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Banking
Q:
What is the return on equity for a bank that has an equity multiplier of 9, an interest expense ratio of 6%, and a return on assets of 1.2%?
a. 10.8%
b. 6.0%
c. 8.0%
d. 4.8%
e. 0.65%
Q:
If a corporation announces that it expects quarterly earnings to increase by 25% and it actually sees an increase of 22%, what should happen to the price of the corporation's stock if the efficient markets hypothesis holds, everything else held constant?
Q:
If the yield curve is flat for short maturities and then slopes downward for longer maturities, the liquidity premium theory (assuming a mild preference for shorter-term bonds) indicates that the market is predicting
A. a rise in short-term interest rates in the near future and a decline further out in the future.
B. constant short-term interest rates in the near future and a decline further out in the future.
C. a decline in short-term interest rates in the near future and a rise further out in the future.
D. a decline in short-term interest rates in the near future and an even steeper decline further out in the future.
Q:
What is the return on equity for a bank that has an equity multiplier of 14, an interest expense ratio of 4%, and a return on assets of .9%?
a. 1.3%
b. 4.0%
c. 9.0%
d. 12.6%
e. 8.6%
Q:
A bank's core deposits are:
a. vault cash.
b. stable deposits that are not typically withdrawn over short periods of time.
c. the bank's deposits at the Federal Reserve.
d. the most interest rate sensitive liabilities of a bank.
e. deposits held in foreign offices.
Q:
For small investors, the best way to pursue a "buy and hold" strategy is to
A. buy and sell individual stocks frequently.
B. buy no-load mutual funds with high management fees.
C. buy no-load mutual funds with low management fees.
D. buy load mutual funds.
Q:
According to the liquidity premium theory, a yield curve that is flat means that
A. bond purchasers expect interest rates to rise in the future.
B. bond purchasers expect interest rates to stay the same.
C. bond purchasers expect interest rates to fall in the future.
D. the yield curve has nothing to do with expectations of bond purchasers.
Q:
Return on assets can be calculated as:
a. return on equity plus the equity multiplier.
b. net interest income divided by earning assets.
c. asset utilization minus the expense ratio and the tax ratio.
d. interest income minus interest expense.
e. earning assets divided by average total assets.
Q:
Unsecured liabilities created from the exchange of immediately available funds are known as:
a. federal funds purchased.
b. repurchase agreements.
c. federal funds sold.
d. pledged securities.
e. brokered deposits.
Q:
The advantage of a "buy-and-hold strategy" is that
A. net profits will tend to be higher because there will be fewer brokerage commissions.
B. losses will eventually be eliminated.
C. the longer a stock is held, the higher will be its price.
D. profits are guaranteed.
Q:
According to the liquidity premium theory of the term structure, a downward sloping yield curve indicates that short-term interest rates are expected to
A. rise in the future.
B. remain unchanged in the future.
C. decline moderately in the future.
D. decline sharply in the future.
Q:
Return on equity can be decomposed into:
a. the sum of return on assets and the equity multiplier.
b. the product of return on assets and the equity multiplier.
c. the product of the profit margin and the equity multiplier.
d. the sum of the profit margin and the equity multiplier.
e. the sum of the profit margin, equity multiplier, and the interest ratio.
Q:
Jumbo certificates of deposit (CDs) typically:
a. have maturities greater than 10 years..
b. are negotiable.
c. are $1 million in size.
d. All of the above
e. b. and c.
Q:
The efficient markets hypothesis suggests that investors
A. should purchase no-load mutual funds which have low management fees.
B. can use the advice of technical analysts to outperform the market.
C. let too many unexploited profit opportunities go by if they adopt a "buy and hold" strategy.
D. act on all "hot tips" they hear.
Q:
According to the liquidity premium theory of the term structure, a flat yield curve indicates that short-term interest rates are expected to
A. rise in the future.
B. remain unchanged in the future.
C. decline moderately in the future.
D. decline sharply in the future.
Q:
A bank's equity multiplier measures the bank's:
a. financial leverage.
b. operating leverage.
c. credit leverage.
d. interest rate exposure.
e. duration gap.
Q:
Jumbo CDs that a bank obtains from a third-party broker are called:
a. money market demand accounts.
b. time deposit accounts.
c. mortgage loans.
d. brokered deposits.
e. core deposits.
Q:
According to the liquidity premium theory of the term structure, a slightly upward sloping yield curve indicates that short-term interest rates are expected to
A. rise in the future.
B. remain unchanged in the future.
C. decline moderately in the future.
D. decline sharply in the future.
Q:
Checking accounts with unlimited check-writing and pay interest are known as:
a. demand deposit accounts.
b. money market deposit accounts.
c. NOW accounts.
d. certificates of deposit.
e. time deposits.
Q:
According to the liquidity premium theory of the term structure, a steeply upward sloping yield curve indicates that short-term interest rates are expected to
A. rise in the future.
B. remain unchanged in the future.
C. decline moderately in the future.
D. decline sharply in the future.
Q:
Which of the following is are only available to non-commercial customers?
a. Money Market Demand Accounts
b. Demand deposit accounts
c. Mortgage loans
d. Negotiable Orders of Withdrawal (NOW) accounts
e. Auto leases
Q:
If 1-year interest rates for the next five years are expected to be 4, 2, 5, 4, and 5 percent, and the 5-year term premium is 1 percent, than the 5-year bond rate will be
A. 2 percent.
B. 3 percent.
C. 4 percent.
D. 5 percent.
Q:
_________ own(s) the bulk of demand deposit accounts.
a. Consumers
b. Businesses
c. State governments
d. The federal government
e. Non-profits
Q:
If 1-year interest rates for the next three years are expected to be 1, 1, and 1 percent, and the 3-year term premium is 1 percent, than the 3-year bond rate will be
A. 1 percent.
B. 2 percent.
C. 3 percent.
D. 4 percent.
Q:
If bonds with different maturities are perfect substitutes, then the ________ on these bonds must be equal.
A. expected return
B. surprise return
C. surplus return
D. excess return
Q:
The volume of net deferred credit is commonly referred to as:
a. the burden.
b. NOW balances.
c. reserve requirements.
d. equity.
e. float.
Q:
Securities that require unrealized gains or losses to be recorded as a change in stockholder's equity are called:
a. held-to-maturity securities.
b. trading account securities.
c. available-for-sale securities.
d. revenue securities.
e. repurchase agreements
Q:
The additional incentive that the purchaser of a Treasury security requires to buy a long-term security rather than a short-term security is called the
A. risk premium.
B. term premium.
C. tax premium.
D. market premium.
Q:
According to the expectations theory of the term structure, the interest rate on a long-term bond will equal the ________ of the short-term interest rates that people expect to occur over the life of the long-term bond.
A. average
B. sum
C. difference
D. multiple
Q:
The largest component of "non- interest cash and due from banks" is:
a. cash items in process of collection.
b. deposits held at other financial institutions.
c. federal funds sold.
d. vault cash.
e. loans from the Federal Reserve.
Q:
Securities that are "held-to-maturity" are:
a. trading account securities.
b. recorded on the balance sheet at amortized cost.
c. marked-to-market.
d. a. and b.
e. a. and c.
Q:
According to the liquidity premium theory of the term structure
A. bonds of different maturities are not substitutes.
B. if yield curves are downward sloping, then short-term interest rates are expected to fall by so much that, even when the positive term premium is added, long-term rates fall below short-term rates.
C. yield curves should never slope downward.
D. interest rates on bonds of different maturities do not move together over time.
Q:
Economists' attempts to explain the term structure of interest rates
A. illustrate how economists modify theories to improve them when they are inconsistent with the empirical evidence.
B. illustrate how economists continue to accept theories that fail to explain observed behavior of interest rate movements.
C. prove that the real world is a special case that tends to get short shrift in theoretical models.
D. have proved entirely unsatisfactory to date.
Q:
A negotiable instrument often used in trading goods that guarantees payment to the owner the instrument is known as (a):
a. bankers acceptance.
b. payment guarantee.
c. commercial paper.
d. bankers payment.
e. repurchase agreement.
Q:
Which of the following would a bank generally classify as a long-term investment?
a. Treasury bill
b. Vault cash
c. Cash items in process of collection
d. Municipal bond
e. Repurchase agreements
Q:
According to the liquidity premium theory of the term structure
A. because buyers of bonds may prefer bonds of one maturity over another, interest rates on bonds of different maturities do not move together over time.
B. the interest rate on long-term bonds will equal an average of short-term interest rates that people expect to occur over the life of the long-term bonds plus a term premium.
C. because of the positive term premium, the yield curve will not be observed to be downward sloping.
D. the interest rate for each maturity bond is determined by supply and demand for that maturity bond.
Q:
An inverted yield curve
A. slopes up.
B. is flat.
C. slopes down.
D. has a U shape.
Q:
Securities that require unrealized gains or losses to be recorded on the income statement are called:
a. held-to-maturity securities.
b. trading account securities.
c. available-for-sale securities.
d. revenue securities.
e. repurchase agreements
Q:
All other things constant, securities that are extremely liquid:
a. earn higher rates of return than securities that are less liquid.
b. have a longer maturity than less liquid securities.
c. have lower risk than less liquid securities.
d. a. and b.
e. b. and c.
Q:
When yield curves are downward sloping
A. long-term interest rates are above short-term interest rates.
B. short-term interest rates are above long-term interest rates.
C. short-term interest rates are about the same as long-term interest rates.
D. medium-term interest rates are above both short-term and long-term interest rates.
Q:
Which of the following would a bank generally classify as a short-term investment?
a. Demand deposits
b. Deposits at the Federal Reserve
c. Repurchase agreements
d. Fed Funds purchased
e. Vault cash
Q:
When yield curves are flat
A. long-term interest rates are above short-term interest rates.
B. short-term interest rates are above long-term interest rates.
C. short-term interest rates are about the same as long-term interest rates.
D. medium-term interest rates are above both short-term and long-term interest rates.
Q:
Which of the following bank assets is the most liquid?
a. Long-term investments
b. Short-term investments
c. Loans
d. Demand deposits
e. Unearned income
Q:
When yield curves are steeply upward sloping
A. long-term interest rates are above short-term interest rates.
B. short-term interest rates are above long-term interest rates.
C. short-term interest rates are about the same as long-term interest rates.
D. medium-term interest rates are above both short-term and long-term interest rates.
Q:
An example of a contra-asset account is:
a. the loan and lease loss allowance.
b. unearned income.
c. buildings and equipment.
d. revenue bonds.
e. the provision for loan loss.
Q:
The typical shape for a yield curve is
A. gently upward sloping.
B. mound shaped.
C. flat.
D. bowl shaped.
Q:
Which of the following bonds would you prefer to be buying?
A. a $10,000 face-value security with a 10 percent coupon selling for $9,000
B. a $10,000 face-value security with a 7 percent coupon selling for $10,000
C. a $10,000 face-value security with a 9 percent coupon selling for $10,000
D. a $10,000 face-value security with a 10 percent coupon selling for $10,000
Q:
Which of the following adjustments are made to gross loans and leases to obtain net loans and leases?
a. The loan and lease loss allowance is subtracted from gross loans
b. Unearned income is subtracted from gross interest received
c. Investment income is added to gross interest received
d. a. and b.
e. a. and c.
Q:
Most banks have the ability to easily raise new capital by issuing new equity.
Q:
Differences in ________ explain why interest rates on Treasury securities are not all the same.
A. risk
B. liquidity
C. time to maturity
D. tax characteristics
Q:
Which of the following $1,000 face-value securities has the lowest yield to maturity?
A. a 5 percent coupon bond selling for $1,000
B. a 10 percent coupon bond selling for $1,000
C. a 15 percent coupon bond selling for $1,000
D. a 15 percent coupon bond selling for $900
Q:
Loans typically fall into each of the following categories except:
a. real estate.
b. individual.
c. commercial.
d. agricultural.
e. municipal.
Q:
A function of investment banking is to facilitate corporate mergers and acquisitions.
Q:
A plot of the interest rates on default-free government bonds with different terms to maturity is called
A. a risk-structure curve.
B. a default-free curve.
C. a yield curve.
D. an interest-rate curve.
Q:
Banks generate their largest portion of income from:
a. loans.
b. short-term investment.
c. demand deposits.
d. long-term investments.
e. certificates of deposit.
Q:
Which of the following $1,000 face-value securities has the highest yield to maturity?
A. a 5 percent coupon bond with a price of $600
B. a 5 percent coupon bond with a price of $800
C. a 5 percent coupon bond with a price of $1,000
D. a 5 percent coupon bond with a price of $1,200
Q:
A memorandum of understanding is a legal document that orders a firm to stop an unfair practice.
Q:
The term structure of interest rates is
A. the relationship among interest rates of different bonds with the same maturity.
B. the structure of how interest rates move over time.
C. the relationship among the term to maturity of different bonds.
D. the relationship among interest rates on bonds with different maturities.
Q:
Which of the following would not be considered a commercial loan?
a. An interim construction loan
b. A working capital loan
c. A loans to another financial institution
d. A loan to purchase a piece of industrial equipment
e. A loan to expand a factory
Q:
Which of the following $5,000 face-value securities has the highest yield to maturity?
A. a 6 percent coupon bond selling for $5,000
B. a 6 percent coupon bond selling for $5,500
C. a 10 percent coupon bond selling for $5,000
D. a 12 percent coupon bond selling for $4,500
Q:
The McFadden Act of 1927 forbids national banks from underwriting equities.
Q:
Which of the following $1,000 face-value securities has the highest yield to maturity?
A. a 5 percent coupon bond selling for $1,000
B. a 10 percent coupon bond selling for $1,000
C. a 12 percent coupon bond selling for $1,000
D. a 12 percent coupon bond selling for $1,100
Q:
Which of the following statements is/are correct?
a. Higher capital requirements often result in a higher cost of capital for banks.
b. Small banks have greater access to the equity markets than large banks.
c. Higher capital requirements encourage small banks to consolidate into larger banks.
d. All of the above are correct.
e. Only a. and c. are correct.
Q:
A $10,000 8 percent coupon bond that sells for $10,000 has a yield to maturity of
A. 8 percent.
B. 10 percent.
C. 12 percent.
D. 14 percent.
Q:
The _________ authorized the Treasury to purchase debt securities issued by the Fannie Mae, Freddie Mac, and the Federal Home Loan Banks and to purchase common stock.
a. Treasury Emergency Authority Provisions
b. Foreclosure Prevention Act
c. Troubled Asset Relief Program
d. Primary Dealer Credit Facility
e. Check 21 Act
Q:
The ________ is below the coupon rate when the bond price is ________ its par value.
A. yield to maturity; above
B. yield to maturity; below
C. discount rate; above
D. discount rate; below
Q:
The _________ created a fund originally designed to allow the U.S. Treasury to purchase distressed assets from financial institutions.
a. Capital Purchase Program
b. Foreclosure Prevention Act
c. Troubled Asset Relief Program
d. Primary Dealer Credit Facility
e. Check 21 Act
Q:
The yield to maturity is ________ than the ________ rate when the bond price is ________ its face value.
A. greater; coupon; above
B. greater; coupon; below
C. greater; perpetuity; above
D. less; perpetuity; below
Q:
_________ allowed any institution to "truncate" the paper check at any point in the check clearing process.
a. Riegle-Neal Interstate Banking and Branching Efficiency Act
b. Fair and Accurate Credit Transactions Act
c. Troubled Asset Relief Program
d. Sarbanes-Oxley Act
e. Check 21 Act
Q:
The price of a coupon bond and the yield to maturity are ________ related; that is, as the yield to maturity ________, the price of the bond ________.
A. positively; rises; rises
B. negatively; falls; falls
C. positively; rises; falls
D. negatively; rises; falls
Q:
The present value of an expected future payment ________ as the interest rate increases.
A. falls
B. rises
C. is constant
D. is unaffected
Q:
The _________ established to Public Company Oversight Board to regulate public accounting firms that audit publicly-traded companies.
a. Riegle-Neal Interstate Banking and Branching Efficiency Act
b. Competitive Equality Banking Act
c. Financial Institutions Reform, Recovery and Enforcement Act
d. Sarbanes-Oxley Act
e. Depository Institutions Deregulation and Monetary Control Act
Q:
Transaction banking emphasizes the personal relationship between the banker and customer.
Q:
The ________ of a coupon bond and the yield to maturity are inversely related.
A. price
B. par value
C. maturity date
D. term
Q:
The concept of ________ is based on the common-sense notion that a dollar paid to you in the future is less valuable to you than a dollar today.
A. present value
B. future value
C. interest
D. deflation
Q:
The _________ repealed the Glass-Steagall Act.
a. Riegle-Neal Interstate Banking and Branching Efficiency Act
b. Gramm-Leach-Bliley Act
c. Financial Institutions Reform, Recovery and Enforcement Act
d. Federal Deposit Insurance Corporation Improvement Act
e. Depository Institutions Deregulation and Monetary Control Act
Q:
Securitization refers to the process of splitting a single loan into several smaller loans.
Q:
Which of the following are TRUE for a coupon bond?
A. When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate.
B. The price of a coupon bond and the yield to maturity are positively related.
C. The yield to maturity is greater than the coupon rate when the bond price is above the par value.
D. The yield is less than the coupon rate when the bond price is below the par value.
Q:
All of the following are necessary criteria for a commodity to function as money EXCEPT
A. it must deteriorate quickly.
B. it must be divisible.
C. it must be easy to carry.
D. it must be widely accepted.
Q:
The _________ requires disclosure of a bank's privacy policy.
a. Riegle-Neal Interstate Banking and Branching Efficiency Act
b. Gramm-Leach-Bliley Act
c. Financial Institutions Reform, Recovery and Enforcement Act
d. Federal Deposit Insurance Corporation Improvement Act
e. Depository Institutions Deregulation and Monetary Control Act