Q&A Hero

Q: What are TIPs? Briefly explain.

Q: Which of the following statements about the relationship between interest rates and bond prices is true? I) There is an inverse relationship between bond prices and interest rates. II) There is a direct relationship between bond prices and interest rates. III) The price of short-term bonds fluctuates more than the price of long-term bonds for a given change in interest rates. (Assuming that coupon rate is the same for both) IV) The price of long-term bonds fluctuates more than the price of short-term bonds for a given change in interest rates. (Assuming that the coupon rate is the same for both) A. I and IV only B. I and III only C. II and III only D. None of the given statements are true

Q: T F 62. Web-centered banks with little or no physical facilities are known as ________ banks

Q: A four-year bond has an 8% coupon rate and a face value of $1000. If the current price of the bond is $878.31, calculate the yield to maturity of the bond (assuming annual interest payments). A. 8% B. 10% C. 12% D. 6%

Q: T F 50. A call option is often employed to protect a bank or bank customer against losses from falling currency prices.

Q: A 5-year treasury bond with a coupon rate of 8% has a face value of $1000. What is the semi-annual interest payment? A. $80 B. $40 C. $100 D. None of the above

Q: T F 61. When a bank temporarily offers higher than average interest rates or lower than average customer fees in order to attract new business they are practicing conditional pricing.

Q: If a bond is paying interest semi-annually, then: A. interest is paid once a year B. interest is paid every six moths C. interest is paid every three months D. none of the above

Q: T F 49. A put option on currency futures is often used to protect against a rise in currency prices.

Q: T F 60. Conditionally free deposits for customers mean that as long as the customers do not go above a certain level of deposits there are no monthly fees or per transaction charges.

Q: A government bond issued in Germany has a coupon rate of 5%, face value of euros 100 and maturing in five years. The interest payments are made annually. Calculate the yield to maturity of the bond (in euros) if the price of the bond is 106 euros. A. 5.00% B. 3.80% C. 3.66% D. none of the above

Q: T F 48. Short hedges in currency futures contracts are used to protect a bank or bank customer against rising currency prices.

Q: A government bond issued in Germany has a coupon rate of 5%, face value of euros 100 and maturing in five years. The interest payments are made annually. Calculate the price of the bond (in euros)if the yield to maturity is 3.5%. A. 100 B. 106.77 C. 106.33 D. none of the above

Q: The following entities issue bonds to raise long-term loans except: A. The federal government B. State and local governments C. Companies D. Individuals

Q: T F 59. The number one factor households consider in choosing a bank to hold their savings deposits, according to recent studies cited in this chapter, is location.

Q: T F 47. A bank's net foreign currency-denominated assets in a given currency are equal to the volume of its assets denominated in that currency less any liabilities the bank has taken on that are denominated in the same currency.

Q: Student: ___________________________________________________________________________

Q: T F 58. The number one factor households consider in selecting a bank to hold their checking account is, according to recent studies cited in this chapter, low fees and low minimum balance.

Q: What is the relationship between spot and forward rates?

Q: T F 46. If an international bank has adopted a net short position in a particular currency and that currency's exchange value increases the bank will achieve a profit from trading the currency.

Q: A 5-year bond with 10% coupon rate and $1000 face value is selling for $1123. Calculate the yield to maturity on the bond assuming annual interest payments. A. 10.0% B. 8.9% C. 7.0% D. None of the above

Q: T F 57. Under the Truth in Savings Act customers must be informed of the impact of any early deposit withdrawals on the annual percentage yield they expect to receive from an interest-bearing deposit.

Q: A three-year bond has 8.0% coupon rate and face value of $1000. If the yield to maturity on the bond is 10%, calculate the price of the bond assuming that the bond makes semi-annual coupon interest payments. A. $857.96 B. $949.24 C. $1057.54 D. $1000.00

Q: A 3-year bond with 10% coupon rate and $1000 face value yields 8% APR. Assuming annual coupon payment, calculate the price of the bond. A. $857.96 B. $951.96 C. $1000.00 D. $1051.54

Q: T F 45. If an international bank has gone net long in a particular currency it will score a positive gain if the value of that currency declines.

Q: T F 56. The Truth in Savings Act requires a bank to disclose to its deposit customer the frequency with which interest is compounded on all interest-bearing accounts.

Q: Generally, bonds issued in the following countries pay interest semi-annually. I) USA, II) UK, III) Canada, IV) Germany, & V) Japan A. I, II, III, & IV B. I, II, III, & V C. II, III, & IV only D. None of the above

Q: T F 44. An international bank's net position in a foreign currency is measured by the difference between the volume of that currency purchased less the volume of that currency sold.

Q: Generally, a bond can be valued as a package of: I) Annuity, II) Perpetuity, III) Single payment A. I and II only B. II and III only C. I and III only D. none of the above

Q: T F 55. According to recent survey information provided by the staff of the Federal Reserve Board the average level of fees on most types of checking and NOW accounts appear to have risen.

Q: The type of bonds where the identities of bonds' owners are recorded and the coupon interest payments are sent automatically are called: A. Bearer bonds B. Government bonds C. Registered bonds D. None of the above

Q: T F 43. An international bank with a positive net exposure in a given foreign currency is said to be in a net short position in that particular currency.

Q: What is the relationship between spot and forward rates?

Q: T F 50. The proposed new branch’s negative return correlation with existing branch offices and other assets can serve to lower the overall bank’s riskiness and is an important justification for branch establishment. This is referred to as geographic diversification effect.

Q: T F 54. According to recent Federal Reserve data no-fee savings accounts are on the decline.

Q: Define the term, "real interest rate."

Q: T F 42. Under the terms of the International Lending and Supervision Act the loan rescheduling fees U.S. banks can charge international borrowers are restricted.

Q: What is the relationship between real and nominal rates of interest?

Q: T F 49. When considering possible location for new branches, the expected rate of return is the only decision that management should consider.

Q: Briefly explain the expectations theory.

Q: T F 53. Deposits are usually priced separately from loans and other bank services.

Q: T F 41. The Federal Reserve Board can terminate the operations of a foreign bank in the United States if it finds the bank is not being operated in a manner consistent with the public interest.

Q: Briefly explain what is meant by "the term structure of interest rates."

Q: T F 48. Payment by electronic direct deposit now comprises over 50 percent of all transactions.

Q: Briefly discuss the concept of volatility.

Q: Discuss the concept of duration.

Q: T F 52. Nonprice competition for deposits has tended to distort the allocation of scarce resources in the banking sector.

Q: What is the relationship between interest rates and bond prices?

Q: T F 40. ADRs are issued by foreign banks operating outside the U.S. and sold to investors in the Eurodollar market.

Q: Briefly explain the term "yield to maturity."

Q: T F 47. The OCC does not charter internet-only banks.

Q: Briefly explain the cash flows associated with a bond to the investor. Bonds provide two types of cash flows: interest payments and the principal payment. Interest payments occur each period, usually annually or semi-annually. Periodic interest payments are also called coupon payments. Thus this forms an annuity. Principal payment occurs at the time of maturity of the bond and is a lump sum payment. Type: Easy

Q: T F 51. A bank has full control of its deposit prices in the long run.

Q: T F 39. Currency options give their buyer the right, but not the obligation, to deliver or take delivery of a foreign currency or currency futures contract.

Q: Defaulted bonds often pay some level of residual?

Q: T F 46. The majority of new banks do not become profitable for at least a decade.

Q: Forward rates are always higher than spot rates.

Q: T F 50. Competition lowers the expected return to a bank from putting its deposits to work.

Q: The U.S. Treasury issues inflation-indexed bonds known as TIPs.

Q: T F 45. In the short-term newly-chartered banks fail at a higher rate than established banks.

Q: Indexed bonds were completely unknown in the U.S. before 1997.

Q: Treasury bonds do not have default risk, but are subject to inflation risk.

Q: T F 49. Competition tends to raise deposit interest costs.

Q: The relationship between nominal interest rate and real interest rate is given by: (1 + rnominal) = (1 + rreal)(1 + inflation rate)

Q: T F 38. Long hedges in currency futures are designed to protect a bank or its customer from increases in the price of the currency it must eventually acquire.

Q: The expectations theory implies that the only reason for a declining term structure is that investors expect spot interest rates to fall.

Q: T F 44. More recently the issue of public need has become an increasingly important factor in the granting of bank charters.

Q: T F 48. A Roth IRA allows an individual to accumulate investment earnings tax free and also pay no tax on their investment earnings when withdrawn provided the taxpayer follows the rules on this new account.

Q: Short-term and long-term interest rates always move in parallel.

Q: If the term structure of interest rate is flat the nine-year interest rate is equal to the ten-year interest rate.

Q: T F 37. The Basel Agreement on international capital standards does not cover Japanese banks but does cover major banks in the U.S. and Western Europe.

Q: T F 43. Research indicates that States with more liberal chartering standards experience a higher rate of bank failures.

Q: The term structure of interest rate is the relationship between yield to maturity and maturity.

Q: T F 47. A MMDA is a short term deposit where the bank can offer a competitive interest rate and which allows up to 6 preauthorized drafts per month.

Q: The longer a bond's duration greater is its volatility.

Q: T F 36. The International Lending and Supervision Act requires federal regulators to supervise the U.S. banks under their jurisdiction more closely but to give banks and the private marketplace more freedom in deciding what their capital requirements should be.

Q: The duration of a zero coupon bond is the same as its maturity.

Q: T F 42. ATMs are profitable for all banks since they can eliminate tellers at branches that have ATMs.

Q: The duration of any bond is the same as its maturity.

Q: T F 46. NOW accouts can be held by businesses and individuals and are interest bearing checking accounts.