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Banking
Q:
Which of the following is a discretionary factor that will decrease a bank's daily reserves held at the Federal Reserve?
a. Remittances charged
b. Federal funds purchased
c. The previous day's immediate cash letter
d. Currency received from the Federal Reserve
e. Deficits at the local clearinghouse
Q:
Direct finance involves the sale to ________ of marketable securities such as stocks and bonds.
A. households
B. insurance companies
C. pension funds
D. financial intermediaries
Q:
By bundling share purchases of many investors together mutual funds can take advantage of economies of scale and thereby lower
A. adverse selection.
B. moral hazard.
C. transactions costs.
D. diversification.
Q:
As more lenders securitize loans, the supply of credit falls.
Q:
Which of the following is a discretionary factor that will increase a bank's daily reserves held at the Federal Reserve?
a. The prior day's immediate cash letter
b. Federal funds purchased
c. Deposits from the U.S. Treasury
d. Currency received from the Federal Reserve
e. Deficits at the local clearinghouse
Q:
As a source of funds for nonfinancial businesses, stocks are relatively more important in
A. the United States.
B. Germany.
C. Japan.
D. Canada.
Q:
The reduction in transactions costs per dollar of investment as the size of transactions increases is
A. discounting.
B. economies of scale.
C. economies of trade.
D. diversification.
Q:
Real estate lending is popular with bank, in part, due to the growth of the secondary mortgage market.
Q:
The check-clearing services of correspondent banks are often used because:
a. the respondent bank is required to purchase a minimum amount of services.
b. it reduces required reserves.
c. the correspondent bank may be marketing their own services in a local community.
d. it often reduces float.
e. it decreases interest income.
Q:
Nonfinancial businesses in Germany, Japan, and Canada raise most of their funds
A. by issuing stock.
B. by issuing bonds.
C. from nonbank loans.
D. from bank loans.
Q:
A bank is currently exactly meeting its reserve requirements of 10%. If the bank has a deposit inflow of $10,000,000, what is the impact on its required reserve position?
a. It now has excess reserves in the amount of $9,000,000.
b. It now has excess reserves in the amount of $10,000,000.
c. It is now deficient $1,000,000 in required reserves.
d. It is now deficient $9,000,000 in required reserves.
e. There would be no impact on the bank's required reserves.
Q:
With regard to external sources of financing for nonfinancial businesses in the United States, which of the following are accurate statements?
A. Marketable securities account for a larger share of external business financing in the United States than in Germany and Japan.
B. Since 1970, most of the newly issued corporate bonds and commercial paper have been sold directly to American households.
C. Direct finance accounts for more than 50 percent of the external financing of American businesses.
D. Smaller businesses almost always raise funds by issuing marketable securities.
Q:
The two-week period during which a bank must hold sufficient legal reserves is called the:
a. deposit computation period.
b. deposit maintenance period.
c. vault cash computation period.
d. base computation period.
e. maintenance period.
Q:
Which of the following statements concerning external sources of financing for nonfinancial businesses in the United States are TRUE?
A. Issuing marketable securities is the primary way that they finance their activities.
B. Bonds are the least important source of external funds to finance their activities.
C. Stocks are a relatively unimportant source of finance for their activities.
D. Selling bonds directly to the American household is a major source of funding for American businesses.
Q:
In determining reserves, the banks and the Federal Reserve currently use:
a. a leading reserve accounting system.
b. a contemporaneous reserve accounting system.
c. a lagging reserve accounting system.
d. an actual reserve accounting system.
e. a holding reserve accounting system.
Q:
Which of the following statements concerning external sources of financing for nonfinancial businesses in the United States are TRUE?
A. Stocks are a far more important source of finance than are bonds.
B. Stocks and bonds, combined, supply less than one-half of the external funds.
C. Financial intermediaries are the least important source of external funds for businesses.
D. Since 1970, more than half of the new issues of stock have been sold to American households.
Q:
Which of the following does not directly influence the amount of required reserves a bank must hold?
a. The required reserve ratio.
b. The dollar amount of cash items in process of collection.
c. The dollar amount of demand deposits outstanding.
d. The dollar amount of money market deposit accounts outstanding.
e. The dollar amount of NOW accounts outstanding.
Q:
Of the sources of external funds for nonfinancial businesses in the United States, corporate bonds and commercial paper account for approximately ________ of the total.
A. 5%
B. 10%
C. 32%
D. 50%
Q:
If a hedger is owns the underling security, he will be long the futures position.
Q:
Of the four sources of external funding for nonfinancial businesses, the least often used in the U.S. is
A. bank loans.
B. nonbank loans.
C. bonds.
D. stock.
Q:
The Federal Reserve has reduced the use of reserve requirements as a monetary policy tool because:
a. the Fed has focused on controlling short-term interest rates.
b. of the increased use of sweep accounts.
c. reserve requirements are a "tax" on banks .
d. All of the above.
e. a. and c. only.
Q:
Of the sources of external funds for nonfinancial businesses in the United States, loans from banks and other financial intermediaries account for approximately ________ of the total.
A) 6%
B) 40%
C) 56%
D) 60%
Q:
A long hedge would be appropriate for a bank that wants to reduce its cash market risk associated with .a decline in interest rates.
Q:
Of the sources of external funds for nonfinancial businesses in the United States, stocks account for approximately ________ of the total.
A. 2%
B. 11%
C. 20%
D. 40%
Q:
Which of the following is not considered a monetary policy tool of the Federal Reserve?
a. Changing float requirements
b. Open market operations
c. Changing the discount rate
d. Changing reserve requirements
e. All of the above are considered to be monetary policy tools
Q:
American businesses get their external funds primarily from
A. bank loans.
B. bonds and commercial paper issues.
C. stock issues.
D. loans from nonbank financial intermediaries.
Q:
Of the following sources of external finance for American nonfinancial businesses, the least important is
A. loans from banks.
B. stocks.
C. bonds and commercial paper.
D. loans from other financial intermediaries.
Q:
Forward contracts rarely require a performance guarantee or collateral.
Q:
Which of the following is not an advantage of larger cash balances for a bank?
a. Larger cash balances reduce the need to borrow at the discount window.
b. Larger cash balances reduce the risk of bank runs.
c. Larger cash balances reduce the risk of paying penalties to the Federal Reserve.
d. Larger cash balances increase reserve balances.
e. Larger cash balances reduce a bank's interest expense.
Q:
You read a story in the newspaper announcing the proposed merger of Dell Computer and Gateway. The merger is expected to greatly increase Gateway's profitability. If you decide to invest in Gateway stock, you can expect to earn
A. above average returns since you will share in the higher profits.
B. above average returns since your stock price will definitely appreciate as higher profits are earned.
C. below average returns since computer makers have low profit rates.
D. a normal return since stock prices adjust to reflect expected changes in profitability almost immediately.
Q:
Derivatives can be a cost-effective way to manage interest rate risk.
Q:
Sometimes one observes that the price of a company's stock falls after the announcement of favorable earnings. This phenomenon is
A. clearly inconsistent with the efficient markets hypothesis.
B. consistent with the efficient markets hypothesis if the earnings were not as high as anticipated.
C. consistent with the efficient markets hypothesis if the earnings were not as low as anticipated.
D. consistent with the efficient markets hypothesis if the favorable earnings were expected.
Q:
Speculators take a position to reduce their risk profile.
Q:
Which of the following types of information most likely allows the exploitation of a profit opportunity?
A. financial analysts' published recommendations
B. technical analysis
C. hot tips from a stockbroker
D. insider information
Q:
Banks can often replicate on-balance sheet transactions with off-balance sheet contracts.
Q:
You have observed that the forecasts of an investment advisor consistently outperform the other reported forecasts. The efficient markets hypothesis says that future forecasts by this advisor
A. may or may not be better than the other forecasts. Past performance is no guarantee of the future.
B. will always be the best of the group.
C. will definitely be worse in the future. What goes up must come down.
D. will be worse in the near future, but improve over time.
Q:
Every futures contract has a formal expiration date.
Q:
According to the efficient markets hypothesis, purchasing the reports of financial analysts
A. is likely to increase one's returns by an average of 10%.
B. is likely to increase one's returns by about 3 to 5%.
C. is not likely to be an effective strategy for increasing financial returns.
D. is likely to increase one's returns by an average of about 2 to 3%.
Q:
Tests used to rate the performance of rules developed in technical analysis conclude that technical analysis
A. outperforms the overall market.
B. far outperforms the overall market, suggesting that stockbrokers provide valuable services.
C. does not outperform the overall market.
D. does not outperform the overall market, suggesting that stockbrokers do not provide services of any value.
Q:
"Locals" trade futures for their own account.
Q:
What is 1st State's burden?a. 2.7%b. 17.5%c. 25.0%d. 75.5%e. 82.5%
Q:
The efficient markets hypothesis implies that future changes in exchange rates should for all practical purposes be
A. unpredictable.
B. set by each country.
C. increasing.
D. pegged to a standard such as the U.S. dollar or the Euro.
Q:
Rules used to predict movements in stock prices based on past patterns are, according to the efficient markets hypothesis
A. a waste of time.
B. profitably employed by all financial analysts.
C. the most efficient rules to employ.
D. consistent with the random walk hypothesis.
Q:
When futures prices falls, buyers gain at the expense of sellers.
Q:
What is the earnings base at 1st State?a. 12.5%b. 17.0%c. 58.5%d. 75.5%e. 82.0%
Q:
When we describe stock prices as following a random walk, we mean that future changes in stock prices are
A. unpredictable.
B. increasing.
C. decreasing.
D. constant.
Q:
The efficient markets hypothesis predicts that stock prices follow a "random walk." The implication of this hypothesis for investing in stocks is
A. a "churning strategy" of buying and selling often to catch market swings.
B. turning over your stock portfolio each month, selecting stocks by throwing darts at the stock page.
C. a "buy and hold strategy" of holding stocks to avoid brokerage commissions.
D. following the advice of technical analysts.
Q:
A zero cost collar:
a. is risk-free.
b. is designed to offset margin requirements.
c. has a larger premium than a reverse collar.
d. designed so the buyer has no net premium payment.
e. None of the above.
Q:
What is 1st State's net interest margin?a. 0.6%b. 3.8%c. 4.9%d. 8.2%e. 9.8%
Q:
If future changes in stock prices are unpredictable, then we say that the stock prices follow a
A. random walk.
B. straight and narrow path.
C. meandering path.
D. generalized walk.
Q:
To say that stock prices follow a "random walk" is to argue that stock prices
A. rise, then fall, then rise again.
B. rise, then fall in a predictable fashion.
C. tend to follow trends.
D. cannot be predicted based on past trends.
Q:
A bank can establish a floor on interest rate costs by:
a. buying a call option on Eurodollar futures.
b. selling Eurodollar futures contracts.
c. selling a call option on Eurodollar futures.
d. a. and b.
e. b. and c.
Q:
What is 1st State's return on equity?a. 0.6%b. 3.8%c. 5.0%d. 8.2%e. 13.0%
Q:
When Happy Feet Corporation announces that their fourth quarter earnings are up 10%, their stock price falls. This is consistent with the efficient markets hypothesis
A. if earnings were not as high as expected.
B. if earnings were not as low as expected.
C. if a merger is anticipated.
D. the company just invented a new bunion product.
Q:
What is 1st State's efficiency ratio?a. 2.53%b. 17.51%c. 0.83%d. 0.45%e. 83.3%
Q:
The number and availability of discount brokers has grown rapidly since the mid-1970s. The efficient markets hypothesis predicts that people who use discount brokers
A. will likely earn lower returns than those who use full-service brokers.
B. will likely earn about the same as those who use full-service brokers, but will net more after brokerage commissions.
C. are going against evidence suggesting that full-service brokers can help outperform the market.
D. are likely to outperform the market by a wide margin.
Q:
What is 1st State's burden?a. 2.5%b. 17.5%c. 25.0%d. 75.5%e. 82.5%
Q:
Studies of mutual fund performance indicate that mutual funds that outperformed the market in one time period usually
A. beat the market in the next time period.
B. beat the market in the next two subsequent time periods.
C. beat the market in the next three subsequent time periods.
D. do not beat the market in the next time period.
Q:
What is the earnings base at 1st State?a. 12.5%b. 17.5%c. 58.5%d. 75.5%e. 82.5%
Q:
If a mutual fund outperforms the market in one period, evidence suggests that this fund is
A. highly likely to consistently outperform the market in subsequent periods due to its superior investment strategy.
B. likely to under-perform the market in subsequent periods to average its overall returns.
C. not likely to consistently outperform the market in subsequent periods.
D. not likely to outperform the market in any subsequent period.
Q:
________ means people are more unhappy when they suffer losses than they are happy when they achieve gains.
A. Loss fundamentals
B. Loss aversion
C. Loss leader
D. Loss cycle
Q:
What is 1st State's net interest margin?a. 0.6%b. 3.8%c. 5.0%d. 8.2%e. 9.8%
Q:
Net income is calculated as:
a. total revenue — total operating expenses.
b. total revenue — total operating expenses — taxes.
c. asset utilization — expense ratio.
d. asset utilization — expense ratio — tax ratio.
e. interest expense ratio — non-interest expense ratio — provision for loan loss ratio.
Q:
________ and ________ may provide an explanation for stock market bubbles.
A. Overconfidence; social contagion
B. Underconfidence; social contagion
C. Overconfidence; social isolationism
D. Underconfidence; social isolationism
Q:
If a market participant believes that a stock price is irrationally high, they may try to borrow stock from brokers to sell in the market and then make a profit by buying the stock back again after the stock falls in price. This practice is called
A. short selling.
B. double dealing.
C. undermining.
D. long marketing.
Q:
What is 1st State's return on equity?a. 0.6%b. 3.8%c. 5.0%d. 8.2%e. 9.8%
Q:
What is the equity multiplier for a bank where equity is equal to 12% of total assets?
a. 83.33
b. 1.12
c. 0.88
d. 12.00
e. 8.33
Q:
Psychologists have found that people tend to be ________ in their own judgments.
A. underconfident
B. overconfident
C. indecisive
D. insecure
Q:
________ is the field of study that applies concepts from social sciences such as psychology and sociology to help understand the behavior of securities prices.
A. Behavioral finance
B. Strategical finance
C. Methodical finance
D. Procedural finance
Q:
Interest expense varies between banks because of:a. rate effects.b. composition effects.c. volume effects.d. all of the above.e. a. and c.
Q:
What is the equity multiplier for a bank where equity is equal to 10% of total assets?a. 90.00b. 10.00c. 1.10d. 110.00e. 1.00
Q:
Loss aversion can explain why very little ________ actually takes place in the securities market.
A. short selling
B. bargaining
C. bartering
D. negotiating
Q:
Stock market crashes lead us to believe that
A. factors other than market fundamentals have an effect on asset prices.
B. unexploited profit opportunities never exist.
C. crashes are always predictable when market participants behave rationally.
D. bubbles are a natural outcome of an efficient market.
Q:
The expense ratio is calculated as:
a. total revenue — total operating expenses.
b. total revenue — total operating expenses — taxes.
c. interest expense ratio — non-interest expense ratio — provision for loan loss ratio.
d. asset utilization — expense ratio — tax ratio.
e. interest expense ratio + non-interest expense ratio + provision for loan loss ratio.
Q:
What is the equity multiplier for a bank where equity is equal to 8% of total assets?
a. 1.08
b. 8.00
c. 0.92
d. 12.5
e. 1.25
Q:
The efficient markets hypothesis implies that prices in the stock market
A. follow a definite pattern.
B. are more likely to go up than down.
C. always undervalue the true assets of a corporation.
D. are unpredictable.
Q:
Everything else the same, financial leverage works to a bank's advantage when:
a. the return on assets is positive.
b. the return on assets is negative.
c. fixed assets are high.
d. fixed assets are low.
e. a. and d.
Q:
If in an efficient market all prices are correct and reflect market fundamentals, which of the following is a FALSE statement?
A. A stock that has done poorly in the past is more likely to do well in the future.
B. One investment is as good as any other because the securities' prices are correct.
C. A security's price reflects all available information about the intrinsic value of the security.
D. Security prices can be used by managers to assess their cost of capital accurately.
Q:
What is the return on equity for a bank that has an equity multiplier of 12, an interest expense ratio of 5%, and a return on assets of 1.1%?
a. 5.0%
b. 13.2%
c. 8.2%
d. 26.4%
e. 0.66%
Q:
Your best friend calls and gives you the latest stock market "hot tip" that he heard at the health club. Should you act on this information? Why or why not?