Question 1

Transaction deposits do not include

Accepted Answer

A)  demand deposits. 
B)  NCDs 
C)  NOW accounts 
D)  All of the above are transactions deposits. 
A)  demand deposits. 
B)  NCDs 
C)  NOW accounts 
D)  All of the above are transactions deposits.

Question 2

Like other market interest rates, the federal funds rate moves in reaction to changes in demand or supply of funds or both.

Accepted Answer

A) True 
 B)False

Question 3

Obtaining funds through ____ is not a common way for banks to satisfy a temporary deficiency of funds.

Accepted Answer

A)  issuing bonds 
B)  the federal funds market 
C)  repurchase agreements 
D)  borrowing from the Federal Reserve 
A)  issuing bonds 
B)  the federal funds market 
C)  repurchase agreements 
D)  borrowing from the Federal Reserve

Question 4

In a loan participation arrangement, normally all of the participating banks are exposed to credit (default) risk.

Accepted Answer

A) True 
 B)False

Question 5

Protective covenants impose conditions that require the bank to provide additional loans to a borrower to protect the borrower from going bankrupt.

Accepted Answer

A) True 
 B)False

Question 6

____ loans are primarily used to finance the purchase of fixed assets.

Accepted Answer

A)  Term 
B)  Working capital 
C)  Informal line of credit 
D)  Revolving credit 
A)  Term 
B)  Working capital 
C)  Informal line of credit 
D)  Revolving credit

Question 7

Commercial banks are not allowed to invest in

Accepted Answer

A)  Treasury securities 
B)  Freddie Mac securities. 
C)  Fannie Mae securities. 
D)  Banks can invest in all securities mentioned above. 
A)  Treasury securities 
B)  Freddie Mac securities. 
C)  Fannie Mae securities. 
D)  Banks can invest in all securities mentioned above.

Question 8

A forward contract on currency:

Accepted Answer

A)  is a way to hedge credit (default) risk. 
B)  is used to swap fixed interest payments in euros for variable interest payments in dollars. 
C)  is an agreement between a customer and a bank to exchange one currency for another on a specified date at a specified exchange rate. 
D)  is an agreement between a customer and a bank to exchange one currency for another on a specified date at whatever the exchange rate is on that day. 
A)  is a way to hedge credit (default) risk. 
B)  is used to swap fixed interest payments in euros for variable interest payments in dollars. 
C)  is an agreement between a customer and a bank to exchange one currency for another on a specified date at a specified exchange rate. 
D)  is an agreement between a customer and a bank to exchange one currency for another on a specified date at whatever the exchange rate is on that day.

Question 9

The most common way for U.S. commercial banks to expand internationally is by purchasing banks in other countries.

Accepted Answer

A) True 
 B)False

Question 10

When a bank in need of funds for a few days sells some of its government securities to a corporation with a temporary excess of funds, then buys them back shortly thereafter, this is a

Accepted Answer

A)  federal funds loan. 
B)  discount window loan. 
C)  repurchase agreement. 
D)  commercial paper transaction. 
A)  federal funds loan. 
B)  discount window loan. 
C)  repurchase agreement. 
D)  commercial paper transaction.

Question 11

Money market deposit accounts (MMDAs)

Accepted Answer

A)  require a maturity of six months or longer. 
B)  allow a limited number of checks to be written against the account. 
C)  pay a higher interest rate than CDs. 
D)  none of the above 
A)  require a maturity of six months or longer. 
B)  allow a limited number of checks to be written against the account. 
C)  pay a higher interest rate than CDs. 
D)  none of the above

Question 12

Bank regulators are concerned that banks may maintain a higher level of capital than they should and have therefore imposed capital requirements on them.

Accepted Answer

A) True 
 B)False

Question 13

The interest rate charged on loans between depository institutions is commonly referred to as the

Accepted Answer

A)  federal funds rate. 
B)  discount rate. 
C)  primary credit lending rate. 
D)  none of the above 
A)  federal funds rate. 
B)  discount rate. 
C)  primary credit lending rate. 
D)  none of the above

Question 14

A ____ is a type of loan commitment.

Accepted Answer

A)  standby letter of credit (SL
C)  
B)  note issuance facility (NIF) 
C)  forward contract 
D)  swap contract 
E)  none of the above 
A)  standby letter of credit (SL
C)  
B)  note issuance facility (NIF) 
C)  forward contract 
D)  swap contract 
E)  none of the above

Question 15

A ____ is a time deposit offered by some large banks to corporations, with a specific maturity date, a minimum deposit of $100,000 or more, and a secondary market.

Accepted Answer

A)  retail CD 
B)  negotiable CD 
C)  market CD 
D)  protective CD 
A)  retail CD 
B)  negotiable CD 
C)  market CD 
D)  protective CD

Question 16

Which of the following statements is incorrect?

Accepted Answer

A)  Banks have expanded their business across services over time. 
B)  Acquisitions have been a convenient method for banks to grow quickly and capitalize on economies of scale. 
C)  The banking industry has become less concentrated in recent years. 
D)  All of the statements above are correct. 
A)  Banks have expanded their business across services over time. 
B)  Acquisitions have been a convenient method for banks to grow quickly and capitalize on economies of scale. 
C)  The banking industry has become less concentrated in recent years. 
D)  All of the statements above are correct.

Question 17

The operations, management, and regulation of a commercial bank are the same irrespective of the types of services offered.

Accepted Answer

A) True 
 B)False

Question 18

Banks will not accept intangible assets, such as patents and brand names, as collateral for commercial loans.

Accepted Answer

A) True 
 B)False

Question 19

In a standby letter of credit, a bank agrees to:

Accepted Answer

A)  charge a fixed interest rate for a line of credit for a specified period. 
B)  back a customer's obligation to a third party. 
C)  provide a customer with funds up to a specified maximum amount over a specified period. 
D)  service credit card loans originated by another bank 
A)  charge a fixed interest rate for a line of credit for a specified period. 
B)  back a customer's obligation to a third party. 
C)  provide a customer with funds up to a specified maximum amount over a specified period. 
D)  service credit card loans originated by another bank

Question 20

Which of the following types of deposits does not allow any check-writing privileges?

Accepted Answer

A)  NOW accounts 
B)  money market deposit accounts (MMDAs) 
C)  retail CDs 
D)  All of the above allow checks to be written. 
A)  NOW accounts 
B)  money market deposit accounts (MMDAs) 
C)  retail CDs 
D)  All of the above allow checks to be written.

Exam 17: Commercial Bank Operations

Transaction deposits do not include

Like other market interest rates, the federal funds rate moves in reaction to changes in demand or supply of funds or both.

Obtaining funds through ____ is not a common way for banks to satisfy a temporary deficiency of funds.

In a loan participation arrangement, normally all of the participating banks are exposed to credit (default) risk.

Protective covenants impose conditions that require the bank to provide additional loans to a borrower to protect the borrower from going bankrupt.

____ loans are primarily used to finance the purchase of fixed assets.

Commercial banks are not allowed to invest in

A forward contract on currency:

The most common way for U.S. commercial banks to expand internationally is by purchasing banks in other countries.

When a bank in need of funds for a few days sells some of its government securities to a corporation with a temporary excess of funds, then buys them back shortly thereafter, this is a

Money market deposit accounts (MMDAs)

Bank regulators are concerned that banks may maintain a higher level of capital than they should and have therefore imposed capital requirements on them.

The interest rate charged on loans between depository institutions is commonly referred to as the

A ____ is a type of loan commitment.

A ____ is a time deposit offered by some large banks to corporations, with a specific maturity date, a minimum deposit of $100,000 or more, and a secondary market.

Which of the following statements is incorrect?

The operations, management, and regulation of a commercial bank are the same irrespective of the types of services offered.

Banks will not accept intangible assets, such as patents and brand names, as collateral for commercial loans.

In a standby letter of credit, a bank agrees to:

Which of the following types of deposits does not allow any check-writing privileges?

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