Question 1

Retail banking services and products in recent years have moved strongly toward electronic payment technology.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following observations is NOT true?

Accepted Answer

A) The use of electronic methods of payment is far higher in major developed countries other than the United States. 
B) E-money payments are virtually nonexistent in the United States. 
C) Money stored in e-money accounts and cards is covered by deposit insurance. 
D) U.S.FIs have been slow in adopting and using online banking and electronic payment methods extensively. 
E) All of the options. 
A) The use of electronic methods of payment is far higher in major developed countries other than the United States. 
B) E-money payments are virtually nonexistent in the United States. 
C) Money stored in e-money accounts and cards is covered by deposit insurance. 
D) U.S.FIs have been slow in adopting and using online banking and electronic payment methods extensively. 
E) All of the options.

Question 3

Large scale investments in technology may lead to diseconomies of scale due to excess capacity, cost overruns, and cost control problems.

Accepted Answer

A) True 
 B)False

Question 4

The "flash crash" on the NYSE in May 2010 was directly attributable to the manipulation of LIBOR by Barclays PLC.

Accepted Answer

A) True 
 B)False

Question 5

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. On further analysis, it is estimated that the project has a finite life of 5 years, i.e.further investment will be required to generate the same savings.Should they undertake the project if they assume a five-year horizon for evaluating the project?

Accepted Answer

A) Yes, because the NPV of the project is $500,000. 
B) Yes, because the NPV of the project is $342,016. 
C) No, because the NPV of the project is -$500,000. 
D) No, because the NPV of the project is -$201,458. 
E) No, because the IRR of the project is greater than 15 percent. 
A) Yes, because the NPV of the project is $500,000. 
B) Yes, because the NPV of the project is $342,016. 
C) No, because the NPV of the project is -$500,000. 
D) No, because the NPV of the project is -$201,458. 
E) No, because the IRR of the project is greater than 15 percent.

Question 6

Which of the following implies that small FIs are more cost efficient than large FIs, and that in a freely competitive environment for financial services, small FIs may outperform their larger counterparts?

Accepted Answer

A) Economies of scale. 
B) Diseconomies of scale. 
C) Economies of scope. 
D) Diseconomies of scope. 
E) Constant returns to scale. 
A) Economies of scale. 
B) Diseconomies of scale. 
C) Economies of scope. 
D) Diseconomies of scope. 
E) Constant returns to scale.

Question 7

The success in technologically related innovation often is dependent on changes in regulations and regulatory procedures.

Accepted Answer

A) True 
 B)False

Question 8

Wholesale cash management services allow corporate customers to minimize cash balances and to monitor quickly cash transactions and balances.

Accepted Answer

A) True 
 B)False

Question 9

The U.S.tax burden faced by domestic FIs has been minimized, in part, by the ability to use international wire networks for the transfer of funds.

Accepted Answer

A) True 
 B)False

Question 10

If ACX + Y X + ACY, where AC is average production cost and X and Y are products, economies of scope are present.

Accepted Answer

A) True 
 B)False

Question 11

The Bank for International Settlements has stated that banks should carry extra capital as a cushion against operational risks.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is NOT TRUE concerning The Clearinghouse Internet Payment System (CHIPS)?

Accepted Answer

A) It has similar intra-day net payment flows as Fedwire. 
B) It does not charge explicit fees for intraday overdrafts. 
C) It is a privately operated payments network. 
D) It allows users end the day with an overdraft, but only for two consecutive days in a row. 
E) It makes available $3 billion each day to cover each day's payment transactions. 
A) It has similar intra-day net payment flows as Fedwire. 
B) It does not charge explicit fees for intraday overdrafts. 
C) It is a privately operated payments network. 
D) It allows users end the day with an overdraft, but only for two consecutive days in a row. 
E) It makes available $3 billion each day to cover each day's payment transactions.

Question 13

Which of the following best describes economies of scale?

Accepted Answer

A) The average cost of production decreases as the level of output increases. 
B) The effects on costs related to managerial ability and other hard-to-quantify factors. 
C) Cost savings are realized from using many of the same inputs to produce multiple products. 
D) The average cost of production increases as the level of output increases. 
E) Cost increases are realized from using many of the same inputs to produce multiple products. 
A) The average cost of production decreases as the level of output increases. 
B) The effects on costs related to managerial ability and other hard-to-quantify factors. 
C) Cost savings are realized from using many of the same inputs to produce multiple products. 
D) The average cost of production increases as the level of output increases. 
E) Cost increases are realized from using many of the same inputs to produce multiple products.

Question 14

Which of the following implies reduced unit costs as size or volume of assets increases?

Accepted Answer

A) Diseconomies of scale. 
B) Economies of scale. 
C) Economies of scope. 
D) Diseconomies of scope. 
E) Constant returns to scale 
A) Diseconomies of scale. 
B) Economies of scale. 
C) Economies of scope. 
D) Diseconomies of scope. 
E) Constant returns to scale

Question 15

Some analysts and regulators regard this risk as potentially the greatest sources of instability in the financial markets today.

Accepted Answer

A) Daylight overdraft risk 
B) Cybersecurity risk 
C) International technology transfer risk 
D) Competition risk 
E) Tax avoidance risk 
A) Daylight overdraft risk 
B) Cybersecurity risk 
C) International technology transfer risk 
D) Competition risk 
E) Tax avoidance risk

Question 16

Regulation F, a part of the FDIC Improvement Act of 1991, requires financial institutions to develop internal procedures to limit settlement exposures to correspondent banks.

Accepted Answer

A) True 
 B)False

Question 17

How can noninterest operating expenses of an FI be reduced by improved technological efficiency?

Accepted Answer

A) By improving the efficiency of management of information flows. 
B) By obtaining access to low cost sources of funds. 
C) By linking services to the quality of the FI's technology. 
D) By innovating new interest earning products. 
E) By complying with all government regulations. 
A) By improving the efficiency of management of information flows. 
B) By obtaining access to low cost sources of funds. 
C) By linking services to the quality of the FI's technology. 
D) By innovating new interest earning products. 
E) By complying with all government regulations.

Question 18

Bernie Madoff and his infamous Ponzi scheme is an example of external operational risk to the hedge funds he managed.

Accepted Answer

A) True 
 B)False

Question 19

Daylight overdrafts occur when

Accepted Answer

A) FIs in different time zones clear transactions. 
B) FI debits exceed credits during the day. 
C) FI credits exceed debits during the day. 
D) the sum of all debits transmitted over the system exceed the sum of all credits during the day. 
E) the sum of all credits transmitted over the system exceed the sum of all debits during the day. 
A) FIs in different time zones clear transactions. 
B) FI debits exceed credits during the day. 
C) FI credits exceed debits during the day. 
D) the sum of all debits transmitted over the system exceed the sum of all credits during the day. 
E) the sum of all credits transmitted over the system exceed the sum of all debits during the day.

Question 20

Which of the following statements regarding data management risk are not true.

Accepted Answer

A) Rapid adoption of new data technologies like artificial intelligence and cloud-based storage has made data management risk a higher concern for firms. 
B) Data management risk is the exposure to loss of value or trust caused by issues or limitations to the firm's ability to acquire, store, transform, and move its data assets. 
C) Companies like Visa and Master Card follow a "closed loop" system meaning they act as both the issuer and acquirer to keep their data management in-house. 
D) Institutions that invest in data infrastructure and data management increase their chance of preventing risk exposures. 
E) Data management risk allows a firm to analyze trends and information to help keep relationships with stakeholders strong and secure. 
A) Rapid adoption of new data technologies like artificial intelligence and cloud-based storage has made data management risk a higher concern for firms. 
B) Data management risk is the exposure to loss of value or trust caused by issues or limitations to the firm's ability to acquire, store, transform, and move its data assets. 
C) Companies like Visa and Master Card follow a "closed loop" system meaning they act as both the issuer and acquirer to keep their data management in-house. 
D) Institutions that invest in data infrastructure and data management increase their chance of preventing risk exposures. 
E) Data management risk allows a firm to analyze trends and information to help keep relationships with stakeholders strong and secure.

Exam 17: Technology and Other Operational Risks

Retail banking services and products in recent years have moved strongly toward electronic payment technology.

Which of the following observations is NOT true?

Large scale investments in technology may lead to diseconomies of scale due to excess capacity, cost overruns, and cost control problems.

The "flash crash" on the NYSE in May 2010 was directly attributable to the manipulation of LIBOR by Barclays PLC.

Which of the following implies that small FIs are more cost efficient than large FIs, and that in a freely competitive environment for financial services, small FIs may outperform their larger counterparts?

The success in technologically related innovation often is dependent on changes in regulations and regulatory procedures.

Wholesale cash management services allow corporate customers to minimize cash balances and to monitor quickly cash transactions and balances.

The U.S.tax burden faced by domestic FIs has been minimized, in part, by the ability to use international wire networks for the transfer of funds.

If ACX + Y < ACX + ACY, where AC is average production cost and X and Y are products, economies of scope are present.

The Bank for International Settlements has stated that banks should carry extra capital as a cushion against operational risks.

Which of the following is NOT TRUE concerning The Clearinghouse Internet Payment System (CHIPS)?

Which of the following best describes economies of scale?

Which of the following implies reduced unit costs as size or volume of assets increases?

Some analysts and regulators regard this risk as potentially the greatest sources of instability in the financial markets today.

Regulation F, a part of the FDIC Improvement Act of 1991, requires financial institutions to develop internal procedures to limit settlement exposures to correspondent banks.

How can noninterest operating expenses of an FI be reduced by improved technological efficiency?

Bernie Madoff and his infamous Ponzi scheme is an example of external operational risk to the hedge funds he managed.

Daylight overdrafts occur when

Which of the following statements regarding data management risk are not true.

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Brokerage and Investment Banking

Financial Services: Mutual Funds and Hedge Funds

Financial Services: Insurance

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Fintech Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters

If AC_{X + Y} < AC_X + AC_Y, where AC is average production cost and X and Y are products, economies of scope are present.