Question 1

By increasing the dividend paid to stockholders, the duration on a bank's stock is increased.

Accepted Answer

A) True 
 B)False

Question 2

Under the new variable-rate deposit insurance scheme, undercapitalized banks can face various restrictions on their activities.

Accepted Answer

A) True 
 B)False

Question 3

Retained earnings are part of Tier 2 capital under Basel I capital rules.

Accepted Answer

A) True 
 B)False

Question 4

The provision for loan losses account can be found on a bank's balance sheet.

Accepted Answer

A) True 
 B)False

Question 5

Under what condition(s) would equity financing be more preferred than debt financing from the viewpoint of bank shareholders?

Accepted Answer

A)  when inflation is expected to decrease in the future 
B)  when the level of interest rate is relatively high 
C)  when the marginal tax rate of the bank is very low 
D)  b and c 
E)  a, b, and c 
A)  when inflation is expected to decrease in the future 
B)  when the level of interest rate is relatively high 
C)  when the marginal tax rate of the bank is very low 
D)  b and c 
E)  a, b, and c

Question 6

A Deposit Insurance National Bank (DINB) can be used by the FDIC to take over the operations of a distressed bank until the bank is either closed or acquired by another bank.

Accepted Answer

A) True 
 B)False

Question 7

Market risk capital requirements require the calculation of market-risk equivalent assets.

Accepted Answer

A) True 
 B)False

Question 8

To calculate risk-adjusted assets under Basel I capital requirements, home loans get a weight of 100%.

Accepted Answer

A) True 
 B)False

Question 9

Compared to Basel I, Basel II offers:

Accepted Answer

A)  more emphasis on banks' own internal risk models, supervisory review, and
Market discipline 
B)  flexibility, menu of approaches, incentives for better risk management 
C)  more risk sensitivity 
D)  all of the above 
A)  more emphasis on banks' own internal risk models, supervisory review, and
Market discipline 
B)  flexibility, menu of approaches, incentives for better risk management 
C)  more risk sensitivity 
D)  all of the above

Question 10

Long-term debt can absorb bank losses:

Accepted Answer

A)  at any time 
B)  if net income is negative 
C)  if permitted by regulators 
D)  if the bank fails 
A)  at any time 
B)  if net income is negative 
C)  if permitted by regulators 
D)  if the bank fails

Question 11

Large banks tend to use more long-term debt than small banks.

Accepted Answer

A) True 
 B)False

Question 12

The agency cost problem arises when a regulatory agency increases its scrutiny of a bank, thereby raising the bank's operating costs and capital requirements.

Accepted Answer

A) True 
 B)False

Question 13

The internal capital generation rate (ICR) indicates the rate at which equity can be expanded and still maintain its asset ratio.

Accepted Answer

A) True 
 B)False

Question 14

What is the explanation for the fact that many bank depositors are NOT concerned about the
Financial leverage of the bank and do not require a higher rate of interest as bank risk increases?

Accepted Answer

A)  Bank risk does not depend on leverage. 
B)  The depositors are insured by FDIC. 
C)  There is an interest rate ceiling on deposits. 
D)  Depositors are not concerned about risk because they assume that regulators monitor bank risk. 
A)  Bank risk does not depend on leverage. 
B)  The depositors are insured by FDIC. 
C)  There is an interest rate ceiling on deposits. 
D)  Depositors are not concerned about risk because they assume that regulators monitor bank risk.

Question 15

Federal deposit insurance at fixed premiums led to a serious ___________ problem.

Accepted Answer

A)  moral dilemma 
B)  moral hazard 
C)  moral shortfall 
D)  moral debt 
A)  moral dilemma 
B)  moral hazard 
C)  moral shortfall 
D)  moral debt

Question 16

The variability of earnings per share decreases due to increasing tax deductions on interest payments as debt is increased by a bank.

Accepted Answer

A) True 
 B)False

Question 17

Historical evidence in banking has indicated that:

Accepted Answer

A)  there is a positive relationship between failure risk and asset size. 
B)  there is no clear-cut relationship between bank capital and failure risk. 
C)  since the Great Depression, undercapitalization has been most responsible for bank failures 
D)  only in times of economic expansion was failure risk related to asset size. 
A)  there is a positive relationship between failure risk and asset size. 
B)  there is no clear-cut relationship between bank capital and failure risk. 
C)  since the Great Depression, undercapitalization has been most responsible for bank failures 
D)  only in times of economic expansion was failure risk related to asset size.

Question 18

VAR is calibrated to a ___________ standard.

Accepted Answer

A)  30-day, 90th precentile 
B)  30-day, 50th percentile 
C)  10-day, 99th percentile 
D)  none of the above 
A)  30-day, 90th precentile 
B)  30-day, 50th percentile 
C)  10-day, 99th percentile 
D)  none of the above

Question 19

A problem with Basel I risk-based capital standards is that they do NOT consider:

Accepted Answer

A)  price risk of securities 
B)  specific risks of securities 
C)  differences in default probabilities of business loans 
D)  all of the above 
A)  price risk of securities 
B)  specific risks of securities 
C)  differences in default probabilities of business loans 
D)  all of the above

Question 20

Bank capital does NOT include reserves set aside to meet anticipated operating losses.

Accepted Answer

A) True 
 B)False

By increasing the dividend paid to stockholders, the duration on a bank's stock is increased.

Under the new variable-rate deposit insurance scheme, undercapitalized banks can face various restrictions on their activities.

Retained earnings are part of Tier 2 capital under Basel I capital rules.

The provision for loan losses account can be found on a bank's balance sheet.

Under what condition(s) would equity financing be more preferred than debt financing from the viewpoint of bank shareholders?

A Deposit Insurance National Bank (DINB) can be used by the FDIC to take over the operations of a distressed bank until the bank is either closed or acquired by another bank.

Market risk capital requirements require the calculation of market-risk equivalent assets.

To calculate risk-adjusted assets under Basel I capital requirements, home loans get a weight of 100%.

Compared to Basel I, Basel II offers:

Long-term debt can absorb bank losses:

Large banks tend to use more long-term debt than small banks.

The agency cost problem arises when a regulatory agency increases its scrutiny of a bank, thereby raising the bank's operating costs and capital requirements.

The internal capital generation rate (ICR) indicates the rate at which equity can be expanded and still maintain its asset ratio.

What is the explanation for the fact that many bank depositors are NOT concerned about the Financial leverage of the bank and do not require a higher rate of interest as bank risk increases?

Federal deposit insurance at fixed premiums led to a serious ___________ problem.

The variability of earnings per share decreases due to increasing tax deductions on interest payments as debt is increased by a bank.

Historical evidence in banking has indicated that:

VAR is calibrated to a ___________ standard.

A problem with Basel I risk-based capital standards is that they do NOT consider:

Bank capital does NOT include reserves set aside to meet anticipated operating losses.

Functions and Forms of Banking

The Bank Regulatory Environment

Evaluating Bank Performance

Bank Valuation

An Overview of Assetliability Management Alm

Techniques of Assetliability Management: Futures, Options, and Swaps

Investment Management

Credit Evaluation Process

Commercial and Industrial Lending

Real Estate and Consumer Lending

Liquidity Management

Managing Liabilities

Off-Balance Sheet Activities

Securities, Investment Insurance Products

Other Financial Services

Electronic Banking

Global Financial Services

Filters

Exam 12: Capital Management

By increasing the dividend paid to stockholders, the duration on a bank's stock is increased.

Under the new variable-rate deposit insurance scheme, undercapitalized banks can face various restrictions on their activities.

Retained earnings are part of Tier 2 capital under Basel I capital rules.

The provision for loan losses account can be found on a bank's balance sheet.

Under what condition(s) would equity financing be more preferred than debt financing from the viewpoint of bank shareholders?

A Deposit Insurance National Bank (DINB) can be used by the FDIC to take over the operations of a distressed bank until the bank is either closed or acquired by another bank.

Market risk capital requirements require the calculation of market-risk equivalent assets.

To calculate risk-adjusted assets under Basel I capital requirements, home loans get a weight of 100%.

Compared to Basel I, Basel II offers:

Long-term debt can absorb bank losses:

Large banks tend to use more long-term debt than small banks.

The agency cost problem arises when a regulatory agency increases its scrutiny of a bank, thereby raising the bank's operating costs and capital requirements.

The internal capital generation rate (ICR) indicates the rate at which equity can be expanded and still maintain its asset ratio.

What is the explanation for the fact that many bank depositors are NOT concerned about the Financial leverage of the bank and do not require a higher rate of interest as bank risk increases?

Federal deposit insurance at fixed premiums led to a serious ___________ problem.

The variability of earnings per share decreases due to increasing tax deductions on interest payments as debt is increased by a bank.

Historical evidence in banking has indicated that:

VAR is calibrated to a ___________ standard.

A problem with Basel I risk-based capital standards is that they do NOT consider:

Bank capital does NOT include reserves set aside to meet anticipated operating losses.

Functions and Forms of Banking

The Bank Regulatory Environment

Evaluating Bank Performance

Bank Valuation

An Overview of Assetliability Management Alm

Techniques of Assetliability Management: Futures, Options, and Swaps

Investment Management

Credit Evaluation Process

Commercial and Industrial Lending

Real Estate and Consumer Lending

Liquidity Management

Managing Liabilities

Off-Balance Sheet Activities

Securities, Investment Insurance Products

Other Financial Services

Electronic Banking

Global Financial Services

Filters