Review Test Submission: Exam 2 Finance 432

Question 1
0 out of 2 points When a loan is sold without recourse, the buyer may only turn the loan back to the seller if the quality of credit deteriates beyond 50%. Answer Correct Answer: False

Question 2
0 out of 2 points In the CAMEL ratings, the area that leaves the most to the discretion of the regulators is __________A) Capital B) Asset Quality C) Management D) Earnings E) Sensivity to Market Risk Answer Correct Answer: C. [None]

Question 3
2 out of 2 points All but which one of the following is an example of noninterest income or noninterest expense? A) Income from service charges on deposits B) Income from trust services C) Gains and losses from trading account assets D) Earnings on securities held for investment E) Salaries and benefits paid to employees Answer Selected Answer: Correct Answer: D. [None Given] D. [None]

Question 4
2 out of 2 points Inside money represents the bulk of the funds in the economy. Answer Selected Answer: True

Correct Answer:

True

Question 5
0 out of 2 points In both commercial and investment banking len ding takes place. Answer Correct Answer: False

Question 6
2 out of 2 points Loans are the major item on a bank's balance sheet, and they generate the largest amount of revenue.

Answer Selected Answer: Correct Answer:

True True

Question 7
2 out of 2 points Which one of the following is the definition of the 'spread?' 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) Answer Selected Answer: Correct Answer: E. [None Given] E. [None]

Question 8
0 out of 2 points If you believe that taxes and are going to go up and you will likely have to pay a high tax rate when you retire, you will probably be better off with a Roth IRA than with a

traditional IRA. Answer Selected Answer: Correct Answer:

False True

Question 9
2 out of 2 points

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/an A. Loan commitment B. Off balance sheet liability C. Off balance sheet asset D. Net charge off E. Loan sold without recourse Answer Selected Answer: Correct Answer:

B. [None Given] B. [None]

Question 10
2 out of 2 points To be classified as an adequately capitalized bank, the bank must have a leverage ratio of at least _____%, Tier I capital to risk adjusted asset ratio of at least _____ % and a total risk based capital ratio of at least _____ % and does not meet the definition of a well capitalized bank. A) 4; 4; 8 B) 5; 6; 10 C) 3; 3; 8 D) 4; 8; 4 E) 4; 6; 10 Answer Selected Answer: Correct Answer: A. [None Given] A. [None]

Question 11
2 out of 2 points

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 Answer Selected Answer: Correct Answer:

C. [None Given] C. [None]

Question 12
2 out of 2 points Currency in the process of collection is checks that the bank owes to other banks but has not yet paid. Answer Selected Answer: Correct Answer: True True

Question 13
0 out of 2 points Regulators may use forebarance in deciding to not close a bank that is insolvent, allowing it to continue to operate.. Answer Correct Answer: True

Question 14
2 out of 2 points

Nationally chartered banks receive chartering and merger approval from the A. Federal Deposit Insurance Corporation B. Office of Comptroller of the Currency C. Federal Reserve System D. Office of Thrift Supervision E. Any of the above may grant a charter and approve a merger Answer

Selected Answer: Correct Answer:

B. [None Given] B. [None]

Question 15
2 out of 2 points 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 Answer Selected Answer: Correct Answer: C. [None Given] C. [None]

Question 16
2 out of 2 points The reduction in deposit funds cost brought about by government insurance is an example of the A) Social benefit of regulation B) Private cost of regulation to DIs C) Private benefits of regulation to DIs D) Net regulatory burden E) None of the above Answer Selected Answer: Correct Answer: C. [None Given] C. [None]

Question 17
0 out of 2 points A correspondent bank uses the resources of a larger commercial bank, allowing it to appear to offer a full range of services.. Answer Correct Answer: False

Question 18
2 out of 2 points 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 Answer Selected Answer: Correct Answer:

C. [None Given] C. [None]

Question 19
2 out of 2 points _____________ are examples of investment bankers offering traditional commercial banking services. A) Online brokers B) Cash management accounts C) Underwriting corporate debt and equity offers D) Venture capital funds E) Mergers and acquisition services Answer Selected Answer: Correct Answer: B. [None Given] B. [None]

Question 20
2 out of 2 points To be well capitalized a bank must have a leverage ratio of at least _____%, Tier I capital to risk adjusted asset ratio of at least _____ % and a total risk based capital ratio of at least _____ %. A) 4; 4; 8 B) 5; 6; 10 C) 3; 3; 8 D) 4; 8; 4 E) 4; 6; 10 Answer Selected Answer: Correct Answer: B. [None Given] B. [None]

Question 21
2 out of 2 points

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 Answer

Selected Answer: Correct Answer:

E. [None Given] E. [None]

Question 22
0 out of 2 points A low capital to asset ratio indicates that the bank is well capitalized relative to its assets and is a sign of a reasonably strong bank (assuming the assets are solid). Answer Selected Answer: Correct Answer: True False

Question 23
2 out of 2 points

Requiring foreign banks to operate under the same rules as domestic banks is termed A. Favored status B. IBA clause C. National treatment D. NAFTA E. Post-patriotism requirement Answer Selected Answer: Correct Answer:

C. [None Given] C. [None]

Question 24
2 out of 2 points

After Bank A merged with Bank B, costs per unit actually rose rather than falling as predicted. This is an example of A. Cost economies of scale B. Cost economies of scope C. X efficiencies D. Diseconomies of scale E. Regulatory burden

Answer Selected Answer: Correct Answer:

D. [None Given] D. [None]

Question 25
2 out of 2 points Profitability at investment banking firms has been very stable each year since 2001. Answer Selected Answer: Correct Answer: False False

Question 26
2 out of 2 points A bank that has an equity to asset ratio equal to 12% can normally lend no more than _____ of its assets to any one borrower. A) 1.20% B) 1.05% C) 12.00% D) 1.50% E) 2.25% Answer Selected Answer: Correct Answer: A. [None Given] A. [None]

Question 27
2 out of 2 points Risk adjusted assets are those assets where the regulators have altered the value to reflect their feelings about credit risk.. Answer Selected Answer: Correct Answer: True True

Question 28
2 out of 2 points Net loans and leases plus ________________ plus

_______________________________ equals gross loans and leases. A) Earned income; provision for loan and lease losses B) Unearned income; the allowance for loan and lease losses C) Net charge offs; provision for loan and lease losses D) Provision for loan and lease losses; allowance for loan and lease losses E) None of the above Answer Selected Answer: Correct Answer:

B. [None Given] B. [None]

Question 29
2 out of 2 points Basel II consists of three overlapping areas that are designed to bolster the safety and soundness of the financial system. The three areas are I. Regulatory capital requirements for credit, market and operational risk. II. Eliminating complex risk based capital requirements for on and off balance sheet accounts. III. Ensuring that banks have sound internal control procedures in place to measure and limit risk IV. Requirements to disclose to market participants the institution's capital structure, risk exposure and capital adequacy. V. Increasing deposit insurance premiums on all accounts. A) I, II and III B) I, III and IV C) II, III and V D) I, IV and V E) II, III and IV Answer Selected Answer: Correct Answer: B. [None Given] B. [None]

Question 30
2 out of 2 points

Recent regulation such as the Riegle-Neal Act of 1994 has removed some of the federal banking laws that formerly constrained profitable opportunities for commercial banks. The Riegle-Neal Act removes the major restrictions on banks' ability to _____. A. Diversify geographically B. Diversify their product line C. Engage in securities underwriting D. Engage in insurance underwriting E. Engage in loan brokerage Answer Selected Answer: Correct Answer: A. [None Given] A. [None]

Question 31
0 out of 2 points The anti-money laundering provisions of the USA Patriot Act requires securities firms to I. Verify the identity of any person seeking to open an account with their firm II. Keep separate records of accounts originating from foreign countries III. Determine whether the client appears on any lists of known or suspected terrorists or terrorists' organizations A) I only B) III only C) I and II only D) II and III only E) I, II and III Answer Selected Answer: Correct Answer: C. [None Given] D. [None]

Question 32
2 out of 2 points Core capital in a bank does not include bonds. Answer Selected Answer: Correct Answer: True True

Question 33
2 out of 2 points Financial standby letters of credit are an alternative to loan commitments. Answer Selected Answer: Correct Answer: True True

Question 34
2 out of 2 points The FDIC is required to collect additional insurance premiums from insured institutions if the BIF reserves fall below ______ of insured deposits. A) 1.00% B) 1.25% C) 1.50% D) 1.75% E) 2.00% Answer Selected Answer: B. [None Given]

Correct Answer:

B. [None]

Question 35
2 out of 2 points The provision for loan loss account is actual loan losses less loan recoveries in a given time period. Answer Selected Answer: Correct Answer: False False

Question 36
2 out of 2 points The law that largely repealed the Depression era banking laws was the A) Depository Institution Deregulation and Monetary Control Act of 1980 B) FDIC Improvement Act C) FIRRE Act D) International Banking Act E) None of the above Answer Selected Answer: Correct Answer: E. [None Given] E. [None]

Question 37
2 out of 2 points A bank has interest income to total assets ratio of 5% and has noninterest income of $30 million and total assets of $750 million. What is the bank's asset utilization ratio? A) 5.0% B) 9.0% C) 7.5% D) 6.3% E) 8.2% Answer Selected Answer: Correct Answer: B. [None Given] B. [None]

Question 38
0 out of 2 points Which ratio measures the amount of interest and non interest income generated per dollar of total assets? A) Return on Equity B) Return on Assets C) Equity Multiplier D) Profit

Margin E) Asset Utilization Answer Selected Answer: Correct Answer:

B. [None Given] E. [None]

Question 39
0 out of 2 points The net regulatory burden is pretty much assumed to be reasonable by all parties. Answer Selected Answer: Correct Answer: True False

Question 40
2 out of 2 points The potential exposure of an off balance sheet currency forward measures the A) Likely loss to the bank if the counter-party defaults in the future B) Replacement cost of the contract today C) Current net present value of the contract D) The maximum of B. or C. E) None of the above Answer Selected Answer: Correct Answer: A. [None Given] A. [None]

Question 41
2 out of 2 points The ________________________________________ introduced the prompt corrective action policy that requires federal intervention when a bank's capital falls below certain minimums. A. Federal Deposit Insurance Corporation Improvement Act B. Financial Services Modernization Act C. USA Patriot Act D. Foreign Bank Supervision Enhancement Act E. Foreign Banking Activity Powers Enforcement Act Answer

Selected Answer: Correct Answer:

A. [None Given] A. [None]

Question 42
2 out of 2 points

Which act allowed the establishment of full service financial institutions in the U.S? A. Riegle-Neal Act B. Financial Services Modernization Act C. USA Patriot Act D. Foreign Bank Supervision Enhancement Act E. Foreign Banking Activity Powers Enforcement Act

Answer Selected Answer: Correct Answer:

B. [None Given] B. [None]

Question 43
2 out of 2 points

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 Answer Selected Answer: Correct Answer:

D. [None Given] D. [None]

Question 44
2 out of 2 points

There are ____________ members of the FOMC from the federal reserve board of governors. A. 7 B. 6 C. 12 D. 13 E. 5 Answer Selected Answer: Correct Answer:

A. [None Given] A. [None]

Question 45
2 out of 2 points

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 loss B. Tax ratio C. Non-interest expense ratio D. Interest expense ratio E. None of the above Answer Selected Answer: Correct Answer:

D. [None Given] D. [None]

Question 46
0 out of 2 points Rate sensitive funding sources at a bank are termed core deposits. Answer Selected Answer: Correct Answer: True False

Question 47
2 out of 2 points

Banks generally pay higher interest rates on NOW accounts than on MMDAs. Answer Selected Answer: Correct Answer:

True True

Question 48
0 out of 2 points

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 Answer Selected Answer: Correct Answer:

D. [None Given] E. [None]

Question 49
2 out of 2 points Banks are generally prohibited from making loans exceeding more than 10 percent of their own equity capital to any one company or borrower. Answer Selected Answer: Correct Answer: True True

Question 50
0 out of 2 points

If a bank loses $100,000 on loans, spends $10,000 in collection and recovers $35,000 the bank's net charge offs are_____________ A) $65,000 B) $105,000 C) $95,000 D) $70,000 E) $60,000 Answer Selected Answer: Correct Answer: C. [None Given] D. [None]

Response Feedback: 100,000 + 5000 - 35000