Q&A Hero

Q: A(n) __________________________ is a short term collateralized loan. The collateral that is used generally consists of T-Bills.

Q: A(n) __________________________ is where the financial institution agrees to guarantee repayment of a customer's loan, which the customer has received from a third party.

Q: __________________________ are the primary long-term liabilities of the bank.

Q: __________________________ is the difference between total interest income and total interest expenses for a financial institution.

Q: __________________________ is a noncash expense on the bank's income statement which allows the bank to account for future bad loans.

Q: The short-term securities of the bank, including T-Bills and commercial paper, are often called __________________________ because they are the second line of defense to meet demands for cash.

Q: Fed funds purchased is an example of _______________________ along with Eurodollar borrowings.

Q: In-store services usually require: A. more capital than other banks. B. more aggressive marketing plans than other banks. C. more employees than other banks. D. more advanced technology than other banks. E. All the options are correct.

Q: Which of the following is a challenge faced by a virtual bank? A. Ability to verify real time account balances B. Ability to confirm that deposits of funds have been received C. Ability to submit applications for loans and credit cards D. Ability to move funds instantly from one account to another E. Ability to prevent identity theft

Q: A common approach adopted by banks to decide on whether or not to install a new ATM is to estimate _____________ that the new machine is expected to generate. A. new savings account B. cash savings C. credit card sales D. time deposits E. commercial transaction accounts

Q: An average new bank branch today reaches the break-even point in: A. 12 months. B. 18 months. C. 24 months. D. 5 years. E. 10 years.

Q: Increases in ______________ ratios tend to reduce new chartering activities in a particular region. A. gross NPA B. net NPA C. liquidity D. concentration E. net interest margin

Q: Following charter approval, a bank's stock can be legally offered to the public through a(n) ___________________ that describes the charter's business plan and terms of sale. A. offering memorandum B. offering article C. underwriter's commitment report D. merchant banker's report E. None of the options are correct

Q: A minimum of ___________ persons are required as organizers to apply for a federal bank charter. A. two B. three C. five D. seven E. ten

Q: Under the feasibility standard adopted by the Comptroller of the Currency, applicants for a national bank charter are required to submit _____________, which contains a description of the proposed bank and its marketing, management, and financial plans. A. memorandum of association B. articles of association C. a business plan D. a merger plan E. a contingency plan

Q: Which of the following is not an advantage of ATMs? A. Personalized service B. Cost per transaction C. Number of transactions processed D. Staffing needs E. Geographic accessibility

Q: The Fred National Bank is planning to add a branch office on the west side of town. The bank has done a survey and has discovered that the mean household income in the area is $76,000 per year. Which factor would this address when considering whether to add a new branch? A. Number of retail shops B. Average income level of households C. Ratio of population to branches D. Number of service facilities operated by financial service competitors E. Population density

Q: The Jones State Bank is planning to add a branch office on the west side of Edmond, Oklahoma. The bank has done a survey of local residents near the area where it wants to build the branch office and has discovered that most residents are in their 50's and 60's. Which factor would this address when considering whether to add a new branch? A. Traffic count B. Number of retail shops C. Average age of the local population D. Population Density E. Population Growth

Q: Which of the following is a category of authentication factors used by federal banking agencies? A. Something a customer knows B. Something a customer has C. Something a customer is D. Something a customer knows, has, or is E. None of the options are correct

Q: Which of the following would not be a telephone service that customers can get from a bank call center? A. The current balance in their account B. A fax copy of a loan application to the bank C. List of what transactions have passed through the account D. Access to their safety deposit box E. All the options are telephone services customers can get from a bank call center

Q: The Cassil National Bank charges its customers $0.50 per transaction for using the ATM machine, if their deposit balance is below $500. It charges $0.25 per transaction for using the ATM if their deposit balance is between $500 and $1,000. If its customers' deposit balance is over $1,000, there is no charge for using the ATM machine. This is an example of: A. an interchange fee. B. an independent pricing schedule. C. a conditional pricing schedule. D. a surcharge fee. E. None of the options are correct

Q: A group of six investors wants to open a new bank in the community of Edmond, Oklahoma. It has submitted the application to the Comptroller of the Currency. Which of the following would best describe the nature of the bank? A. A state, member bank B. A state, insured bank C. A national bank D. A national bank without FDIC insurance E. None of the options are correct

Q: The Boyer Bank wants to add a new ATM machine in a busy mall. It knows the new machine will cost $60,000 and another $30,000 is required to install it in the mall. It expects to save $0.27 per transaction and generate 100,000 transactions per year. Also, it expects the new machine to last 8 years. What is the expected rate of return or internal rate or return of this project? A. 25% B. 3.3% C. 30% D. 12% E. 2.4%

Q: The Chahad Bank wants to open a new branch in a distant city with very different economic conditions. Currently, the bank has an expected return of 15% with a standard deviation of 7%. The new branch is expected to have a return of 20% with a standard deviation of 10%. The correlation between the bank's returns and the returns from the new branch is -0.3. The new branch is expected to contribute 10% of the bank's revenues. What is the standard deviation of returns for the bank if they add the new branch? (Round your answer to the nearest 0.1%) A. 36.9% B. 6.1% C. 50.3% D. 7.1% E. 6.7%

Q: Chester National Bank is considering adding a new branch bank. It knows that it will cost $2.5 million to build the branch and it believes that it will generate $214,526 per year for the next 25 years. Chester National Bank requires a return of 10% on all new projects it undertakes. What is this project's expected rate of return or internal rate of return? (Round to the nearest whole percent) A. 0% B. 7% C. 12% D. 2% E. 25%

Q: In the short-term, newly-chartered banks fail at: A. a lower rate than established banks. B. the same rate as established banks. C. a higher rate than established banks. D. a higher rate than non-chartered banks. E. a lower rate than non-chartered banks.

Q: The FDIC requires the insured banks to maintain Tier 1 capital of at least __________ for at least the first three years of their operations. A. 10 percent B. 8 percent C. $12 million D. 15 percent E. $10 million

Q: Murphy National Bank is thinking about adding a new branch in a very different market area. It estimates that the new office will have an expected return of 16% with a standard deviation of 8%. Currently, it has an expected return of 12% with a standard deviation of 4%. The correlation between the returns on the new branch and the bank's current returns is estimated to be 0.20. The bank estimates that the new branch will represent 15 percent of the revenues of the bank. What is the bank's expected risk (measured by the standard deviation) with the new branch? Round to the nearest 0.1 percent. A. 14.6 percent B. 3.8 percent C. 4.6 percent D. 7.4 percent E. 5.8 percent

Q: Which of the following is true concerning branch offices? A. The number of full-service branch offices in the U.S. has shrunk in recent years. B. An ideal location for a new branch bank is one with below average population density. C. Branch offices are generally cheaper to establish than chartering a whole new banking corporation. D. The decision about whether to establish a new branch is the sole prerogative of the CFO. E. All of the options are correct

Q: Third State Bank wants to add a new branch office. It has determined that the cost of construction of the new facility will be $1.5 million with another $500,000 in organizational costs. The bank has estimated that it will generate $319,522 per year in net revenues for 20 years. If Third State requires a 17% return on its money, what is this project's net present value? A. $201,805 B. -$201,805 C. $1,798,195 D. -$1,798,195 E. $298,195

Q: Second National Bank is considering adding 5 new ATM machines. Each machine costs $25,000 and installation costs are $15,000 per machine. Second National Bank expects the new machines to save $0.33 per transaction on 250,000 transactions per year on the new machines. It also expects the new machines to last for 15 years. If the bank needs to earn 14 percent return on this investment, what is the net present value of this investment? A. $506,729 B. $306,729 C. $272,269 D. $381,729 E. $424,228

Q: Ratio of population per branch is calculated as: A. total population in the area to be served divided by number of branch offices present in the area. B. total population in the state divided by number of branch offices present in the area. C. total population in the state divided by number of branch expected to be opened in next one year. D. total population in the area to be served divided by number of employees hired for the new branch office. E. None of the options are correct

Q: The Clearwater National Bank is planning to set up a new branch. This new branch is anticipated to generate 5 percent of the total business of the bank after it is opened. The bank also expects the return for this branch to be 15 percent with a standard deviation of 5 percent. Currently the bank has a 10 percent rate of return with a standard deviation of 5 percent. The correlation between the bank's current return and returns on the new branch is expected to be -0.3. In this problem, the proposed new branch _______ overall risk exposure due to ______ effect. A. increases; economies of scale B. increases; economies of scope C. reduces; convergence D. reduces; geographical diversification E. none of the options are correct

Q: A bank is planning to set up a new branch. It expects the new branch to generate 20 percent of the total business of the bank after it is opened. The bank expects the returns on this branch to be 15 percent with a standard deviation of 5 percent. Currently the bank has a 12 percent rate of return with a standard deviation of 4 percent. The correlation between the returns on the new branch and the bank's current returns is expected to be 0.25. What is the bank's expected standard deviation after adding this branch? A. 12.84 percent B. 3.35 percent C. 4.36 percent D. 3.58 percent E. 6.8 percent

Q: Which of the following is one of the common services provided by banks on the internet today? A. Applying for a loan B. Applying for a new savings account C. Making payments (especially recurring utility bills) D. All the options are correct E. None of the options are correct

Q: Computer terminals which allow customers to make cash withdrawals, check deposit balances, and make deposits without dealing with a teller are known as: A. ATMs. B. POS terminals. C. ACHs. D. in-store branches. E. ALMs.

Q: A personal identification number (PIN) gives a bank customer access to his or her account through a(n): A. ACH. B. bank-by-mail service. C. ATM. D. electronic calculator. E. None of the options are correct.

Q: Computer facilities in retail shops and stores that permit a customer to instantly pay for goods and services electronically by deducting the cost of each purchase directly from his or her deposit account are known as: A. ATMs. B. POS terminals. C. ACHs. D. In-store branches. E. ALMs.

Q: ____________ are much less costly to build and maintain, typically costing as little as one-fourth the expense incurred in constructing and operating a stand-alone bank branch, and experiencing more traffic flow than conventional branches. A. ATMs B. POS terminals C. ACHs D. In-store branches E. ALMs

Q: The most desirable sites for full-service branch bank offices usually have which of the following characteristics? A. Heavy traffic volume B. Large numbers of retail shops and stores C. Above-average age populations D. All of the options are correct E. None of the options are correct

Q: The FDIC Improvement Act of 1991 requires a bank closing one of its branches to give its customers a minimum notice of: A. 90 days. B. 60 days. C. 30 days. D. 10 days. E. None of the options are correct.

Q: Which of the following is a key factor that organizers of a proposed new bank use in evaluating their investment opportunity? A. The level and growth of economic activity B. The need for a new financial firm C. Management quality D. Pledging of capital required to cover all costs of getting started E. All of the options are correct.

Q: According to the textbook, the disadvantages of a federal charter include: A. closer supervision of banking activities. B. stricter standards for capital. C. more stringent limits on the offering of new services. D. All of the options are correct E. stricter capital standards and more stringent limit on new offerings.

Q: One of the benefits of applying for a federal (national) bank charter over a state charter is that: A. it brings added prestige. B. it results in the automatic receipt of federal deposit insurance. C. there is better technical support in times of trouble. D. it brings added prestige and better technical support in times of trouble. E. All of the options are correct

Q: Which of the following factor(s) does OCC assess during the application process for a national bank charter? A. Market demand B. Probable customer base C. Competition and economic conditions D. Inherent risks in the services to be offered to the public E. All of the options are correct

Q: A charter of incorporation to start a new U.S. bank can be issued by: A. the Office of the Comptroller of the Currency. B. the state banking commissions of each state. C. the Federal Deposit Insurance Corporation (FDIC). D. All of the options are correct E. both the Office of the Comptroller of the Currency and the state banking commissions.

Q: Most new U.S. banks are chartered in: A. small communities where there is very little existing competition. B. relatively large urban areas where organizers can earn higher expected rates of return on their investment. C. rural areas where they will be more convenient for customers. D. All of the options are correct E. small communities where there is very little existing competition and provides more convenience for the customers.

Q: Most new banks: A. become profitable in the first 3 years of their operation. B. have pro-competitive effects on the markets they enter. C. are more closely supervised by regulators than established institutions. D. All of the options are correct E. None of the options are correct.

Q: The existence of branch banking in a given state: A. encourages new banks to be chartered. B. discourages new banks from being chartered. C. results in more bank failures than normal. D. results in lower operating cost per unit of service. E. None of the options are correct

Q: The number of bank charters issued annually in the United States averages about: A. 1,000 B. 2,000 C. 10 D. 100 E. None of the options are correct

Q: One of the benefits for a bank securing a federal (national) charter instead of a state charter is that: A. federal rules can pre-empt state laws. B. a federal charter is generally easier and less costly to secure. C. a federal charter often allows to lend a higher percentage of capital to a single borrower. D. a federal charter usually entails lower supervisory fees. E. None of the options are correct.

Q: One of the benefits of securing a state charter instead of a federal charter for a bank is that: A. it brings added prestige. B. it results in the automatic receipt of federal deposit insurance. C. it is often able to lend a higher percentage of its capital to a single borrower. D. state laws can pre-empt federal laws. E. None of the options are correct.

Q: U.S. banking laws require the organizers of a proposed new bank to demonstrate: A. adequate future earnings prospects. B. adequate owners' capital availability. C. evidence of a public need for a new bank. D. existing banks will not be endangered. E. All of the options are correct.

Q: Negative correlation of returns of a proposed new branch with returns of the existing branch offices and other assets can serve to lower the overall bank's riskiness and is an important justification for branch establishment. This is referred to as geographic diversification effect.

Q: When considering possible location for new branches, expected rate of return is the only criteria that a management should consider.

Q: Payments made by electronic direct deposit now comprise over 50 percent of all transactions in the U.S.

Q: The Office of the Comptroller of the Currency does not charter internet-only banks.

Q: A majority of new banks do not become profitable for at least a decade.

Q: Research suggests that in the short-term, newly chartered banks fail at a higher rate than established banks.

Q: Recently, the issue of public need has become an increasingly important factor in the granting of bank charters.

Q: Research indicates that states with more liberal chartering standards experience a higher rate of bank failures.

Q: ATMs are profitable for all banks since they can eliminate tellers at branches that have ATMs.

Q: The first ATM machine could only handle cash withdrawals.

Q: Half of all transactions made through an ATM machine are deposits.

Q: A customer can use a POS terminal at a store to pay for his purchases through a debit or a credit card.

Q: One of the keys to branch office profitability is to apply the latest information technology and thereby lower personnel costs.

Q: Bank branch offices are often specially configured today to maximize sales opportunities.

Q: To close a bank branch office in the United States, a bank must give its customers 30 days advance notice.

Q: The optimal choice for a new branch site must be one that offers the bank the highest expected rate of return on the capital invested in the project.

Q: Higher levels of savings deposits are usually found in those bank branch office locations where there is a higher proportion of residents with above-average age and residents who own their own homes.

Q: More desirable office sites for new bank branches normally have residents who are above-average in age.

Q: Newly designed bank branch offices in recent years have emphasized more heavily on effective communication of service options to the customers in an effort to promote service sales.

Q: The total number of full-service branch offices has declined in the United States in recent years.

Q: Most U.S. banks are chartered in urban areas.

Q: Society pays a price if it restricts the number of bank charters below the number that the private sector normally would generate due to lessened competition.

Q: "Public need" is usually established with federal or state chartering authorities by showing that existing banks in the area are adequately profitable and have satisfactory amounts of capital.

Q: Most new banks are situated along major routes of travel for commuters going to work, shopping areas, and schools.

Q: Applying for a bank charter from the Comptroller of the Currency is simultaneously followed by an application for FDIC insurance, to expedite the formation process and save duplication of efforts.

Q: One of the benefits of applying for a federal banking charter is that banks need not join the Federal Reserve System.

Q: State banking commissions, on average, impose tougher standards for chartering new banks than the federal chartering agency, the Comptroller of the Currency.