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408Questos
| Question | Answer |
|---|---|
| Core deposits are deposits that are | B. very stable funds sources. |
| Which one of the following is the definition of the NIM? | C. (Interest income - Interest expense)/Earning assets |
| 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 |
| 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 | [(0.05 x 1,400) + 150]/1,400 - (150/1,100) = 2.08% |
| Cash in the process of collection is | checks that the bank is owed but has not yet collected. |
| 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 | 0.12 x (0.06 + 0.0150) x 9 = 8.10% |
| Interest-bearing retail accounts with limited checking features designed to compete with money market mutual fund investments are called ________________. | C. MMDAs |
| 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? | (0.10/9.5)/0.15 = 7.02% |
| 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? | E. 11.88% |
| The lower the interest expense ratio, the provision for loan loss ratio, the noninterest expense ratio and the tax ratio the _______________ the _______________. | B. higher; PM |
| 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? | 40/65 = 61.54% |
| 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. | 1 - (0.0525/0.0700) = 25.00% |
| 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? | 0.0155/0.1225 = 12.65% |
| If a bank has more purchased funds than the average bank, you would not be surprised to see a higher than average ____________________ ratio. | D. interest expense |
| The AU ratio measures the bank's ability to __________ and the PM ratio measures the bank's ability to __________________. | generate income from assets; control expenses |
| Investment securities plus ____________________ is equal to a bank's earning assets. | net loans and leases |
| Net loans and leases plus ________________ plus _________________ equals gross loans and leases. | unearned income; the allowance for loan and lease losses |
| Factoring is | purchasing corporate accounts receivables at a discount. |
| A bank has total assets of $620 million and $68.2 million in equity. The managers of the bank realize that $18.6 million of its $372 million loan portfolio will not be repaid. After the bank charges off these unexpected bad loans the bank's equity to asse | (620M - 18.6M)/(68.2M - 18.6M) = 8.25% |
| The risk that an unanticipated increase in liability withdrawals may cause an FI to have to sell assets at fire sale prices is an example of | B. liquidity risk. |
| Second Bank now offers web banking services. Last week a computer glitch posted all web deposit transfers to the wrong accounts. This is an example of | E. operational risk. |
| MONDEX spent $50 million to develop the Smart Card, but tests of prototypes in New York and Canadian cities revealed very little consumer interest. This is an example of | D. technological risk. |
| Repurchase agreements (repos) are used extensively to finance security holdings. In 2007, many investment banks and other financial institutions were unable to roll over their maturing repurchase agreements during the subprime mortgage crisis. This inabil | B. liquidity risk. |
| A thrift makes long-term fixed-rate mortgages funded with short-term deposits and then interest rates rise. Which of the following is true? | . Profitability would decline. |
| In year one, a bank facing reinvestment risk earns 11% on its assets and pays 10% on its liabilities. In year two, the bank had a negative profit spread of 100 basis points. Which of the following is true? In year two, | D. rates fell 200 basis points. |
| Present value uncertainty is the risk that | A. the market value of equity will decline if interest rates change. |
| A bank has book value of $5 million in liquid assets and $95 million in nonliquid assets. Large depositors unexpectedly withdraw $9.5 million in deposits. To cover the withdrawals the bank sells all of its liquid assets at book value. To raise the additio | FALL (9.5M - 5M) x 80% = 3.6M |
| A bank has on-balance-sheet assets with a book value of $940 million and a market value of $985 million and on-balance-sheet liabilities with a book value of $900 million and a market value of $930 million. The bank also has off-balance-sheet assets curre | (985M + 150M) - (930M + 160M) = 45M |
| The £ is worth 1.2569 euros and the euro is worth $1.5568. Statistical analysis indicates that when the euro rises 1% against the dollar, the pound rises 0.5% against the euro and vice versa. A U.S. bank has assets of £40 million that mature in one year f | I. an increase in the value of the euro against the dollar. II. a decrease in the value of the euro against the dollar. III. an increase in euro interest rates relative to pound interest rates. IV. an increase in pound interest rates relative to euro i |
| Having longer maturity assets than liabilities causes banks to bear which of the following risks? | I. Interest rate risk II. Liquidity risk III. Credit risk B. I and II only |
| If a bank is exposed to refinancing risk, its profitability is reduced if interest rates __________________ and if it is exposed to reinvestment risk, its profitability is reduced if interest rates ________________. | A. rise; fall |
| In May 2007, the largest known credit card theft was discovered when it was revealed that 200 million card numbers were stolen from TJX Company. This is an example of | B. operational risk. |
| A bank has a negative repricing gap using a 6-month maturity bucket. Which one of the following statements is most correct if MMDAs are rate-sensitive liabilities? | . If all interest rates are projected to increase, to limit a profit decline when this occurs, the bank could encourage its retail deposit customers to switch from MMDAs to 2-year CDs at current rates. |
| A bank has a positive repricing gap using a 6-month maturity bucket. Which one of the following statements is most correct? | If all interest rates are projected to decrease, to limit a profit decline when this occurs, the bank could encourage its retail loan customers to switch from 1-month reset floating rate loans to 3-year fixed-rate loans at current rates. |
| The structure of a bank's balance sheet as evidenced by its repricing gap and its duration gap affects a bank's sensitivity to interest rate changes. Which one of the following statements about the two types of gaps is true? | The duration gap considers all cash flows up to and including maturity, whereas the repricing gap really only considers how cash flows will change within the maturity bucket. |
| A bank has a negative duration gap. Which one of the following statements is most correct? | If all interest rates are projected to decrease, to limit a net value decline, before rates fall the bank should increase the amount of long-term loans on the balance sheet. |
| A bank is facing a forecast of rising interest rates. How should they set the repricing and duration gap? | Positive repricing gap and negative duration gap |
| A bank has a negative duration gap. Interest rates decline. Which one of the following best describes the effects of the interest rate change? | The bank's market value of equity goes down because the market value of its liabilities increases by more than the market value of its assets increases. |
| With a 6-month maturity bucket, a 9-month fixed rate loan would be considered a ________________ asset and a 30-year mortgage with a rate adjustment in 3 months would be classified as a _______________ asset | D. fixed-rate; rate-sensitive |
| If the spread effect is zero and all interest rates decline 50 basis points, the bank's NII will change by ________________ over the year. | 140 million x -0.0050 = -$700,000 |
| For a 9-month maturity bucket the bank has _________________ in fixed-rate assets and _________________ in fixed-rate liabilities. | FRA = cash + LT loans = 35 + 250 = $285; FRL = Fixed-rate deposits + LT borrow = 240 + 119 = $359 |
| A bank has a positive repricing gap and estimates that the spread between RSAs and RSLs will move directly with interest rates. If interest rates fall, the bank's overall NII will | B. fall. |
| A bank has a negative repricing gap and estimates that the spread between RSAs and RSLs will move inversely with interest rates. If interest rates increase, NII will | B. fall. |
| Weaknesses of the repricing model include the fact that | I. it ignores changes in present values caused by changes in interest rates. II. it ignores different cash flow sensitivities within a maturity bucket. III. it fails to account for runoffs and prepayments. |
| A bank has three assets. It has $75 million invested in consumer loans with a 3-year duration, $39 million invested in T-Bonds with a 16-year duration, and $39 million in 6-month maturity T-Bills. What is the duration of the bank's asset portfolio in year | [(975/132) x 3] + [(39/132) x 16] + [(18/132) x 0.5] = 6.50 |
| A bank has DA = 2.4 years and DL= 0.9 years. The bank has total equity of $82 million and total assets of $850 million. Interest rates are at 6%. 30. What is the bank's duration gap in years? | 2.4 - ([(850-82)/850] x 0.9) = 1.5868 |
| A bank has DA = 2.4 years and DL= 0.9 years. The bank has total equity of $82 million and total assets of $850 million. Interest rates are at 6%. If interest rates increase 100 basis points the predicted dollar change in equity value will equal | -[2.4 - ((850 - 82)/850) x 0.9] x 0.01/1.06 x 850,000,000 = -$12,724,528 |
| A bank has DA = 2.4 years and DL= 0.9 years. The bank has total equity of $82 million and total assets of $850 million. Interest rates are at 6%. To get DE to equal zero to protect the equity value in the event of an interest rate change, the bank coul | E. increase DL to 2.66 years. 2.5 x 850/768 |
| For large interest rate declines, duration ___________ the increases in the bond's price, and for large interest rate decreases, it ____________ the decline in the bond's price | underpredicts; overpredicts |
| For a bank with a positive duration gap, an increase in interest rates will | increase the likelihood of insolvency. |
| After interest rate and yield curve changes, a bank's market value of assets increased $4 million and the market value of its liabilities fell $6 million. The book value of equity _____________ and the market value of equity ____________. | was unchanged; increased $10 million |
| A bank has a positive duration gap. Which one of the following statements is most correct? | If all interest rates are projected to increase, to limit a net value decline before rates rise, the bank should increase short-term loans and decrease long-term loans. |
| A bank has a positive repricing gap. This implies that | . some RSAs are financed by fixed-rate liabilities. |
| A bank has a negative repricing gap. This implies that | B. some RSLs are financing fixed-rate assets. |
| A bank's balance sheet is characterized by long-term fixed-rate assets funded by short-term, variable-rate liabilities. Most likely the bank has a | C. negative repricing gap and a positive duration gap. |
| An FI's balance sheet is characterized by long-term fixed-rate assets funded by short-term variable-rate securities. Most likely the bank has a | . negative repricing gap and a positive duration gap. |
| Weaknesses of the duration gap immunization model include all but which of the following? | Duration measures only how cash flows change, not the present value of those changes. |
| Convexity in bond prices is caused by the | curvature around the bond price yield relationship. |
| A bank has book value of assets equal to $800 million and market value of assets equal to $1,100 million. The bank has book value of liabilities of $700 million and market value of liabilities equal to $850 million. The bank's market-to-book ratio is | (1,100 - 850)/(800 - 700) = 2.5 |
| . A bank has an average asset duration of 2.25 years, the average duration of the liabilities is 1.25 years, and the bank has total assets of $2 billion and $200 million in equity. The bank has an ROE of 9.00%. If all interest rates decrease 50 basis poin | DGap = DurA - kDurL = 2.25 - (0.90 x 1.25) = 1.125; %∆E = - 1.125 x (-0.005/1.09) x $2 bill/$200 million = 5.16% |
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chippertin34