Exam 17: Technology and Other Operational Risks

In the U.S., electronic methods of payment account for a larger number of transactions, but a lower aggregate dollar value than non-electronic methods of payment.

Which is the most important banking area in which technology has had an impact?

Usury ceilings place caps on interest rates that FIs can charge on certain types of loans and are established by federal regulatory authorities.

Spruce Bank is planning to automate some of its back office functions and reduce operating costs.The installation of new computers and software will require an initial investment of $1,000,000.The savings generated because of reduced personnel cost is $200,000 per year.The bank uses an 8 percent rate of discount to evaluate cost saving projects which are expected to last 10 years. The maximum cost savings that can be generated with this new equipment has been estimated to be $264,237.In order to accept this project, what is the minimum number of years the projected savings must be realized before the project breaks even?

The Fed now charges 20 basis points annually for daylight overdrafts.

As of December 2014, which of the following accounts for the highest volume of noncash transactions in the United States?

A new computer system is expected to cost $40 million and generate annual savings of $12 million over the next five years. Should the bank invest in this project if the discount rate is 12 percent?

The U.S.Treasury has recently proposed that banks carry a capital cushion against losses resulting from operational risk.

According to Hitachi Data Systems, recovery time from system failures averages 12 hours.

As of December 2014, which of the following represented the highest percent of the dollar value of noncash transactions worldwide?

The financial services industry is undergoing a profound change by way of digitization, automation, offshoring, and outsourcing.

Which of the following observations concerning e-money is NOT true?

Funds transferred on the Fedwire are settled immediately.

Between 2012 and 2017 the number of consumer complaints to the CFPB grew at an average annual rate of 28%

Technological efficiency focuses exclusively on the cost side of financial intermediation.

Technological advances and the ability to access a nationwide market from one location allowed the growth of Industrial Loan Corporations (ILCs) during the 1990s and illustrate competitive risks of other FIs.Which of the following is true of ILCs?

Compared to the United States, the use of electronic methods of payment is lower in other major developed countries.

Daylight overdraft risk occurs because banks often provide immediate credit to customers for deposits, even though the funds may not arrive until later in the day.

Increases in the rate of innovation of new financial products, whether successful or not, is often credited to advances in technology.

Two important input factors in financial intermediation are capital and labor.