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Banking
Q:
Amy Farmer is planning to invest in the stock of Guthrie National Bank. She is examining ratios of the book value of the assets to the market value of the assets and the market value of the bonds held by the bank to their recorded value. What type of risk is Amy attempting to measure with these ratios?
A. Credit risk
B. Liquidity risk
C. Market risk
D. Legal risk
E. Operational risk
Q:
Gerald Wilkens is planning to invest in the stock of Tallahassee State Bank. He is examining the ratios of cash assets and government securities to total assets and purchased funds to total assets. What type of risk is Gerald attempting to measure with these ratios?
A. Credit risk
B. Liquidity risk
C. Market risk
D. Interest rate risk
E. Operational risk
Q:
Forrest Fennell is planning to invest in Capital City Bank. He is examining the ratios of nonperforming loans to total loans and leases and the provision for loan losses to total loans and leases. What type of risk is Forrest attempting to measure with these ratios?
A. Credit risk
B. Liquidity risk
C. Market risk
D. Interest rate risk
E. Operational risk
Q:
Norman Bank made a loan of $1,000,000 to Jarod LeFevre. Jarod has declared bankruptcy and Norman Bank has just learned that the judge in the case has ruled that Jarod does not have to pay any part of the loan back or forfeit any of his assets. Which type of risk would this be an example of?
A. Operational risk
B. Legal risk
C. Compliance risk
D. Strategic risk
E. Reputation risk
Q:
Everett Bank has just learned that there is a disgruntled former employee who has created a blog that is telling everyone that Everett Bank has halved their customer service representatives and therefore customers have great difficulty getting through to a relationship officer when there is a problem with their account. Everett is worried that it may lose customers as a result of such a write-up. Which type of risk would this be an example of?
A. Operational risk
B. Legal risk
C. Compliance risk
D. Strategic risk
E. Reputation risk
Q:
Carson County State Bank has a ratio of equity capital to total assets of 2.5%. The regulators have asked all banks of similar size to maintain a capital adequacy ratio of 8%. They are making the bank issue new stock in the market. In addition, they are not allowing the bank to issue dividends to their current stockholders. Which type of risk would this be an example of?
A. Operational risk
B. Legal risk
C. Compliance risk
D. Strategic risk
E. Reputation risk
Q:
Chaos State Bank has an old computer system which can go down for weeks at a time, leaving customers unable to access their accounts online. Many customers have left the bank for banks with more reliable computer systems. Which type of risk would this be an example of?
A. Operational risk
B. Legal risk
C. Compliance risk
D. Strategic risk
E. Reputation risk
Q:
Brian Smith, the CEO of Carter National Bank, anticipates that interest rates may fall in the future and as a result buys $100 million in 30 year Treasury Bonds for the bank's security portfolio. Instead, interest rates rise, causing the value of these bonds to fall. This would be an example of which of the following types of risk?
A. Operational risk
B. Legal risk
C. Compliance risk
D. Strategic risk
E. Reputation risk
Q:
Operational risk includes which of the following?
A. Failure of bank's computer system
B. Closure of a bank for three months due to flooding from a major hurricane
C. Embezzlement of funds of a bank by a teller of the bank
D. Closure of a bank for two weeks due to a fire from a lightning strike
E. All of the options are correct.
Q:
In recent years, banks have been __________ profitable than (as) S&Ls and Savings Banks.
A. more
B. less
C. as
D. much more
E. much less
Q:
Which of the following ratios would be a measure of market risk?
A. Nonperforming Loans/Net Loans
B. Net Loans/Total Assets
C. Cash and equivalents/Total assets
D. Equity Capital/Total Assets
E. None of the options is correct
Q:
Which of the following ratios would be a measure of credit risk?
A. Net charge-offs of loans/Total loans and leases
B. Interest on CDs/Total CDs issued
C. Interest Sensitive Assets/Interest Sensitive Liabilities
D. Equity Capital/Total Assets
E. None of the options is correct
Q:
What is the equity multiplier for a bank whose equity is equal to 10 percent of total assets?
A. 90.0
B. 10.0
C. 1.1
D. 110.0
E. 1.0
Q:
The Smith-James Bank has an ROE of 17.5%, an asset utilization ratio of 13%, and a net profit margin of 9%. What is the bank's equity multiplier?
A. 14.96 times
B. 1.58 times
C. 1.17 times
D. 134.62 times
E. None of the options is correct
Q:
The TRC Bank has a net profit margin of 7.5%, an asset utilization ratio of 18%, and an equity multiplier of 20. What is the bank's ROE?
A. 27.00 percent
B. 1.35 percent
C. 7.50 percent
D. 1.50 percent
E. 3.6 percent
Q:
Following is the information listed below for Carter State Bank. What is the bank's asset utilization ratio? A. 8.46 percentB. 16.03 percentC. 15.71 percentD. 1.36 percentE. None of the options is correct
Q:
Following is the information for Carter State Bank. What is the bank's ROE? A. 8.46 percentB. 16.03 percentC. 15.71 percentD. 1.36 percentE. None of the options is correct
Q:
A bank expects to pay a dividend of $3.45 next year and growth rate on dividends to be 7%. If the appropriate discount rate is 15%, what should the bank's stock price be in the market?
A. $23.00
B. $43.13
C. $46.14
D. $49.29
E. $24.61
Q:
Which of the following would be the best example of a ratio used to examine a bank's interest rate risk?
A. Demand deposits/Total assets
B. Interest on time deposits/Total time deposits
C. Interest on real estate loans/Total real estate loans
D. Interest sensitive assets/Interest sensitive liabilities
E. Nonperforming assets/Total capital
Q:
A bank that has a high asset utilization (AU) ratio most likely:
A. is doing a poor job of controlling expenses.
B. has a small amount of financial leverage.
C. has a small amount of liquidity risk.
D. is allocating assets to the most productive investments.
E. None of the options is correct
Q:
A bank that has a low profit margin most likely:
A. is doing a poor job of controlling expenses.
B. has a small amount of financial leverage.
C. has a small amount of liquidity risk.
D. has assets that are not very productive.
E. None of the options is correct.
Q:
Which of the following ratios can be used to measure a bank's credit risk?
A. Net loans' duration/Total assets
B. Interest sensitive assets/Interest sensitive liabilities
C. Total assets/Number of full time employees
D. Nonperforming assets/Total loans and leases
E. Cash and equivalents/Total loans and leases
Q:
ROE for a bank indicates:
A. how capable the management has been in converting assets into net earnings.
B. the growth of bank's interest margin.
C. the growth of bank's earnings spread.
D. the rate of return flowing to the shareholders of the bank.
E. All of the options are correct.
Q:
The risk that a financial institution may be forced to borrow emergency funds excessive cost to cover its immediate cash needs is known as:
A. credit risk
B. liquidity risk
C. market risk
D. interest-rate risk
E. None of the options is correct
Q:
The tax-management efficiency ratio consists of:
A. total tax liabilities over net income.
B. tax-exempt assets over taxable assets.
C. net income over pre-tax net operating income.
D. taxes owed over total liabilities of a bank.
E. None of the options is correct.
Q:
What do loans and security investments represent for a bank?
A. Earning assets
B. Contra-assets
C. Discretionary accounts
D. Market-valued assets
E. None of the options is correct
Q:
The ratio that equals total interest income divided by total earning assets less total interest expense divided by total interest-bearing liabilities is known as the:
A. earnings base.
B. earnings spread.
C. net income margin.
D. net return prior to special transactions.
E. None of the options is correct
Q:
A bank's stock price will tend to rise if the:
A. value of the stream of future stockholder dividends is expected to increase.
B. banking organization's perceived level of risk increases.
C. expected dividends decrease.
D. All of the options are correct.
E. None of the options is correct.
Q:
A larger proportion of small and medium-size bank's loans tend to be:
A. lower-interest-business loans.
B. higher-interest business loans.
C. lower-interest consumer loans.
D. higher-interest consumer loans.
E. None of the options is correct.
Q:
The employee productivity ratio for a bank is equal to:
A. net operating revenue less total interest expenses per employee.
B. total interest and noninterest expense per employee.
C. net operating income per full-time-equivalent employee.
D. total operating earnings less salaries and wages expense per employee.
E. None of the options is correct.
Q:
The earnings spread for a bank is equal to:
A. total interest income divided by total earning assets less total interest expense divided by total interest-bearing bank liabilities.
B. total interest income less total interest expenses divided by earning assets.
C. total operating revenues less total operating expenses divided by total assets.
D. total cash and noncash expenses subtracted from interest and noninterest income divided by total assets.
E. None of the options is correct.
Q:
A bank's ROE equals its ROA times its:
A. net profit margin.
B. total assets divided by total equity capital.
C. total operating revenues divided by total assets.
D. ratio of net after-tax income to total operating revenues.
E. None of the options is correct.
Q:
The difference between such sources of bank income as service charges on deposits and trust-service fees, and such sources of bank expenses as salaries and wages and overhead expenses divided by total assets or total earning assets is called the:
A. net profit margin.
B. net operating margin.
C. net noninterest margin.
D. net return on assets.
E. None of the options is correct.
Q:
ROE for a bank is calculated by:
A. dividing net after-tax income by total equity capital.
B. dividing total operating revenue less operating expenses by total assets.
C. dividing net pre-tax income by total equity capital.
D. noninterest income less noninterest expenses divided by total earning assets.
E. None of the options is correct.
Q:
The ratio of a bank's interest income from its loans and security investments less interest expenses on debt issued, divided by total earning assets measures a bank's:
A. net operating margin.
B. net return before special transactions.
C. net interest margin.
D. return on assets.
E. None of the options is correct
Q:
The main reason behind the failure of Superior Bank of Chicago and eventual FDIC's takeover of this institution in 2001 was attributed to misleading accounting practices of inflating asset values and revenues deflating liabilities and expenses.
Q:
A bank's degree of asset utilization (AU) or the ratio of total operating revenues to total assets is a measure of asset management efficiency, especially in terms of the mix and yield on assets.
Q:
Liquidity risk examines the quality of a bank's assets and, in particular, the quality of the bank's loans.
Q:
During the 1980s, the Comptroller of the Currency, the Federal Reserve and the FDIC created a new tool called the Uniform Bank Performance Report to help them analyze the financial condition of banks.
Q:
The FDIC is a private credit rating company which provides credit ratings on the short term and long term securities issued by banks.
Q:
A bank's asset utilization ratio reflects the effectiveness of the bank's expense management.
Q:
Smaller banks usually have fewer liquid assets than larger banks.
Q:
The ratio of a bank's net operating income to the number of a bank's full-time-equivalent employees is called the employee productivity ratio.
Q:
The interest rate spread between market yields on bank debt issues (such as capital notes and CDs) and the market yields on government securities of the same maturity is considered to be a measure of market risk in banking.
Q:
The ratio of uninsured deposits to total deposits is considered to be a measure of credit risk in banking.
Q:
The ratio of cash and government securities to total assets is considered to be a measure of liquidity risk in banking.
Q:
Loans past due for 90 days or more are classified as nonperforming assets.
Q:
Charge-offs represent the securities a bank decides to sell because they have declined in value.
Q:
The ratio of nonperforming assets to total loans and leases is considered to be a measure of a bank's market risk.
Q:
The noninterest margin is generally positive for most banks.
Q:
ROA measures how capably the management of a financial institution has been converting the institution's assets into net earnings.
Q:
According to the textbook, the most profitable U.S. banks in terms of both ROA and ROE are medium-size institutions in the asset size range of $100 million to $10 billion.
Q:
If a bank adds more full-time employees and posts the same net operating income, its employee productivity ratio, as defined in the text, must fall.
Q:
In recent years, the U.S. banking industry's equity multiplier has generally risen in response to regulatory pressure to raise more capital.
Q:
One of the measures of a bank's efficiency and return is "earnings spread". It is calculated by the ratio of total interest income to total liabilities as reduced by the ratio of total interest expenses to total assets.
Q:
The ratio of non-performing assets to total loans and leases is a measure of credit risk in banking industry.
Q:
According to the textbook, the ratio of a bank's pre-tax net operating income to total operating revenues is a measure of expense-control efficiency.
Q:
According to the text, the ratio of a bank's net after-tax income to pre-tax net operating income is a measure of tax management efficiency.
Q:
A bank's profit margin or ratio of net after-tax income to total operating revenue is a measure of financial leverage for a bank.
Q:
According to the textbook, a bank's asset-utilization ratio reflects the mix and yield on a bank's portfolio of assets.
Q:
A bank's ROA equals its ROE times the ratio of total assets divided by total equity capital.
Q:
If the discount factor associated with the value of a bank's stock rises, the bank's stock price should rise, other factors held constant.
Q:
If the expected stream of future dividends for a bank's shareholder rises, the bank's stock price should also rise, other factors held constant.
Q:
Basic principles of financial management suggest that attempting to maximize a bank's stock value is the key objective for banks which should have priority over all other goals.
Q:
Financial institutions that pursue the "quiet life" as a goal face less risk of losing earnings or market share.
Q:
Net profit margin can be split into two parts, ________________________ and tax management efficiency. The first part is pre-tax net operating income over total operating revenue which looks at how many dollars of revenue survive after operating expenses are removed.
Q:
One part of ROE is ________________________ or net income divided by pre-tax net operating income, which measures a financial firm's use of security gains and losses and other tax management tools to minimize tax exposure.
Q:
One of the traditional measures of earnings efficiency is ________________________ or total interest income over total earnings assets less total interest expenses over total interest bearing bank liabilities. It measures the effectiveness of a firm's intermediation function in the borrowing and lending of money.
Q:
As data processing of financial information becomes more important, managers of financial firms can realize cost savings from _______________________, transferring tasks from inside the firm to other firms specializing in information technology.
Q:
________________________ includes violations of rules and regulations. It can include failure to hold adequate capital which can lead to costly corrective actions.
Q:
________________________ refers to variability in earnings resulting from actions taken by the legal system including unenforceable contracts, lawsuits, and adverse judgements.
Q:
________________________ refers to the uncertainty regarding a financial firm's earnings due to failures in computer systems, errors, misconduct by employees, lightning strikes, and similar events.
Q:
________________________ is one of the most widely respected private institutions that rates the credit quality of financial institutions.
Q:
The ____________________ Act restricts combined auditing and consulting relationships in order to promote auditor independence and objectivity.
Q:
__________________________ is the risk that shifting interest rates in the market will adversely affect a financial institution's net income or the value of its assets or equity.
Q:
The cumulative impact of all the risks (market risk, credit risk, operational risk, and legal and compliance risk) put together that can affect a financial firm's long-run survival is often referred to as _________________________.
Q:
The __________________________ is a standardized report provided by federal regulators which reports the balance sheet, income statement, and other data for all federally supervised banks. It also contains information on peer institutions.
Q:
Securities purchased to provide short-term profits from short-term price movements are reported as:
A. investment securities.
B. trading account assets.
C. reverse repurchase agreements.
D. due from depository institutions.
E. federal funds.
Q:
If writing off a large loan reduces the balance in the allowance for loan losses account too much, the principal regulatory agency:
A. reduces the provision for loan loss expense.
B. transfers funds to the account from retained earnings.
C. reduces the number of loans being sanctioned.
D. increases the provision for loan loss deduction.
E. removes the reserve from the financial statement.
Q:
Which of the following asset items may include deposits placed with correspondent deposits?
A. Savings deposit
B. Trading account assets
C. NOW accounts
D. Allowance for loan losses
E. Cash and due from depository institutions