Q&A Hero

Q: A(n) _________________________ is a thrift account which carries a fixed maturity date and generally carries a fixed interest rate for that time period.

Q: The value of a call option is positively related to the following: I) underlying stock price II) risk-free rate III) time to expiration IV) volatility of the underlying stock price A. I only B. II only C. III only D. I, II, III, and IV

Q: _________________________ is part of the new technology for processing checks where the bank takes a picture of the back and the front of the original check and which can now be processed as if they were the original.

Q: The value of an option (both call and put) is positively related to: I) volatility of the underlying stock price II) time to expiration III) risk-free rate A. I and II only B. II and III only C. I and III only D. III only

Q: When a customer is charged based on the number and kinds of services used, with the customers that use a number of services being charged less or having some fees waived, this is called __________________ pricing.

Q: When a customer is charged a fixed charge per check this is called __________________ pricing.

Q: If the stock price follows a random walk successive price changes are statistically independent. If s2 is the variance of daily price change, and there are t days until expiration, the variance of the cumulative price changes is: A. s2 B. (s2) * (t) C. (s2)/t D. none of the above

Q: _________________________ pricing is where the financial institution sets up a schedule of fees in which the customer pays a low or no fee if the deposit balance stays above some minimum level and pays a higher fee if the balance declines below that minimum level.

Q: Relative to the underlying stock, a call option always has: A. a higher beta and a higher standard deviation of return B. a lower beta and a higher standard deviation of return C. a higher beta and a lower standard deviation of return D. a lower beta and a lower standard deviation of return

Q: A call option has an exercise price of $150. At the final exercise date, the stock price could be either $100 or $200. Which investment would combine to give the same payoff as the stock? A. Lend PV of $100 and buy two calls B. Lend PV of $100 and sell two calls C. Borrow $100 and buy two calls D. Borrow $100 and sell two calls

Q: When financial institutions tempt customers by paying postage both ways in bank-by-mail services or by offering free gifts such as teddy bears, they are practicing ___________.

Q: Which of the following features increase(s) the value of a call option? A. A high interest rate B. A long time to maturity C. A higher volatility of the underlying stock price D. All of the above

Q: _________________________ is a way of pricing deposit services in which the rate or return or fees charged on the deposit account are based on the cost of offering the service plus a profit margin.

Q: If the volatility of the underlying asset decreases, then the: A. Value of the put option will increase, but the value of the call option will decrease B. Value of the put option will decrease, but the value of the call option will increase C. Value of both the put and call option will increase D. Value of both the put and call option will decrease

Q: Some people feel that everyone is entitled access to a minimum level of financial service no matter their income level. This issue is called the issue of _________________________.

Q: If the risk-free interest rate increases: A. the direct effect of it on the call option price is positive B. the direct effect of it on the call option price is negative C. the direct effect of it on the call option price is unknown D. none of the above

Q: _________________________ are the stable base of deposited funds that are not highly sensitive to movements in market interest rates and tend to remain with a depository institution.

Q: The higher the underlying stock price: (everything else remaining the same) A. higher the call price B. lower the call price C. has no effect on call price D. none of the above

Q: _________________________ are designed to attract funds from customers who wish to set aside money in anticipation of future expenditures or financial emergencies.

Q: The higher the underlying stock price: (everything else remaining the same) A. higher the put price B. lower the put price C. has no effect on put price D. none of the above

Q: A(n) _________________________ is a short-maturity deposit which pays a competitive interest rate. Only 6 preauthorized drafts per month are allowed and only 3 of these can be by check.

Q: Given the following data: Expiration = 6 months; Stock price = $80; exercise price = $75; call option price = $12; risk-free rate = 5% per year. Calculate the price of an equivalent put option using put-call parity: A. $3.07 B. $5.19 C. $11.43 D. none of the above

Q: A(n) _________________________ is an interest bearing checking account and gives the bank the right to insist on prior notice before customer withdrawals can be honored.

Q: For European options, the value of a put is equal to: A. The value of a call minus the value of a share plus the present value of the exercise price B. The value of a call plus the value of a share plus the present value of the exercise price C. The value of the share minus the value of a call plus the present value of the exercise price D. The value of the share minus the present value of the exercise price plus the valued of a call

Q: A(n) _________________________ requires the bank to honor withdrawals immediately upon request.

Q: For European options, the value of a call plus the present value of the exercise price is equal to: A. The value of a put minus the value of a share B. The value of a share minus the value of a call C. The value of a put plus the value of a share D. The value of a share minus the value of a put

Q: If the underlying stock pays a dividend before the expiration of the options that will have the following effect on the price of the options: I) increase the value of the call option II) increase the value of the put option III) decrease the value of the call option IV) decrease the value of the put option A. I and II only B. III and IV only C. I and IV only D. II and III only

Q: The Taylor Treadwell Bank has just calculated the ratio of demand deposits to total time deposits. Which liquidity indicator is this? A) Deposit composition ratio B) Liquid securities indicator C) Net federal funds and repurchase agreement position D) Capacity ratio E) None of the above

Q: The Taylor Treadwell Bank has just calculated the ratio of net loans and leases to total assets. Which liquidity indicator is this? A) Cash position indicator B) Liquid securities indicator C) Net federal funds and repurchase agreement position D) Capacity ratio E) None of the above

Q: If the stock makes a dividend payment before the expiration date then the put-call parity is: A. Value of call = value of put + share price - present value (PV) of dividend -PV of exercise price B. Value of call = value of put - share price + PV of dividend - PV of exercise price C. Value of call = value of put + share price + PV of dividend + PV of exercise price D. Value of call = value of put + share price + PV of dividend - PV of exercise price

Q: For European options, the value of a call minus the value of a put is equal to: A. The present value of the exercise price minus the value of a share B. The present value of the exercise price plus the value of a share C. The value of a share plus the present value of the exercise price D. The value of a share minus the present value of the exercise price

Q: Which of the following is an option when a liquidity deficit arises and the bank wants to use their stored liquidity in their assets to cover the deficit? A) Borrowing in the Federal Funds market B) Issuing a jumbo CD C) Selling Treasury Bills D) Increasing their correspondent deposits with another bank E) All of the above

Q: Which of the following is an option when a liquidity deficit arises and the bank wants to borrow liquidity to cover the deficit? A) Selling Treasury Bills B) Reducing their correspondent deposits with another bank C) Selling a municipal bond D) Issuing a jumbo CD E) All of the above

Q: Put-call parity can be used to show: A. How far in-the-money put options can get B. How far in-the-money call options can get C. The precise relationship between put and call option prices given equal exercise prices and equal expiration dates D. That the value of a call option is always twice that of a put given equal exercise prices and equal expiration dates

Q: Suppose an investor buys one share of stock and a put option on the stock and simultaneously sells a call option on the stock with the same exercise price. What will be the value of his investment on the final exercise date? A. Above the exercise price if the stock price rises and below the exercise price if it falls B. Equal to the exercise price regardless of the stock price C. Equal to zero regardless of the stock price D. Below the exercise price if the stock price rises and above if it falls

Q: The HTR Bank of Summerville has just calculated the ratios of money market (short term) assets to volatile liabilities. Which liquidity indicator is this? A) Cash position indicator B) Liquid securities indicator C) Net federal funds and repurchase agreement position D) Capacity ratio E) Hot money ratio

Q: The Burr Bank has just calculated the ratio of U.S. Government Securities to Total Assets. Which liquidity indicator is this? A) Cash position indicator B) Liquid securities indicator C) Net federal funds and repurchase agreement position D) Capacity ratio E) Hot money ratio

Q: Suppose you buy a call and lend the present value of its exercise price. You could match the payoffs of this strategy by: A. Buying the underlying stock and selling a call B. Selling a put and lending the present value of the exercise price C. Buying the underlying stock and buying a put D. Buying the underlying stock and selling a put

Q: The Simpson State Bank of Stillwater has just sold Federal Funds to another bank in their Federal Reserve district. Which type of factor affecting legal reserves is this for the bank? A) A controllable factor increasing legal reserves B) A noncontrollable factor increasing legal reserves C) A controllable factor decreasing legal reserves D) A noncontrollable factor decreasing legal reserves E) None of the above

Q: Buying the stock and the put option on the stock provides the same payoff as: A. investing the present value of the exercise price in T-bills and buying the call option B. on the stock C. short selling the stock and buying a call option on the stock D. writing (selling) a put option and buying a call option on the stock E. none of above

Q: Buying a call option, investing the present value of the exercise price in T-bills, and short selling the underlying share is the same as: A. Buying a call and a put B. Buying a put and a share C. Buying a put D. Selling a call

Q: The Hora National Bank has just received notice that a large depositor with the bank wants to close their account immediately. Which type of factor affecting legal reserves is this for the bank? A) A controllable factor increasing legal reserves B) A noncontrollable factor increasing legal reserves C) A controllable factor decreasing legal reserves D) A noncontrollable factor decreasing legal reserves E) None of the above

Q: The Sasser State Bank has just sold $25 million in Treasury Bills. Which type of factor affecting legal reserves is this for the bank? A) A controllable factor increasing legal reserves B) A noncontrollable factor increasing legal reserves C) A controllable factor decreasing legal reserves D) A noncontrollable factor decreasing legal reserves E) None of the above

Q: Which of the following investors would be happy to see the stock price rise sharply? I) Investor who owns the stock and a put option II) Investor who has sold a put option and bought a call option III) Investor who owns the stock and has sold a call option IV) Investor who has sold a call option A. I and II only B. III and IV only C. III only D. IV only

Q: The Peace Bank of Ohio has just received a $50 million credit at the local clearing house. Which type of factor affecting legal reserves is this for the bank? A) A controllable factor increasing legal reserves B) A noncontrollable factor increasing legal reserves C) A controllable factor decreasing legal reserves D) A noncontrollable factor decreasing legal reserves E) None of the above

Q: Suppose an investor buys one share of stock and a put option on the stock. What will be the value of her investment on the final exercise date if the stock price is below the exercise price? (Ignore transaction costs) A. The value of two shares of stock B. The value of one share of stock plus the exercise price C. The exercise price D. The value of one share of stock minus the exercise price

Q: The Harmony Bank of the South has just increased its Federal Funds Purchased. What source of liquidity does this represent to the bank? A) Incoming customer deposit B) Revenues from the same of nondeposit services C) Customer loan repayment D) Sale of an asset E) Borrowings from the money market

Q: Figure-4 depicts the: A. position diagram for the writer (seller) of a call option B. profit diagram for the writer (seller) of a call option C. position diagram for the writer (seller) of a put option D. profit diagram for the writer (seller) of a put option

Q: David Ashby has just paid off the balance on his home mortgage with First American Bank. What source of liquidity does this represent to the bank? A) Incoming customer deposit B) Revenues from the same of nondeposit services C) Customer loan repayment D) Sale of an asset E) Borrowings from the money market

Q: A bank must maintain an average daily balance at the Fed of $700. On the first day of the maintenance period they maintain a balance of $750, the next two days they maintain a balance of $725, the next three days they maintain a balance of $625, the next two days they maintain a balance of $775, the next two days they maintain a balance of $700 and the next two days they maintain a balance of $675. What does their balance have to be on the last day of the maintenance period in order to have a cumulative reserve deficit? A) $700 B) $650 C) $750 D) $325 E) None of the above

Q: Figure-3 depicts the: A. position diagram for the writer (seller) of a call option B. profit diagram for the writer (seller) of a call option C. position diagram for the writer (seller) of a put option D. profit diagram for the writer (seller) of a put option

Q: Figure-2 depicts the: A. position diagram for the buyer of a call option B. profit diagram for the buyer of a call option C. position diagram for the buyer of a put option D. profit diagram for the buyer of a put option

Q: A bank must maintain an average daily balance at the Fed of $600. In the first 2 days of the maintenance period, they maintain a balance of $450, the next three days they maintain a balance of $700, the next two days they maintain a balance of $650, the next three days they maintain a balance of $450 and the next three days they maintain a balance of $650. What does their balance at the Fed have to be on the last day of the maintenance period in order to have a zero cumulative reserve deficit? A) $600 B) $400 C) $500 D) $800 E) None of the above

Q: Figure-1 depicts the: A. position diagram for the buyer of a call option B. profit diagram for the buyer of a call option C. position diagram for the buyer of a put option D. profit diagram for the buyer of a put option

Q: The Hollingsworth National Bank maintains a clearing balance of $7,000,000 with the Federal Reserve. The Federal Funds rate is currently 5.25 percent. What is the credit this bank will earn over the maintenance period to offset any fees charged this bank by the Federal Reserve? A) $367,500 B) $1021 C) $14,292 D) $30,625 E) None of the above

Q: The value of a put option at expiration is: A. market price of the share minus the exercise price B. higher of the exercise price minus market price of the share and zero C. the exercise price D. none of the above

Q: A bank currently has $50 million in stable deposits against which they want to keep 10% reserves, $100 in vulnerable deposits against which they want to keep 40% reserves and they have $50 million in hot money deposits against which they want to keep 90% reserves. The legal reserves for this bank are 10% of all deposits. What is this banks liability liquidity reserve? A) $90 million B) $81 million C) $70 million D) $20 million E) None of the above

Q: The writer (seller) of a regular exchange-listed put-option on the stock: A. has the right to buy 100 shares of the underlying stock at the exercise price B. has the right to sell 100 shares of the underlying stock at the exercise price C. has the obligation to buy 100 shares of the underlying stock at the exercise price D. has the obligation to sell 100 shares of the underlying stock at the exercise price

Q: John Camey, the money manager of the First State Bank, has estimated that the bank has a 20 percent chance of a liquidity deficit of $700, a 30 percent chance of a liquidity deficit of $200, a 30 percent chance of a liquidity surplus of $400 and a 20 percent chance of a liquidity surplus of $900 over the next week. What is this banks expected liquidity deficit or surplus over the next week? A) $100 liquidity surplus B) $100 liquidity deficit C) $400 liquidity surplus D) $500 liquidity surplus E) $0 liquidity surplus

Q: The Shirley State Bank has $90 in transaction deposits subject to legal reserves. This bank must hold 3 percent legal reserves up to $43.9 of transaction deposits and 10 percent legal reserves on any amount above this. What is this banks total legal reserves? A) $2.700 million B) $1.449 million C) $5.924 million D) $4.170 million E) None of the above

Q: The writer (seller) of a regular exchange-listed call-option on the stock: A. has the right to buy 100 shares of the underlying stock at the exercise price B. has the right to sell 100 shares of the underlying stock at the exercise price C. has the obligation to buy 100 shares of the underlying stock at the exercise price D. has the obligation to sell 100 shares of the underlying stock at the exercise price

Q: Suppose an investor sells (writes) a put option. What will happen if the stock price on the exercise date exceeds the exercise price? A. The seller will need to deliver stock to the owner of the option B. The seller will be obliged to buy stock from the owner of the option C. The owner will not exercise his option D. None of the above

Q: A bank or financial service institution can generally meet reserve requirements using all of the following except: A) Selling liquid investments B) Borrowing in the fed funds market C) Drawing on any excess correspondent balances D) Borrowing in the repo market E) Selling new shares

Q: The buyer of a call option has the right to exercise, but the writer of the call option has: A. The choice to offset with a put option B. The obligation to deliver the shares at exercise price C. The choice to deliver shares or take a cash payoff D. The choice of exercising the call or not

Q: The Fed funds rate usually hovers around the Feds: A) Target rate B) Set rate C) Quoted rate D) Limit rate E) Average rate

Q: A put option gives the owner the right: A. and the obligation to buy an asset at a given price B. and the obligation to sell an asset at a given price C. but not the obligation to buy an asset at a given price D. but not the obligation to sell an asset at a given price

Q: The Fed funds market is most volatile on bank: A) Computation day B) Settlement day C) Reserve day D) Maintenance day E) Holiday

Q: In June 2007, an investor buys a put option on Genentech stock with an exercise of price of $75 and expiring in January 2009. If the stock price in June 2007 is $80, then this option is: I) in-the-money II) out-of-the-money III) a LEAPS A. I only B. II only C. III only D. I and III only

Q: Which of the following statements is correct? A) The demands for liquidity and sources of liquidity for a bank are generally equal to each other B) Most liquidity problems in banking arise from outside the bank C) The liquidity problems for a bank are made easier because most of their liabilities are not subject to immediate repayment D) Liquidity management is easy for a bank because a bank that is very liquid is also very profitable. E) All of the above statements are correct

Q: The Position diagram for a put with the same exercise price and premium as the call on the same underlying asset with the same maturity is (like): A. the inverse of the call diagram along the put price B. unrelated to the call diagram no matter what the exercise price C. the mirror image of the call diagram around the exercise price D. exactly the same as the call diagram for the given exercise price

Q: A manager that looks at deposit increases and decreases and loan increases and decreases among other things to measure their liquidity position is using: A) The sources and uses of funds approach B) The structured funds approach C) The liquidity indicator approach D) Signals from the marketplace E) None of the above

Q: A manager that examines the stock price behavior of the bank and the risk premium on the bank CD's to measure their liquidity position is using: A) The sources and uses of funds approach B) The structured funds approach C) The liquidity indicator approach D) Signals from the marketplace E) None of the above

Q: In June 2007, an investor buys a call option on Amgen stock with an exercise of price of $65 and expiring in January 2009. If the stock price in June 2003 is $60, then this option is: I) in-the-money II) out-of-the-money III) a LEAPS A. I only B. II only C. III only D. II and III only

Q: The owner of a regular exchange-listed put-option on the stock: A. has the right to buy 100 shares of the underlying stock at the exercise price B. has the right to sell 100 shares of the underlying stock at the exercise price C. has the obligation to buy 100 shares of the underlying stock at the exercise price D. has the obligation to sell 100 shares of the underlying stock at the exercise price

Q: A manager that uses ratios such as cash and due from banks to total assets and U.S. government securities to total assets to measure their liquidity position is using: A) The sources and uses of funds approach B) The structured funds approach C) The liquidity indicator approach D) Signals from the market place E) None of the above

Q: The owner of a regular exchange-listed call-option on the stock: A. has the right to buy 100 shares of the underlying stock at the exercise price B. has the right to sell 100 shares of the underlying stock at the exercise price C. has the obligation to buy 100 shares of the underlying stock at the exercise price D. has the obligation to sell 100 shares of the underlying stock at the exercise price

Q: Which of the following is a guideline for liquidity managers of banks? A) The liquidity manager must keep track of the activities of all departments of the bank B) The liquidity manager must know in advance (if possible) the plans of major creditors and depositors C) The liquidity manager should make sure the bank has clear priorities and objectives for liquidity management D) The liquidity manager must analyze the liquidity needs of the bank on a continuous basis E) All of the above are guidelines for liquidity managers

Q: A financial institution has estimated that over the last ten years the deposit withdrawals during Christmas time is about 25% higher than during any other time of the year. This is the _________________________ of estimating future deposits. A) Trend component B) Seasonal component C) Cyclical component D) Stationary component E) None of the above

Q: The two principal options exchanges in the U.S.A. are: I) International Securities Exchange II) New York Stock Exchange III) NASDAQ IV) Chicago Board of Options Exchange A. II and III only B. I and II only C. I and IV only D. III and IV only

Q: A financial institution has estimated that its growth rate in deposits over the last ten years has averaged 6 percent per year. This is the _________________________ of estimating future deposits. A) Trend component B) Seasonal component C) Cyclical component D) Stationary component E) None of the above