customers from whom the bank expects to receive positive net earnings is called the: A. funds management doctrine. B. customer relationship doctrine. C. loan priority doctrine. D. revenue flows doctrine. E. None of the options is correct.

Q: Only federal regulators can limit the terms (amount, frequency, and use) of borrower funds by the U.S. depository institutions.

Q: The size of a financial institution has an effect on the type of nondeposit funding source it considers. For example, larger depository institutions have the credit standing to sell the largest negotiable CDs, while the Fed funds market is suitable for smaller institutions.

Q: When the general credit conditions are tight, there is a possibility that not every borrower will be accommodated by lenders. This chance of credit rationing is referred to as credit availability risk.

Q: Primary credit is defined as loans available for short terms and normally considered beneficial for the borrower because it carries an interest rate slightly below the target Fed funds rate.

Q: Seasonal credit discount window loans generally have the highest interest rates.

Q: Interest rates in the Repurchase Agreement (RP) market are quoted on a 360-day basis.

Q: Repurchase Agreement (RPs) transactions are perceived to be less risky than equivalent Federal funds transactions.

Q: Although there is an active federal funds spot market, there is currently no associated futures market for federal funds.

Q: Large banks depend more on nondeposit borrowings than small banks.

Q: In recent years, financial institutions have gotten better at managing interest rate risk.

Q: Loans from the Fed funds market must be backed by collateral.

Q: Negotiable CDs are restricted to short maturitiesfrom seven days to one or two years.

Q: There are no restrictions on getting a Federal Reserve loan and because it is the cheapest source of short-term funds, most banks use this source of funds exclusively.

Q: One of the factors to consider when a bank chooses among the nondeposit funding sources is the relative cost. In general, managers prefer to borrow from the cheapest source of funds, although other factors do play a role.

Q: The main use of federal funds today is still the traditional one. Federal funds provide a mechanism that allows banks short of legal reserves to satisfy the reserve requirements or to satisfy a loan demand by tapping into immediately available funds from other institutions possessing temporarily idle funds.

Q: Longer-term federal funds contracts which are automatically renewed each day unless either the borrower or the lender decides to end the agreement are called term loans.

Q: Nondeposit funds do have the advantage of quick availability compared to most types of deposits, but are not as stable a funding source for banks as are time and savings deposits.