Q&A Hero

Q: List the various organizational forms to deliver international banking services.

Q: What risks are involved in international lending? What methods do banks have to reduce these risks?

Q: Which of the combination of country and its central bank is NOT correct?a. Japan " Bank of Japanb. European Union - European Central Bankc. China " Central Bank of Chinad. The U.S. " Federal Reserve Systeme. Canada " Bank of Canada

Q: To reduce the risk exposure in international lending, what actions banks can take? a. Use the guarantees by governments, their central banks, and other agencies b. Pooling risk by participating syndicate loans among banks to spread risk. c. Diversification of foreign loan portfolio in different geographical regions and industry d. Selling nonperforming loans in the secondary market with a discount. e. All above.

Q: Which institution created the Basel Accords for banking capital requirements? a. World Bank b. Bank for International Settlements c. European Central Bank d. Federal Reserve Board e. United Nations Financial Supervision Committee

Q: Risk evaluation in international lending involves which of the following? a. an analysis of the borrower b. an analysis of the country's political and economic risks c. an analysis of domestic economy d. both a and b e. all of the above

Q: Which of the following is not true about shell branches set by U.S. banks? a. They conduct limited interbank money market transactions rather than retail public operations. b. They do foreign exchange transactions and limited loan participation in Eurocurrency markets. c. They pay local taxes. d. All of the above are true

Q: Which of the followingdoes not cause country risk to increase? a. expropriation b. nationalization c. elimination of currency controls. d. change of government

Q: The Foreign Credit Insurance Association (FCIA) is an organization of U.S. insurance companies which a. insures the foreign lending risk (trade credit) of exporters. b. insures the foreign lending risk (trade credit) of importers. c. insures bank loans made to developing nations. d. assures that foreign exporters will pay their trade credit.

Q: Which of the following is related to currency risk in an international lending situation? a. late interest payments on a loan by a foreign borrower b. increased exchange controls limiting the payment of interest on a loan. c. the government guarantee of the borrower's debt d. LIBOR is increasing, therefore increasing the odds that the borrower will be unable to meet their obligations

Q: Which statement regarding risk evaluation of international loan is NOT correct? a. An analysis of both the borrower and borrower's country is done by the bank's foreign lending and economic departments. b. Evaluation involves a statistical analysis of the country's political and economic risks. c. Since the accounting standards in different countries vary, a financial analysis of the borrower is not needed. d. If the cost of doing the analysis internally is too high, bank can use outside information sources. However, they should not be treated as reliable as the internal sources. e. The higher the cost of gathering information, the higher the loan rate, reflecting the increased risk due to unreliable information or lack of information.

Q: Which of the following is NOTdirectly related to the level of a loan rate charged on an international loan? a. The cost of gathering information about the borrower. b. The level of country risk. c. The size of the borrowing business. d. The credit risk of the borrower.

Q: A multinational firm can borrow 5 million Canadian dollars from a Canadian bank at 9 percent for one year and the same in U.S. dollars at a Detroit bank at 8 percent. If the C$/U.S.$ one-year forward rate contract was priced at 1.344, which loan was more favorable to the borrower? a. The cost of the loan from the U.S. bank is lower. b. The cost of the loan from the Canadian bank is lower. c. The borrower is indifferent between the two at the forward rate of 1.344. d. The solution cannot be calculated from the information above.

Q: A multinational firm can borrow 5 million Canadian dollars from a Canadian bank at 9 percent for one year and the same in U.S. dollars at a Detroit bank at 8 percent. With a current C$/$ exchange rate of $1.345, what one-year forward contract rate would make the borrower indifferent between the two loans? a. 1.345 b. 1.324 c. 1.357 d. 1.362

Q: A U.S. bank has just extended a U.S. $10 million loan to a Canadian firm at the rate of U.S. prime plus 2 percent, payable in U.S. dollars, one year from now. The current Canadian dollar/U.S. dollar exchange rate is 1.367. With a prime rate of 7 percent, what is the amount of interest paid in a year? a. C$ 1,230,300 b. $900,000 c. $700,000 d. C$658,376

Q: A U.S. bank is owed $10 million in interest from the Mexican government organization in 90 days. If the Mexican manager thought that the value of the peso would fall in the next 90 days, which of the following would he choose to hedge the foreign exchange risk? a. Buy U.S. dollars in a forward contract. b. Wait 90 days and buy U.S. dollars in the spot market. c. Buy a U.S. dollar T-bill now. d. Either b or c would work.

Q: A U.S. bank is owed $10 million in interest from the Mexican government organization in 90 days. What is the more likely action taken by a currency risk manager? a. The Mexican manager will sell U.S. dollars in a 90-day forward contract. b. The U.S. bank will buy peso in a 90-day forward contract. c. The Mexican manager will buy U.S. dollars in a 90-day forward contract. d. The Mexican manager will buy a peso 90-day forward contract.

Q: A bank's international loan diversification is enhanced if the historic realized rates of return on loans from loan applicant, Country A, have a. a high positive correlation with prior loans from Country A. b. a high positive correlation with the loan returns on the bank's international loan portfolio. c. a negative correlation with the loan returns on the bank's international loan portfolio. d. a very low negative correlation with the returns on U.S. Treasury bonds.

Q: International participation loans is a method of reducing the _______ risk of an international lender. a. credit b. currency c. interest rate d. liquidity e. country

Q: Default or credit risk on international receivables is reduced when the receivables are guaranteed by an organization of insurance companies called the a. Overseas Private Investment Corporation. b. World Bank. c. Foreign Credit Insurance Association. d. Receivables Assurance Association.

Q: Why the ROA for commercial banks is typically quite low as compared to non-financial firms? Give such a low ROA, how can commercial banks attract investors?

Q: Why can banks operate with so much more leverage (so much less equity capital) than ordinary businesses?

Q: How does regulation "tax" bank assets and liabilities?

Q: What are the major economic differences between deposits and borrowed funds? Aren"t both intended to finance loans and investments cost-effectively?

Q: What are the major economic differences between bank loans and investments? Aren"t both intended to generate profits?

Q: Why has the bank holding company form of organization been so popular?

Q: Bank equipment leasing activity involves: a. A bank leasing its office facilities instead of buying b. A bank buying equipment and then leasing the item to a customer c. A customer buying equipment and then leasing it to a bank d. A bank leasing computer equipment e. None of the above

Q: A contingent item that may eventually be placed on the left hand side of the balance sheet or recognized as income on the income statement is a/an a. Loan commitment b. Off balance sheet liability c. Loan sold without recourse d. Net charge off e. Off balance sheet asset

Q: The largest single category of loans on the typical bank's balance sheet in the recent ten years was: a. Real estate loans b. Commercial and industrial loans c. Consumer loans d. U.S. government agents loans e. Inter-bank loans

Q: Which agent approves chartering and merger of nationally chartered banks? a. Federal Deposit Insurance Corporation b. Department of Banking in each state c. Federal Reserve Bank in each district d. Office of Comptroller of the Currency e. Any of the above may grant a charter and approve a merger

Q: The asset/liability management is a very important in bank risk management. In general, bank liabilities tend to have __________ maturities and _________ liquidity than/as bank assts. a. lower; greater b. longer; lower c. equal; equal

Q: To earn fee incomes, banks provide banking services to other banks, such as check clearing, foreign exchange trading, etc. The above items are examples of a. Correspondent banking b. Trust services c. Off balance sheet assets d. Economies of scope e. Credit derivatives

Q: Which of the following statement is NOT correct in describing the development of the U.S. banking industry between 1980's to 2010's: a. there are less banks but more branches b. there are many community banks but a few very large banks c. bank holding companies dominate the major market share d. small banks in general engage more hedging activities than the large banks e. large banks' major funding sources are non-depository funds

Q: All but one of the following is associated with bank loan securitization activity? a. the bank provides credit enhancements. b. the bank provides the source of funds for the loan securitization. c. the bank originates the loans. d. the value of the securities sold to investors exceeds that of the securitized loans.

Q: When a bank is involved in loan brokerage, the bank is a. selling loan participations to investors. b. bringing loan customers together to share funds. c. originating loans, but not funding the complete loan. d. assisting customers in selling their real estate.

Q: A standby letter of credit (SLC) offers the bank a. a source of fee income b. a nondeposit source of funds c. a contingent liability d. "a" and "c"

Q: Which of the following is least affected by an individual customer's profile? a. base rate b. default risk premium c. term premium d. nonprice adjustments

Q: All but one of the following is more associated with the level of a bank's base lending rate: a. bank cost of funds b. the commercial paper rate c. competitor prime rates d. the federal reserve discount rate

Q: A bank loan manager who is expecting declining interest rate levels over the next several years would encourage loan originators to make a. variable rate loans. b. loans closely tied to the prime rate. c. fixed-rate loans. d. very short-term loans.

Q: All but one of the following is associated with bank loan agreements longer than one year? a. term loans b. line of credit c. revolving credit d. mortgage loan

Q: When Bank A buys fed funds from Bank B, a. the Fed increases one of their asset accounts and decreases the other b. Bank A posts an increase in its asset account, federal funds sold c. Bank B posts an increase in its asset account, federal funds sold d. the Fed increases the deposit accounts of both Bank A and Bank B

Q: Investment in Treasuries provides a. liquidity b. low default risk c. income d. all of the preceding

Q: All but one of the following is a balance sheet account associated with check clearing? a. Fed funds sold b. reserves at Federal Reserve banks c. balances at other banks d. cash items in the process of collection

Q: The largest loan category for commercial banks is a. commercial loans b. real estate loans c. consumer loans d. agricultural loans.

Q: Which of the following is not a money market source of bank funds? a. common stock b. repurchase agreements c. commercial paper d. treasury bonds

Q: Commercial banks borrow from their Federal Reserve Bank at the a. fed funds rate b. eurodollar rate c. discount rate d. repo rate

Q: A form of secured borrowing by banks is a. Eurodollars b. fed funds c. certificate of deposit d. repurchase agreement

Q: When a bank increases its fed funds sold, its deposit balance in the Fed will ; when a bank's deposit balance in the Fed increases, the bank has increased its fed funds . a. increase; sold b. decrease; sold c. increase; purchased d. decrease; purchased

Q: Banks invest in treasuries for all the following reasons except a. they are marketable b. they are liquid c. they provide capital d. they provide income

Q: In loan brokerage, the bank's spread is a. the difference between the rate earned by the bank and the rate paid by the bank b. the rate differential between the cost of funds and the loan rate. c. the discount of the loan at the Window d. the fee collected at the maturity of the loan

Q: Using matched-funding pricing, the major factor determining the loan rate is a. competitive return to the bank's shareholders b. administrative costs of making the loan c. the interest rate on the funding source d. adjustment for default risk

Q: All of the following are sources of common equity capital for banks except a. capital stock b. undivided profits c. capital notes d. special reserve accounts

Q: All of the following are characteristic of bank borrowed funds except a. They are insured by FDIC. b. They are short-term money market sources of funds. c. They are an important source of bank liquidity. d. Some entail pledging collateral; others do not.

Q: A bank expecting interest rates to rise in the future would prefer to make a. fixed-rate loans b. long-term, fixed rate loans c. floating-rate loans adjusted infrequently d. floating-rate loans adjusted frequently

Q: In a standby letter of credit, a. the bank establishes a liability. b. the bank substitutes its creditworthiness for that of its customer. c. the bank assures a loan applicant that credit will soon be granted. d. the bank pays a customer to guarantee the bank's obligations.

Q: The Financial Services Modernization Act of 1999 permitsa. Formation of financial holding companiesb. Commercial banking and insurance in the same holding companyc. Insurance and investment banking in the same holding companyd.Any or all of the above

Q: While time deposits are banks' major source of funds, their major use is a. investments b. consumer loans c. demand deposits d. commercial loans

Q: Banks hold municipal bonds primarily for a. high after-tax yields. b. low default risk. c. high marketability. d. service to local communities.

Q: Which of the following describes bank trust operations? a. Trust operations involve banks acting in a fiduciary capacity b. Smaller banks tend to offer trust services through correspondent relationships c. A large portion of bank trust assets are managed for pension funds d. all of the above

Q: Banks generate revenue from credit cards from all the following except a. merchant discount fees b. sale of credit cards c. annual fees from credit card customers d. interest from credit card balances

Q: In general, which of the following bank investments has the least liquidity? a. T-bills b. Fed Funds sold c. municipal bonds d. T-bonds

Q: Banker's acceptances are not a. foreign deposits accepted overseas by branches of American banks. b. drafts drawn on a bank by a corporation to pay for merchandise. c. used in international trade. d. a source of funds for large banks.

Q: Repurchase agreements used for all following except a. corporate cash management. b. a source of funds for banks. c. to support loan brokerage activities. d. a method of paying interest to demand depositors.

Q: Which of the following is not a borrowed fund account? a. Fed Funds purchased b. Eurodollars c. Banker's acceptances d. SLC

Q: All but one of the following are off-balance sheet activities of banks? a. repurchase agreements b. standby letters of credit c. loan brokerage d. securitization

Q: All but one of the following advantages of the bank holding company: a. economies of scale b. geographic diversification c. service diversification d. largely unregulated

Q: Commercial banks are a. often subsidiaries of bank holding companies b. the largest category of financial institution c. the main transmitters of monetary policy d. all of the above

Q: Bank holding companies are regulated by the a. Fed b. FDIC c. OCC d. FTC

Q: Bank holding companies were first regulated in a major way in a. 1933 b. 1935 c. 1956 d. 1980

Q: Banks use the holding company form of organization for all the following except a. reducing taxes b. expanding geographically c. diversifying services d. complying with federal regulations.

Q: Which one of the following is not an interest-bearing deposit account? a. demand deposit b. NOW account c. savings account d. MMDA

Q: Small bank deposits in larger money center banks are called a. reserves b. correspondent deposits c. flexibility accounts d. fed funds

Q: Small banks tend to have more ________ and fewer ________ compared to large banks. a. transaction accounts; time deposits b. borrowed funds; capital stock c. time deposits; borrowed funds d. large time deposits > $100,000; transaction accounts

Q: The largest deposit source of funds for commercial banks is a. time deposits. b. demand deposits. c. U.S. Treasury deposits. d. interest-bearing transaction deposits.

Q: What balance sheet account of commercial banks is a component of M1? a. U.S. Treasury deposits b. deposits in other banks c. demand deposits d. certificates of deposit

Q: All but one of the following is a bank asset. a. fed funds purchased b. consumer loans c. deposits in other banks d. government securities

Q: Most of the assets of a commercial bank can best be described as a. real assets. b. the financial liabilities of deficit spending units in the economy. c. deposits from many sectors of the economy. d. reserves.

Q: The fastest-growing U.S. bank holding companies can attribute most of their growth to a. an increasing number of branches. b. the rapid growth of deposits from the growing number of households. c. improved technological financial innovation. d. merger of banks and bank holding companies.

Q: While most U.S. commercial banks are ____, the ________ dominate in terms of assets. a. small; large banks. b. large; large banks. c. small; small banks. d. large; bank holding companies

Q: The number of bank branches continues to increase because a. banks have sought to locate close to their customers. b. states have eased bank branching restrictions. c. state and federal bank regulators prefer branches to bank holding companies. d. "a" and "b"