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Finance
Q:
The Investment Company Act of 1940 and the Securities Acts of 1933 and 1934 are examples of investor protection regulations.
Q:
The quantity of notes and coin in the economy is called inside money but the bulk of the money supply is outside money.
Q:
The difference between the private costs of regulations and the private benefits for the producers of financial services is called the net regulatory burden.
Q:
The CRA of 1977 and the HMDA of 1975 are examples of consumer protection regulations.
Q:
The layers of regulation imposed on banks to protect depositors against bank failure are termed credit allocation regulations.
Q:
Banks are generally prohibited from making loans exceeding more than 15% of their own equity capital to any one company or borrower.
Q:
What is the difference between a loan commitment and a letter of credit?
Q:
What are the differences between purchased funds and core deposits?
Q:
How has the negotiable feature of wholesale CDs improved bank's ability to manage their liquidity?
Q:
What is the difference between net charge-offs (sometimes called write-offs) and the provision for loan loss? What is the purpose of the provision for loan loss account?
Q:
What are the major sources of purchased funds? Can using purchased funds change a bank's profitability? Its risk level? Explain
Q:
If the net noninterest income were to increase to -$16, what would the average loan rate (ALR) have to be to generate a 12% ROE? Compared to the industry, does this ALR appear feasible? If not, what options does FNB have?
Q:
What must net noninterest income (net of noninterest expense) be in order for FNB to have a 12% ROE? Based on your answer, must FNB be performing better or worse than the industry average in this area? Explain.
Q:
All but which one of the following is an example of noninterest income or noninterest expense?A. Income from service charges on depositsB. Income from trust servicesC. Gains and losses from trading account assetsD. Earnings on securities held for investmentE. Salaries and benefits paid to employees
Q:
A(n) __________________ is a contra asset account.A. loan commitmentB. provision for loan and lease lossesC. allowance for loan and lease lossesD. net charge-off
Q:
The largest market available for purchased funds is the ___________________.A. wholesale CD marketB. Eurodollar deposit marketC. banker's acceptances marketD. discount window purchasesE. fed funds market
Q:
Net loans and leases plus ________________ plus _________________ equals gross loans and leases.A. earned income; provision for loan and lease lossesB. unearned income; the allowance for loan and lease lossesC. net charge-offs; provision for loan and lease lossesD. provision for loan and lease losses; allowance for loan and lease lossesE. none of the above
Q:
Investment securities plus ____________________ is equal to a bank's earning assets.A. net loans and leasesB. gross loans and leasesC. property, plant, and equipmentD. securities held for tradingE. purchased accounts
Q:
The AU ratio measures the bank's ability to __________ and the PM ratio measures the bank's ability to __________________.A. control expenses; generate income from assetsB. generate income from assets; control expensesC. maximize interest revenue; minimize interest expenseD. control leverage; minimize physical plantE. none of the above
Q:
If a bank has more purchased funds than the average bank, you would not be surprised to see a higher than average ____________________ ratio.A. provision for loan lossB. taxC. noninterest expenseD. interest expenseE. none of the above
Q:
If the typical bank of this type has an overhead efficiency ratio of 0.65, then this particular bank ___________________ than the typical bank, ceteris paribus.A. is doing a poorer job generating profitable off-balance-sheet activitiesB. is doing a better job time managing noninterest income and expensesC. is paying higher taxesD. has fewer loan lossesE. none of the above
Q:
If the average net interest margin for this type of bank is 4.65%, then, ceteris paribus, this particular bank is performingA. the same as average because this bank has a NIM of 4.65%.B. better than average because this bank has a NIM of 6.55%.C. poorer than average because this bank has a NIM of 4.08%.D. better than average because this bank has a NIM of 5.23%.E. One can't determine with the information given.
Q:
The bank's asset utilization ratio isA. 58.04%B. 6.12%C. 5.46%D. 4.29%E. 6.81%
Q:
The bank's profit margin isA. 27.27%B. 23.08%C. 21.31%D. 18.46%E. none of the above
Q:
The bank's ROE isA. 15.65%B. 13.21%C. 19.55%D. 11.17%E. 12.67%
Q:
The bank's ROA isA. 1.31%B. 1.78%C. 1.26%D. 0.89%E. none of the above
Q:
The First Bank of the Ozarks generates $0.0155 dollars of net income per dollar of assets and it has a profit margin of 12.25%. How much operating income per dollar of total assets does First Bank generate?
A. 12.50%
B. 12.65%
C. 12.75%
D. 12.85%
E. 12.95%
Q:
A municipal bond is paying a 6% annual yield. An equivalent risk corporate bond is paying 7%. Investors with a tax rate of _______________ or higher would prefer the municipal bond.
A. 65.13%
B. 14.28%
C. 25.00%
D. 80.75%
E. 25.75%
Q:
The largest source of income at a typical bank is
A. interest income on securities held for sale.
B. interest income on securities held for investment.
C. interest income on loans and leases.
D. noninterest income.
E. dividends or stock.
Q:
Plains National Bank has interest income of $250 million and interest expense of $110 million, noninterest income of $40 million and noninterest expense of $65 million on earning assets of $3,900 million. What is Plains' overhead efficiency ratio?
A. 61.54%
B. 44.00%
C. 9.23%
D. 42.45%
E. 37.46%
Q:
The lower the interest expense ratio, the provision for loan loss ratio, the noninterest expense ratio and the tax ratio the _______________ the _______________.
A. lower; PM
B. higher; PM
C. lower; AU
D. higher; AU
E. lower; EM
Q:
A bank has interest income to total assets ratio of 5.45% and has noninterest income of $45 million and total assets of $700 million. What is the bank's asset utilization ratio?
A. 5.45%
B. 6.43%
C. 9.67%
D. 15.02%
E. 11.88%
Q:
Core deposits typically include all except which one of the following?
A. Demand deposits
B. NOW accounts
C. MMDAs
D. Eurodollar deposits
E. Passbook savings accounts
Q:
Purchased funds include all but which one of the following?
A. Brokered deposits
B. Wholesale CDs
C. Fed funds purchased
D. Repurchase agreements
E. Demand deposits
Q:
Oceanside bank converts a dollar of equity into 10 cents of net income and has $9.50 in assets per dollar of equity capital. Oceanside also has a profit margin of 15%. What is Oceanside's AU ratio?
A. 1.05%
B. 3.55%
C. 5.56%
D. 6.45%
E. 7.02%
Q:
Interest-bearing retail accounts with limited checking features designed to compete with money market mutual fund investments are called ________________.
A. NOWs
B. retail CDs
C. MMDAs
D. special savings deposits
E. negotiable CDs
Q:
Blue Ridge Bank has a PM of 12%, an interest income to total assets ratio of 6.00%, and a noninterest income to assets ratio of 1.50%. Blue Ridge also has $9 in assets per dollar in equity capital. Blue Ridge's ROE is
A. 7.50%
B. 9.00%
C. 8.10%
D. 6.48%
E. 5.75%
Q:
Cash in the process of collection is
A. a deposit at another financial institution.
B. a Fed funds transaction.
C. checks the bank owes other institutions that have not yet been paid.
D. checks that the bank is owed but has not yet collected.
E. equity capital.
Q:
Fernando Bank has interest expense of $150 million, earning assets of $1,400 million and a NIM of 5.00%. The bank also has interest-bearing liabilities of $1,100 million. Fernando Bank's spread is
A. 1.10%
B. 1.65%
C. 1.94%
D. 2.08%
E. 2.16%
Q:
Bank A has a higher ROA than Bank B. Both banks have similar interest income to asset ratios and noninterest income to asset ratios. We know that
I. Bank A has a higher profit margin than Bank B.
II. Bank A has a higher AU ratio than Bank B.
III. Bank A must have a higher PLL/OI ratio.
A. I only
B. II only
C. I and II only
D. III only
E. I, II, and III
Q:
Uniform principles, standards, and report forms for depository institutions are prescribed by the
A. FDIC
B. Federal Reserve
C. Federal Financial Institutions Examination Council
D. Office of Comptroller of Currency
Q:
Which one of the following is the definition of the NIM?
A. (Net interest income - Net noninterest income)/Earning assets
B. Net interest income/Interest-bearing liabilities
C. (Interest income - Interest expense)/Earning assets
D. (Interest income - Interest expense)/Interest-bearing liabilities
E. (Interest income/Earning assets) - (Interest expense/Interest-bearing liabilities)
Q:
A construction firm cannot obtain the necessary permits to begin building a shopping mall until it can show it either has or will have the necessary funding to complete the project. The firm may ask a bank for which of the following to allow it to obtain the permits?
I. Commercial letter of credit
II. Loan commitment
III. Credit line
IV. Repurchase agreement
A. I or II
B. II or III
C. II or IV
D. III or IV
E. I or IV
Q:
Core deposits are deposits that are
A. at the bank solely for the interest rate earned.
B. very stable funds sources.
C. typically for larger denominations than hot money sources.
D. very frequently turned over.
Q:
Rate sensitive funding sources at a bank are termed core deposits.
Q:
At almost all banks noninterest expense is greater than noninterest income; hence, the overhead efficiency ratio is usually greater than 100%.
Q:
Wholesale CDs obtained from an investment house rather than directly from a customer are referred to as brokered deposits.
Q:
Banks generally pay higher interest rates on NOW accounts than on MMDAs.
Q:
Both retail and wholesale CDs are negotiable instruments despite their different denominations.
Q:
Loans are the major item on a bank's balance sheet, and they generate the largest amount of revenue.
Q:
In ratio analysis, the profit margin times the asset utilization ratio equals return on assets.
Q:
The allowance for loan and lease losses is bank management's estimate of the amount of gross loans and leases that will not be repaid to the bank.
Q:
The provision for loan loss account is actual loan losses less loan recoveries in a given time period.
Q:
C&I loans are loans to businesses used to finance capital needs, equipment purchases, and plant expansions.
Q:
MMDAs are a type of savings account that has some limited checking features. These accounts were designed to help banks compete with MMMFs.
Q:
Loans to consumers and to individuals are jointly termed C&I loans on a bank's balance sheet.
Q:
Banks have higher leverage than most manufacturing firms.
Q:
Composite rating 5 is the rating for the soundest financial institutions.
Q:
A wholesale bank is one that focuses its business activities on commercial banking relationships.
Q:
Why did bank profitability decline beginning in late 2006 and through 2008?
Q:
Discuss the major differences between large banks and small banks. Which have had higher ROAs? Why?
Q:
Why are banks different from other depository institutions?
Q:
What are the major advantages a bank gains by expanding into international bank services? What are three disadvantages of international expansion?
Q:
What are the major sources of funds for banks? Provide a breakdown of all the major sources of funds at a bank and briefly describe the different types of deposits/non-deposit sources.
Q:
Most non-financial firms would never hold as much of their assets in safe liquid securities as banks do. Why do banks maintain such a high percentage of investment in securities?
Q:
Why are loans such a high percentage of total assets at the typical bank? What four broad classes of loans do banks engage in?
Q:
The ROA for financial institutions such as banks is typically quite low as compared to non-financial firms. Why? With such a low ROA, how can banks attract stockholders?
Q:
A bank is earning 6% on its $150 million in earning assets and is paying 4.75% on its liabilities. The bank's interest rate spread is __________.
A. 6.00%
B. 4.75%
C. 1.25%
D. 10.75%
E. 1.26%
Q:
A bank has an interest rate spread of 150 basis points on $30 million in earning assets funded by interest bearing liabilities. However, the interest rate on its assets is fixed and the interest rate on its liabilities is variable. If all interest rates go up 50 basis points, the bank's new pre-tax net interest income will be __________.
A. $600,000
B. $450,000
C. $300,000
D. $250,000
E. $175,000
Q:
An ILC is a type of
A. finance company
B. thrift institution
C. credit card bank
D. nonbank bank
E. foreign-owned loan corporation
Q:
Advantages of going global for U.S. banks include all but which one of the following?
A. Diversification of earnings
B. Greater opportunities to exploit economies of scale
C. Greater sources of funds
D. Conducting business in less regulated environments
E. Low fixed costs involved in international expansion
Q:
Banks differ from other types of depository institutions in that
I. banks have more diversified asset portfolios.
II. banks obtain funds from more different types sources.
III. the average size bank is larger than other depository institutions.
A. I only
B. I and II only
C. I and III only
D. II and III only
E. I, II, and III
Q:
Which of the following is the primary regulator of bank holding company activities?
A. Federal Bank Holding Company Board
B. FDIC
C. Federal Reserve
D. State regulatory agency in the chartering states
E. U.S. Treasury
Q:
Loans past due 90 days or more and loans that are not accruing interest because of problems of the borrower are called
A. loan losses
B. net charge-offs
C. provisional loans
D. noncurrent loans
E. contra loans
Q:
Reasons behind the drop in bank profitability in the second half of this decade include
I. flattening of the yield curve.
II. increase in competitive pressures on asset pricing.
III. increases in foreclosures in the mortgage market.
IV. increases in net interest margin.
A. I only
B. II and III only
C. I, II, and III only
D. II, III, and IV only
E. III and IV only
Q:
A contingent item that may eventually be placed on the right-hand side of the balance sheet or expensed on the income statement is a(n)
A. loan commitment
B. off-balance-sheet liability
C. off-balance-sheet asset
D. net charge-off
E. loan sold without recourse
Q:
A contingent promise by a bank to pay a bill when it comes due if the bill's originator fails to pay is an example of a
A. swap agreement
B. standby letters of credit
C. forward contract
D. loan commitment
E. commitment to buy foreign exchange
Q:
The provision of banking services to other banks, such as check clearing, foreign exchange trading, etc., are examples of
A. correspondent banking
B. trust services
C. off-balance-sheet assets
D. economies of scope
E. credit derivatives
Q:
Commercial banks are the __________________ financial intermediary in the United States as measured by asset size.
A. largest
B. second-largest
C. third-largest
D. fourth-largest
E. fifth-largest
Q:
Equity capital at commercial banks in 2010 comprised about ____________ of liabilities and equity.
A. 25%
B. 21%
C. 55%
D. 11%
E. 5%