Q&A Hero

Q: The present value of $100 expected in two years from today at a discount rate of 6% is: A. $116.64 B. $108.00 C. $100.00 D. $89.00

Q: T F 36. The measure of a bank's efficiency and return known as the "earnings spread" subtracts total interest expenses from all the bank's interest income and these two items are then divided by total assets.

Q: Briefly explain how individuals can adjust their preferences for current and future consumption.

Q: T F 35. Geographic diversification refers to the spreading out credit accounts and deposits among a wide variety of customers, including large and small business accounts, different industries, and households with a variety of sources of income and collateral.

Q: Mr. Smith has an income of $40,000 this year and $60,000 next year. He can invest in a project that costs $30,000 this year, which generates an income of $36,000 next year. The market interest rate is 10%. What will be his consumption next year, if Mr. Smith invests in the project and consumes $50,000 this year? A. $40,000 B. $52,000 C. $60,000 D. None of the above

Q: T F 43. The Gramm-Leach-Bliley Act of 1999 essentially repeals the Glass-Steagall Act passed in the 1930s.

Q: Ms. Newcastle has $60,000 income this year and $40,000 next year. The market interest rate is 10% per year. Suppose Ms. Newcastle wishes to consume $62,000 next year. What will be her consumption this year? A. $60,000 B. $40,000 C. $70,000 D. $19,000

Q: T F 35. The ratio of non-performing assets to total loans and leases is a measure of credit risk in banking.

Q: The line that connects the maximum that one can consume this year (now) and the maximum one can consume next year: A. Has a slope of (1 + r) B. Has a slope of -(1 + r) C. Has a slope of r D. Has a slope of 1/r

Q: T F 34. Portfolio diversification refers to seeking out customers located in different communities or countries, which presumably will experience different economic conditions.

Q: Ms. Anderson has $60,000 income this year and $40,000 next year. The market interest rate is 10% per year. Suppose Ms. Anderson consumes $80,000 this year. What will be her consumption next year? A. $60,000 B. $30,000 C. $70,000 D. $18,000

Q: T F 42. The Sarbanes-Oxley Act allows banks, insurance companies, and securities firms to form Financial Holding Companies (FHCs).

Q: Mr. Dell has $100 income this year and zero income next year. The market interest rate is 10% per year. Mr. Dell also has an investment opportunity in which he can invest $50 this year and receive $80 next year. Suppose Mr. Dell consumes $50 this year and invests in the project. What is the NPV of the investment opportunity? A. $5 B. $22.73 C. $0 (zero) D. None of the above.

Q: T F 34. In the textbook the ratio of pre tax net operating income to total operating revenues is described as a measure of the effectiveness of a financial institution’s expense-control efficiency.

Q: Mr. Thomas has $100 income this year and zero income next year. The market interest rate is 10% per year. Mr. Thomas also has an investment opportunity in which he can invest $50 this year and receive $80 next year. Suppose Mr. Thomas consumes $50 this year and invests in the project. What will be his consumption next year? A. $55 B. $80 C. $50 D. None of the above

Q: T F 33. Off-balance-sheet commitments of banks carry capital requirements under the international (Basel) capital requirements.

Q: Ms. Venus has $100 income this year and $110 next year. The market interest rate is 10% per year. Suppose Ms. Venus consumes $60 this year. What will be her consumption next year? A. $154 B. $170 C. $120 D. None of the above

Q: T F 41. FIRREA (1989) allowed bank holding companies to acquire nonblank depository institutions and, if desired, convert them into branch offices.

Q: Mr. Bird has $100 income this year and zero income next year. The market interest rate is 10% per year. Mr. Bird also has an investment opportunity in which he can invest $50 today and receive $80 next year. Suppose Mr. Bird consumes $30 this year and invests in the project. What will be his consumption next year? A. $88 B. $102 C. $80 D. $100

Q: T F 33. The ratio of a bank's net after-tax income to pre-tax net operating income is described in the text as a measure of tax management efficiency.

Q: What is Toyota's business philosophy?

Q: T F 32. Under the international capital (Basel) agreement Tier 2 capital must be raised to a minimum of 4 percent of risk-weighted assets.

Q: What are the main purposes of the Sarbanes-Oxley Act of 2002 (SOX).

Q: T F 40. The National Bank Act (1863) created the Federal Reserve which acts as the lender of last resort.

Q: Briefly explain the major provisions of the Sarbanes-Oxley Act of 2002 (SOX).

Q: T F 32. The bank's profit margin or ratio of net after-tax income to total operating revenue is a measure of financial leverage for a bank.

Q: Briefly explain the advantages and disadvantages of Sarbanes-Oxley Act of 2002 (SOX).

Q: T F 31. Core capital includes the surplus account for stock.

Q: Briefly explain the reasons for enacting the Sarbanes-Oxley Act of 2002.

Q: Briefly explain different views taken in different countries about the corporation's goals.

Q: T F 31. According to the textbook a bank's asset-utilization ratio reflects the mix and yield on the bank's portfolio of assets.

Q: T F 30. Tier 2 includes undivided profits.

Q: Briefly explain some of the institutional arrangements that ensure that managers work toward increasing the value of a firm.

Q: T F 39. When the Federal Reserve increases the discount rate it generally causes other interest rates to decrease.

Q: Explain why "maximization of shareholders' wealth" is the appropriate goal of the firm.

Q: T F 30. A bank's ROA equals its ROE times the ratio of total assets divided by total equity capital.

Q: What items of good corporate governance serve to mitigate the tension between owners and managers?

Q: T F 29. Deposit insurance subsidized by government encourages banks to increase their ratios of capital to deposits.

Q: What function does the Securities and Exchange Commission play in protecting investors?

Q: T F 38. When the Federal Reserve buys T-bills through its open market operations, it causes the growth of bank deposits and loans to decrease.

Q: Briefly discuss principal - agent problems as related to a corporation

Q: T F 29. If the discount factor associated with the value of a bank's stock rises, the bank's stock price should rise, other factors held constant.

Q: Briefly explain the term "Agency costs" as related to a corporation.

Q: T F 28. One fundamental purpose for regulating capital is to limit losses to the federal government arising from deposit insurance claims.

Q: T F 37. The moral hazard problem of banks is caused by the fixed insurance premiums paid by banks and causes banks to accept greater risk.

Q: Briefly discuss the role of the financial managers.

Q: T F 28. If the expected stream of future bank shareholder dividends rises, a bank's stock price should also rise, other factors held constant.

Q: Briefly explain the functions of financial markets.

Q: T F 27. According to the textbook capital and risk are intimately related to each other.

Q: Briefly explain the sequence flow of cash between financial markets and the firm. Cash is raised by selling financial assets to investors.

Q: Briefly explain the advantages of a corporation as a form of business organization. Corporations have infinite life.

Q: T F 36. The term "regulatory dialectic" refers to the dual system of banking regulation in the United States and selected other countries where both the federal or central government and local governments regulate banks.

Q: Briefly explain the term limited liability.

Q: T F 27. Attempting to maximize a bank's stock value is the key objective for banks which should have priority over all other bank goals.

Q: T F 26. In the field of banking, capital refers principally to those funds contributed by a bank's owners.

Q: Explain the term "corporation."

Q: Managers, Shareholders, and lenders of firm have identical information about the value of the firm.

Q: T F 35. The 1994 federal interstate banking bill does not limit the percentage of statewide or nationwide deposits that an interstate banking firm is allowed to control.

Q: A firm's overall value belongs entirely to the shareholders.

Q: T F 26. Financial institutions that pursue the "quiet life" as a goal are really pursuing risk minimization.

Q: The controller's responsibilities include banking relations and cash management.

Q: . for banks include mortgage servicing rights and purchased credit card relationships and can be counted as part of bank capital.

Q: In large firms, there is usually a Chief Financial Officer (CFO) who oversees both the treasurer and controller's work.

Q: T F 34. Under the terms of the 1994 Riegle-Neal Interstate Banking law bank holding companies can acquire a bank anywhere inside the United States, subject to Federal Reserve Board approval.

Q: The treasurer's responsibilities include preparation of financial statements.

Q: Net profit margin can be split into two parts, and tax management efficiency. The first part is pre-tax net operating income over total operating revenue which looks at how many dollars of revenue survive after operating expenses are removed.

Q: Since the investment and financing decisions are analyzed separately, the financial manager can completely ignore investors and financial markets when analyzing capital investment projects.

Q: 54. 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. What is the expected standard deviation of the new combination of services? A) 6.40% B) 12.60% C) 5.59% D) 9.08% E) None of the above

Q: Real assets of a corporation are claims on their financial assets.

Q: T F 77. If a Financial Institution's net interest margin is immune to interest-rate risk then so is its net worth.

Q: A corporation has a legal existence of its own and is based on "articles of incorporation."

Q: 53. 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. What is the expected return of the new combination of services? A) 17.40% B) 12.60% C) 5.59% D) 15.00 E) None of the above

Q: The board of directors is ultimately responsible for all large investment decisions.

Q: T F 33. The federal law that states individuals and families cannot be denied a loan merely because of their age, sex, race, national origin or religious affiliation is known as the Competitive Equality in Banking Act.

Q: Major disadvantages of the Sarbanes-Oxley Act of 2002 (SOX) are the following except: A. good investor protection B. increase in compliance costs C. that it constrains managers' ability to run the firm D. that it may discourage development of human capital in the firm

Q: T F 76. Financial institutions laden with home mortgages tend be immune to interest-rate risk.

Q: A major advantage of the Sarbanes-Oxley Act of 2002 (SOX) is: A. good investor protection B. increase in compliance costs C. that it constrains managers' ability to run the firm D. that it may discourage development of human capital in the firm

Q: The Sarbanes-Oxley Act of 2002 (SOX) was passed largely in response to: A. the corporate accounting scandals of the previous years B. the increase in the budget deficits C. the increase in the trade deficits D. none of the above

Q: T F 75. Net interest margin tends to rise for U.S. banks when the yield curve is upward-sloping.

Q: The idea that "firms should be run for stakeholders welfare " is accepted in: I) U.S.A.; II) U.K; III) Germany; IV) France; V) Japan A. I only B. I and II only C. III, IV and V only D. I, II, III, IV and V