Q&A Hero

Q: Bankers cannot determine the level or trend of market interest rates; instead, they can only react to the level and trend of rates.

Q: Under the so-called funds management view, bank management's control over assets must be coordinated with its control over liabilities, so that asset and liability management are internally consistent.

Q: Under the so-called liability management view in banking, the key control lever banks possess over the volume and mix of their liabilities is price.

Q: A liability-sensitive bank will experience an increase in its net interest margin if interest rates rise.

Q: If interest rates fall when a bank is in an asset-sensitive position, its net interest margin will rise.

Q: The ultimate goal of liability management is to gain control over a financial institution's sources of funds.

Q: Asset management strategy in banking assumes that the amount and kinds of deposits and other borrowed funds a bank attracts are determined largely by its management.

Q: One of the principal goals of asset-liability management is to maximize or at least stabilize a bank's margin or spread.

Q: ___________________________ is the phenomenon by which interest rates attached to various assets often change by different amounts and at different speeds than interest rates attached to various liabilities.

Q: _______________________ is a measure of interest-rate risk exposure which is the total difference in dollars between those assets and liabilities that can be repriced over a designated time period.

Q: Interest sensitive assets divided by interest sensitive liabilities is known as: ____________________________.

Q: Interest sensitive assets less interest sensitive liabilities divided by total assets of the bank is known as _______________________.

Q: Money market deposits are included as part of ______________________ for banks.

Q: Variable rate loans and securities are included as part of _______________________ for banks.

Q: _____________________________ are those liabilities that mature or must be repriced within the planning period.

Q: __________________________ is interest income from loans and investments less interest expenses on deposits and borrowed funds divided by total earning assets.

Q: In recent decades, banks have aggressively sought to insulate their assets and liability portfolios and profits from the ravages of changing interest rates. Many banks now conduct their asset-liability management strategy with the help of a(n) _____________________.

Q: The interest-rate risk which arises when a borrower has the right to pay off a loan early reducing the lender's expected rate of return is called ______________.

Q: One part of interest-rate risk is ____________________. This part of interest-rate risk reflects that as interest rates fall, any cash flows that are received are invested at a lower interest rate.

Q: One of the government-created giant mortgage banking firm which has subsequently been privatized is the ____________________________________.

Q: Most lending institutions tend to do better when the yield curve is upward-sloping because they tend to have ____________ maturity gap positions.

Q: When a bank has a negative duration gap, a parallel decrease in the interest rates on the assets and liabilities of the bank will lead to a(n) _________________________ in the bank's net worth.

Q: When a bank has a positive duration gap a parallel increase in the interest rates on the assets and liabilities of the bank will lead to a(n) __________________ in the bank's net worth.

Q: The change in a financial institution's __________________ is equal to difference between the average duration of assets times the change in the interest rate divided by (1+ original discount rate) times the dollar amount of total assets and the average duration of liabilities times the change in the interest rate divided by 1+ original discount rate times the dollar amount of total liabilities.

Q: The relationship between a change in an asset's price and an asset's change in the yield or interest rate is captured by _________________________.

Q: A bank is __________________ against changes in its net worth if its duration gap is equal to zero.

Q: The __________________________ is equal to the duration of each individual type of liability in the portfolio weighted by the market value of each type of liability in the portfolio out of the total market value of all liabilities.

Q: The __________________________ is equal to the duration of each individual type of asset weighted by the market value of each type of asset out of the total market value of all assets.

Q: A(n) __________________________ gap means that for a parallel increase in all interest rates, the market value of net worth will tend to increase.

Q: __________________________ is the difference between the dollar-weighted duration of the asset portfolio and the dollar-weighted duration of the liability portfolio.

Q: __________________ is the weighted average maturity for a stream of future cash flows.

Q: The __________________________ component of interest rates is the risk premium due to the probability that the borrower will miss some payments or will not repay the loan.

Q: The __________________________ is the rate of return on a financial instrument using a 360-day year relative to the instrument's face value.

Q: __________________________ is the risk due to changes in market interest rates which can adversely affect the bank's net interest margin, assets, liabilities, and equity.

Q: __________________________ is the coordinated management of both the bank's assets and its liabilities.

Q: The bank's __________________________ takes into account the idea that the speed (sensitivity) of interest rate changes will differ for different types of assets and liabilities.

Q: A(n) __________________________ means that the bank has more interest-sensitive liabilities than interest-sensitive assets.

Q: __________________________ is the difference between interest-sensitive assets and interest-sensitive liabilities.

Q: __________________________ are those assets which mature or must be repriced within the planning period.

Q: The __________________ premium on a bond reflects the differences in the ease and ability to sell the bond in the secondary market at a favorable price.

Q: The __________________ shows the relationship between the time to maturity and the yield to maturity of bonds.

Q: The __________________ premium on a bond allows the investor to be compensated for their projected loss in purchasing power from the increase in the prices of goods and services in the future.

Q: The __________________________ is the interest rate that equalizes the current market price of a bond with the present value of the future cash flows.

Q: Recent decades have ushered in dramatic changes in banking. The goal of __________________ was simply to gain control of the bank's sources of funds.

Q: The ___________________ view of assets and liabilities held that the amount and types of deposits was primarily determined by customers and hence the key decision a bank needed to make was with the assets.

Q: Loyola Bank classifies its assets and liabilities and the period (maturity buckets) within which they are subject to repricing as on March 31, 2015 as follows: Silvershine bank has $200 million in earning assets and $280 million in liabilities that are subject to an interest rate change each month over the next six months. If market interest rates suddenly rise by 2 full percentage points, what will be approximate change in the net interest income for the bank? A. $8.2 millionB. -$8.5 millionC. $8.5 millionD. $9.6 millionE. -$9.6 million

Q: Brendon Brothers Bank reports interest-sensitive assets at $35 million, interest-sensitive liabilities at $60 million and total assets at $80 million. What is the relative IS GAP of the bank? A. -0.29 B. 0.29 C. -0.31 D. 0.31 E. -0.33

Q: __________________________ measures the amount of debt or leverage a bank has and is one part of the evaluation of the bank's ROE. It is generally a number larger than one.

Q: __________________________ measures the return to stockholders on their investment in a bank. It is the product of net profit margin, asset utilization, and the equity multiplier.

Q: __________________________ reflects the effectiveness of the expense management of a bank and is one of the principal components of evaluating ROE.

Q: One of the principal components of evaluating ROE is _____________________ ratio, which reflects a bank's portfolio management policies and the mix and yield on its assets.

Q: __________________________ assets, including loans, are those which are past due by 90 days or more.

Q: __________________________ is the risk that a financial institution may not be able to meet the needs for cash of its depositors.

Q: For a bank, sources of funds like Eurodollars, Fed funds, repurchase agreements, and large CDs are categorized as ____________________.

Q: __________________________ is the risk that the value of the financial institution's asset portfolio will decline due to falling market prices.

Q: __________________________ assets of a financial institution are those that will mature or be repriced within a set period of time.

Q: A phenomenon wherein interest rates and security prices in the financial marketplace move against a troubled firm, forcing it to make crucial adjustments in policies and performance in order to calm investors' worst fears is often referred to as __________________ by economists.

Q: __________________________ risk is one that deals with the quality of the bank's assets and, in particular, the bank's loans.

Q: The equity multiplier measures the amount of _____________________ for a bank and is one principal component of the bank's ROE.

Q: Which of the following is an indicator of increasing capital risk in a bank? A. Rise in the market yields on debt issued by a bank and market yields on government securities of similar maturities B. Fall in the ratio of stock price per share to earnings per share C. Decline in the ratio of equity capital to total assets D. Increase in purchased funds as a percentage of total liabilities E. All of the options are correct.

Q: The risk of a government's ability to repay its debt owed to international lending institutions is known as: A. market risk. B. credit risk. C. operational risk. D. sovereign risk. E. legal risk.

Q: The risk of deterioration in the value of a financial firm's assets as a result of fluctuating currency prices is known as: A. basis risk. B. country risk. C. political risk. D. foreign-exchange risk. E. economic risk.

Q: Which of the following types of banks tend to enjoy the highest net-interest margins in the industry? A. Small-sized banks B. Virtual banks C. Investment banks D. Large commercial banks E. Federally chartered banks

Q: Which of the following statements is true regarding Subchapter S firms? A. These firms are liable to pay federal income taxes. B. These firms cannot have more than 100 shareholders. C. These firms need to pass-through at least half of their earnings to their shareholders. D. Income from these firms is tax-exempt for its shareholders. E. All of the options are true for Subchapter S firms.

Q: A financial institution with a low ROA can achieve a relatively high ROE through: A. high leverage. B. low leverage. C. high owner's capital. D. tax swap. E. None of the options is correct.

Q: The Trust-worthy Bank had declared and paid a dividend of $2 last year. The dividend amount to shareholders is expected to grow at the rate of 10 percent while the minimum acceptable rate for the investors on the bank's stock is 15 percent. What is the price at which the stock of Trust-worthy bank must be valued at in the market? A. $40 B. $44 C. $38 D. $22 E. $88

Q: The value of a bank's stock will tend to rise if the: A. stream of future stockholder dividends is expected to increase. B. financial organization's perceived level of risk falls. C. market interest rates decrease. D. expected dividend increases are combined with declining risk, as perceived by investors. E. All of the options are correct.

Q: Which of the following assets are excluded from the category of risk assets? A. Real Estate Loans B. Commercial Paper C. Plant and Equipment D. Commercial and Industrial Loans E. All of the options are correct

Q: Harrison Bank has the following financial information. What is the bank's total operating revenue? A. $125B. $8,000C. $488,281D. $31,250,000E. None of the options is correct

Q: Harrison Bank has the following financial information: What is the bank's asset utilization ratio? A. 1.6%B. 10%C. 12.8%D. 16%E. None of the options is correct

Q: What is the bank's equity multiplier? A. 1.6 timesB. 10 timesC. 12.8 timesD. 16 timesE. None of the options is correct

Q: What is the bank's ROE? A. 1.6%B. 10 %C. 12.8%D. 16%E. None of the options is correct

Q: The following financial information pertains to Harrison Bank.What is the bank's ROA? A. 1.6%B. 10%C. 12.8%D. 16%E. None of the options is correct

Q: What is the bank's earnings spread? A. 37.5%B. 22.22%C. 14.33%D. 7.89%E. 2.5%

Q: What is the bank's asset utilization ratio? A. 20.45%B. 18.33%C. 12.22%D. 7.33%E. 2.5%

Q: What is the bank's net profit margin? A. 20.45%B. 18.33%C. 12.22%D. 7.33%E. 2.5%

Q: What is the bank's ROA? A. 20.45%B. 18.33%C. 12.22%D. 7.33%E. 2.5%

Q: Following data pertains to Castle State Bank.What is Castle State Bank's ROE? A. 20.45%B. 18.33%C. 12.22%D. 7.33%E. 2.5%

Q: The Garic State Bank of New Orleans has been under water for three weeks since hurricane Katrina hit the state. The lobby is full of mud and other debris. Many of the valuables stored in the bank's safety deposit boxes have been ruined. John Garic, the President and CEO of the bank, has been working night and day to reopen the bank. What type of risk has John been dealing with? A. Credit risk B. Liquidity risk C. Market risk D. Interest rate risk E. Operational risk

Q: Paul Smith is planning to invest in the stock of Capital City Bank. He is examining the ratios of interest sensitive assets to interest sensitive liabilities and uninsured deposits to total deposits. What type of risk is Paul attempting to measure with these ratios? A. Credit risk B. Liquidity risk C. Legal risk D. Interest rate risk E. Operational risk