Accounting
Anthropology
Archaeology
Art History
Banking
Biology & Life Science
Business
Business Communication
Business Development
Business Ethics
Business Law
Chemistry
Communication
Computer Science
Counseling
Criminal Law
Curriculum & Instruction
Design
Earth Science
Economic
Education
Engineering
Finance
History & Theory
Humanities
Human Resource
International Business
Investments & Securities
Journalism
Law
Management
Marketing
Medicine
Medicine & Health Science
Nursing
Philosophy
Physic
Psychology
Real Estate
Science
Social Science
Sociology
Special Education
Speech
Visual Arts
Finance
Q:
Which of the following is in the 50 percent risk-weight (moderate) category?
A) Cash
B) General Obligation Municipal Bonds
C) Residential Mortgage Loans
D) Credit Card Loans
E) None of the above
Q:
Which of the following is in the 100 percent risk-weight category?
A) Cash
B) General obligation municipal bonds
C) Residential mortgage loans
D) Credit card loans
E) None of the above
Q:
A bank that is adequately capitalized:
A) Faces no significant regulatory restrictions
B) Cannot accept broker-placed deposits without regulatory approval
C) Has limits on dividends and management fees it is allowed to pay and limits on the maximum asset growth rate among other restrictions
D) Will be placed into conservatorship or receivership if it its capital level is not increased within a certain time limit.
E) None of the above
Q:
A bank that is 'critically undercapitalized':
A) Faces no significant regulatory restrictions
B) Cannot accept broker-placed deposits without regulatory approval
C) Has limits on dividends and management fees it is allowed to pay and limits on the maximum asset growth rate among other restrictions
D) Will be placed into conservatorship or receivership if it its capital level is not increased within a certain time limit.
E) None of the above
Q:
A bank that is 'well-capitalized':
A) Faces no significant regulatory restrictions
B) Cannot accept broker placed deposits without regulatory approval
C) Has limits on dividends and management fees it is allowed to pay and limits on the maximum asset growth rate among other restrictions
D) Will be placed into conservatorship or receivership if it its capital level is not increased within a certain time limit.
E) None of the above
Q:
Which of the following assets fits into the 0 percent risk weight category?
A) Cash
B) Deposits at the Federal Reserve
C) Treasury Bills
D) GNMA mortgage-backed securities
E) All of the above fit into the 0 percent risk weight category
Q:
Which of the following would be an example of crime risk?
A) A bank manager that embezzles $1,000,000 from the bank
B) A bank that loses $500,000 from trading in foreign currencies
C) A $1,000,000 loan to a business on which no interest and principal has been collected in 2 years
D) A bank manager predicts that interest rates will rise. However interest rates fall causing the bank 's net income to fall by $250,000
E) All of the above are examples of crime risk
Q:
Which of the following would be an example of Tier 2 capital?
A) Subordinated debt capital instruments with an original maturity of at least 5 years
B) Undivided profits
C) Minority interest in the equity accounts of consolidated subsidiaries
D) Qualifying noncumulative preferred stock
E) All of the above
Q:
Which of the following would be an example of Tier 1 capital?
A) Subordinated debt capital instruments with an original maturity of at least 5 years
B) Allowance for loan and lease losses
C) Minority interest in the equity accounts of consolidated subsidiaries
D) Intermediate term preferred stock
E) All of the above
Q:
A bank has a profit margin of 5 percent, an asset utilization ratio of 11 percent , an equity multiplier of 12 and a retention ratio of 60 percent. What is this bank's ICGR?
A) 6.6 percent
B) 3.96 percent
C) 7.2 percent
D) .33 percent
E) None of the above
Q:
A bank has $100 million in assets in the 0 percent risk weight category, $200 million in assets in the 20 percent risk weight category, $500 million in assets in the 50 percent risk weight category and $750 million in assets in the 100 percent risk weight category. This bank has $57 million in core (Tier 1) capital. What is this bank's ratio of Tier 1 capital to risk-weighted assets?
A) 3.68 percent
B) 7.6 percent
C) 18.25 percent
D) 5.48 percent
E) None of the above
Q:
A "well capitalized" bank in the United States must have a leverage ratio of at least:
A) 5 percent
B) 4 percent
C) 6 percent
D) 8 percent
E) None of the above
Q:
In the United States a bank to be considered 'adequately capitalized' must have a ratio of Tier 1 (or core) capital to risk-weighted assets of at least:
A) 8 percent
B) 6 percent
C) 10 percent
D) 4 percent
E) None of the above
Q:
In the United States a 'well capitalized' bank must have a ratio of capital to risk-weighted assets of at least:
A) 6 percent
B) 8 percent
C) 10 percent.
D) 5 percent.
E) None of the above
Q:
If a bank benefits when a foreign currency declines in value, then the bank must be in a __________ position. The term below that correctly fills in the blank in the preceding sentence is:
A) Long
B) Short
C) Negative
D) Credit risk
E) None of the above
Q:
The risk that a customer the bank has entered into a contract with will fail to pay or to perform, forcing the bank to find a replacement contract that may be less satisfactory is what form of risk listed below?
A) Counterparty risk
B) Interest-rate risk
C) Operating risk
D) Credit risk
E) Liquidity risk
Q:
The ratio of core capital to average assets is called the:
A) Supplemental Capital ratio
B) Leverage ratio
C) Long-term capital ratio
D) GAAP capital ratio
E) None of the above.
Q:
Possible breakdowns in quality control, inefficiencies in producing and delivering financial services, weather damage, aging or faulty computer systems and simple errors in judgment by bank management illustrate what form of risk faced by banks?
A) Credit risk
B) Liquidity risk
C) Interest-rate risk
D) Operational risk
E) None of the above
Q:
Second National Bank is forecasting a return on equity of 15 percent for this year. The board of directors wants to maintain its current policy of paying the bank's stockholders 40 percent of any net earnings the bank will earn. How fast can the bank's assets grow this year without jeopardizing its ratio of capital to assets?
A) 15 percent.
B) 9 percent.
C) 8 percent.
D) 6 percent.
E) None of the above
Q:
The Internal Capital Growth Rate for a bank is a function of which of the following factors?
A) Profit margin.
B) Asset utilization.
C) Equity multiplier.
D) Earnings retention ratio.
E) All of the above.
Q:
The fundamental purposes of regulating bank capital cited in the textbook include which of the following?
A) To limit the risk of bank failures.
B) To preserve public confidence in banks.
C) To limit losses to the federal government arising from insurance claims.
D) All of the above.
E) A and B only.
Q:
Measured by dollar volume the largest category of capital at U.S. banks is:
A) Par value of common stock
B) Subordinated notes and debentures
C) Surplus
D) Undivided profits and capital reserves
E) None of the above.
Q:
The textbook discusses several alternative defenses banks have against risk. These defenses include:
A) Quality management
B) Portfolio diversification
C) Geographic diversification
D) Deposit insurance
E) All of the above.
Q:
According to the textbook the role of capital is to:
A) Provide a cushion against failure risk.
B) Provide funds needed to organize, open, and operate a bank.
C) Promote public confidence
D) Support growth and the development of new services
E) All of the above.
Q:
is long-term debt capital whose claims legally follow claims of depositors.
Q:
is a hybrid form of equity capital issued to investors through a trust company, The funds raise are loaned to the financial firm. Dividends paid to stockholders on this time of capital are tax deductible.
Q:
are debt securities repayable from the sale of stock.
Q:
represents funds set aside for contingencies such as legal action against the institution as well as providing a reserve for dividends expected to be paid but not yet declared and a sinking fund to retire stock or debt in the future.
Q:
At the center of the debate of the Basel Agreement is the , headquartered in Basel Switzerland , which assists central banks in their transactions with each other and serves as a forum for international financial issues.
Q:
Credit risk models will be ________ widely used when Basel II takes effect.
Q:
____________ models measure lender exposure to defaults or credit downgrades.
Q:
The latest revision to the Basel accord is known as __________ and will affect only about 20 of the largest U.S. banks and a handful of leading foreign banks.
Q:
____________ models attempt to measure price or market risk of a portfolio of assets and attempt to determine the maximum loss they might sustain over a designated period of time.
Q:
The largest component of capital among banks is ____________.
Q:
When all else fails, the ultimate defense against risk in banking is _________________________.
Q:
One defense against risk is for the bank to seek out customers located in different communities or in different countries. This defense is known as _________________________.
Q:
One defense against risk for the bank is to spread out a bank's credit accounts and deposits among a wide variety of customers, including large and small accounts different industries, etc. This defense is known as _________________________.
Q:
The fact that a bank may suffer deficiencies in quality control, inefficiencies in producing and delivering of services, weather damage, aging or faulty computer systems, errors in judgment by management and fluctuations in economy that could adversely affect the bank's performance is known as _________________________ risk.
Q:
When items on a bank's balance sheet are multiplied by the appropriate risk-weighting factor they are often called _________________________.
Q:
Supplemental capital such as the allowance for loan losses, subordinated debt, mandatory convertible debt, intermediate-term preferred stock, cumulative preferred perpetual stock and equity notes is more commonly known as _________________________.
Q:
The international treaty involving the U.S. and 11 other leading industrialized countries to impose common capital requirements on all banks is known as the _________________________.
Q:
Core capital such as common stock, surplus, undivided profits, qualifying noncumulative preferred stock, etc. is referred to as __________________ capital as defined by the Basel agreement.
Q:
_________________________ are the net earnings of the bank which have been kept by the bank rather than distributed as dividends to stockholders.
Q:
__________________ is the amount in excess of par value paid by the bank's shareholders.
Q:
_________________________ is measured by the par value of the shares of common equity outstanding.
Q:
The risk that has to do with fraud, embezzlement and bank robberies is called __________________.
Q:
The risk that has to do with banks trading in foreign currencies is called _________________________.
Q:
A bank is considering adding security brokerage services to the services it offers. It has estimated that the expected return and standard deviation of its traditional service are 6% and 14% respectively. It has estimated that the expected return and standard deviation of its new securities brokerage services are 14% and 24% respectively. The correlation between these services has been estimated to be -.4 and the bank estimates that 60% of its business will be from traditional services and 40% from the new services. What is the standard deviation of the new combined firm?
A) 24.00%
B) 18.00%
C) 15.07%
D) 14.00%
E) 9.91%
Q:
A bank is considering adding security brokerage services to the services it offers. It has estimated that the expected return and standard deviation of its traditional service are 6% and 14% respectively. It has estimated that the expected return and standard deviation of its new securities brokerage services are 14% and 24% respectively. The correlation between these services has been estimated to be -.4 and the bank estimates that 60% of its business will be from traditional services and 40% from the new services. What is the expected return of the new combined firm?
A) 14.0%
B) 10.8%
C) 10.0%
D) 9.2%
E) 6.0%
Q:
A bank is considering adding security underwriting services to the services it offers. It has estimated that the expected return and standard deviation of its traditional service are 8% and 10% respectively. It has estimated that the expected return and standard deviation of its new securities underwriting services are 16% and 20% respectively. The correlation between these services has been estimated to be -.3 and the bank estimates that 80% of its business will be from traditional services and 20% from the new services. What is the standard deviation of the new combined firm?
A) 7.8%
B) 10.0%
C) 12.0%
D) 15.5%
E) 20.0%
Q:
A bank is considering adding security underwriting services to the services it offers. It has estimated that the expected return and standard deviation of its traditional service are 8% and 10% respectively. It has estimated that the expected return and standard deviation of its new securities underwriting services are 16% and 20% respectively. The correlation between these services has been estimated to be -0.3 and the bank estimates that 80% of its business will be from traditional services and 20% from the new services. What is the expected return of the new combined firm?
A) 8.0%
B) 9.6%
C) 12.0%
D) 14.4%
E) 16%
Q:
Suppose Caroll's stock price is currently $20. In the each next six month periods it will either fall by 50% or rise by 100%. What is the current value of a one-year call option with an exercise price of $15? The six-month risk-free interest rate (periodic rate) is 5%. [Use the two stage binomial method]
A. $8.73
B. $10.03
C. $16.88
D. $13.33
Q:
A private partnership whose shares are primarily offered to wealthy individuals and large institutions and which often makes high-stakes bets on the direction of the market is called:
A) A mutual fund
B) An annuity
C) The net asset value
D) A hedge fund
E) None of the above
Q:
Suppose VS's stock price is currently $20. In the next six months it will either fall by 50% or rise by 50%. What is the current value of a put option with an exercise price of $15 and expiration of one year? The six-month risk-free interest rate is 5% (periodic rate). Use the two stage binomial method.
A. $5.00
B. $2.14
C. $7.86
D. $8.23
Q:
A customers pro rata value of a share in a mutual fund if the assets of the fund were liquidated and liabilities paid off is called:
A) A mutual fund
B) An annuity
C) The net asset value
D) A hedge fund
E) None of the above
Q:
A savings instrument where the customer makes a lump sum payment to the investment manager who invests the payment in earning assets and later receives a stream of income from the assets is called:
A) A mutual fund
B) An annuity
C) The net asset value
D) A hedge fund
E) None of the above
Q:
Given the following data:
FCF1 = $20 million; FCF2 = $20 million; FCF3 = $20 million; free cash flow grows at a rate of 5% for year 4 and beyond. If the weighted average cost of capital is 12%, calculate the value of the firm.
A. $300 million
B. $261.57 million
C. $213.53 million
D. None of the above
Q:
A company that offers shares in a pool of securities and flows through any earnings generated to the shareholders is called:
A) A mutual fund
B) An annuity
C) The net asset value
D) A hedge fund
E) None of the above
Q:
If the correlation between revenues from traditional banking and nontraditional services offered by a bank rises, potential diversification benefits:
A) Will rise
B) Will fall
C) Will remain the same
D) Will remain the same but only under certain conditions
E) Cannot be determined
Q:
Among potential advantages of combining various financial services activities in one FHC are all of the following except:
A) Supplementing traditional sources of funds with new funds
B) Supplementing traditional revenue with new revenue sources
C) Lowering the cost of service production through economies of scale and scope
D) Reducing the risk of failure
E) Increasing earnings fluctuations
Q:
Historically, what has prevented universal banks from operating in the United States?
A) The Universal Bank Prohibition Act
B) The Glass-Stegall Act
C) Sarbanes-Oxley Act
D) Universal banks have less risk diversification capabilities than traditional U.S. based banks.
E) A and C
Q:
A financial holding company may include all of the following services except:
A) IPO
B) Consumer lending
C) Trust services
D) Investment banking
E) Insurance
Q:
Trust Department activities include all of the following except:
A) safeguarding
B) asset management
C) generate large deposits
D) lending
E) source of new deposits
Q:
Mr. Free has $100 dollars income this year and zero income next year. The market interest rate is 10% per year. If Mr. Free consumes $30 this year, and invests the rest in the market, what will be his consumption next year?
A. $50
B. $100
C. $77
D. $55
Q:
When a bank is expecting to be able to employ the same managers, employees and physical resources to offer multiple products and generate costs savings they are expecting which of the following effects?
A) Product Line Diversification Effect
B) Economies of Scope Effect
C) Economies of Scale Effect
D) Geographic Diversification Effect
E) None of the above
Q:
When a bank is expecting that the overall risk of FHC will be reduced when they combine investment banking services with the traditional banking services, what type of effect are they expecting?
A) Product Line Diversification Effect
B) Economies of Scope Effect
C) Economies of Scale Effect
D) Geographic Diversification Effect
E) None of the above
Q:
Briefly discuss some of the problems associated with the use of the percentage of sales model.
Q:
How do you calculate the external capital required?
Q:
55. A bank is considering adding life insurance underwriting to the services it offers. It has estimated that the expected return and standard deviation of its traditional services are 12 percent and 6 percent respectively. It has also estimated that the expected return and standard deviation of its new underwriting services are 18 percent and 10 percent respectively. The correlation between these services has been estimated to be +.10 and the bank estimates that 90 percent of its business will be from traditional services and 10 percent from the new underwriting services. If the bank is expecting that the overall risk of the bank will be reduced from adding the life insurance underwriting to the bank, what type of effect are they expecting? A) Product Line Diversification Effect B) Economies of Scope Effect C) Economies of Scale Effect D) Geographic Diversification Effect E) None of the above
Q:
Which of the following trust agreements allows the bank trust officer to act on behalf of a living customer?
A) Revocable trust
B) Irrevocable trust
C) Charitable trust
D) Indenture trusts
E) None of the above
Q:
What is the model that is used to prepare a pro-forma statement?
Q:
Discuss the process of preparing a financial plan?
Q:
Which of the following trust agreements allows wealth to be passed free of gift and estate tax to heirs?
A) Revocable trust
B) Irrevocable trust
C) Charitable trust
D) Indenture trusts
E) None of the above
Q:
Which of the following is an example of a nondeposit investment product of the bank?
A) Time deposit
B) NOW account
C) Passbook savings account
D) Proprietary mutual fund
E) All of the above
Q:
Discuss the process of preparing a short-term financing plan.
Q:
Discuss the reasons why a company should prepare a cash budget.
Q:
A bank would offer insurance services in addition to traditional banking services if it believed in the potential the benefits of:
A) Reputation
B) Economies of scale
C) Economies of scope
D) Investment services
E) None of the above
Q:
Briefly describe the cash cycle.
Q:
A trust department's activities often center around establishing:
A) An independent relationship with the customer
B) A partnership relationship with the customer
C) A fiduciary relationship with the customer
D) A subservient relationship with the customer
E) None of the above
Q:
Define net working capital.