Question 1

The initial steps of cross selling financial products can easily occur with computer technology.

Accepted Answer

A) True 
 B)False

Question 2

What is float?

Accepted Answer

A) Overnight payments via the LVTS. 
B) Encoding, endorsing, microfilming, and handling customers' checks. 
C) Time it takes a check to clear at a bank. 
D) Management of multiple currency and security portfolios for trading and investment purposes. 
E) Interval between the dispatch of a bill and actual payment by the consumer. 
A) Overnight payments via the LVTS. 
B) Encoding, endorsing, microfilming, and handling customers' checks. 
C) Time it takes a check to clear at a bank. 
D) Management of multiple currency and security portfolios for trading and investment purposes. 
E) Interval between the dispatch of a bill and actual payment by the consumer.

Question 3

Combining the e-mail capability of the internet and the interbank payment networks to assist in the presentation and collection of invoices.

Accepted Answer

The answer of Combining the e-mail capability of the internet...

Question 4

A centralized collection service for corporate payments to reduce the delay in check clearing.

Accepted Answer

The answer of A centralized collection service for corporate payments...

Question 5

Which of the following implies reduced unit costs as the range of products offered increases inputs in producing multiple products?

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 6

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

Accepted Answer

A) True 
 B)False

Question 7

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

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

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

Accepted Answer

A) True 
 B)False

Question 10

A feature that records which checks have been paid by the FI.

Accepted Answer

Account re

Question 11

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 12

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 13

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 14

Fedwire is a wire transfer network operated through the Federal Reserve System to assist banks with U.S. operations to make financial transactions among themselves, on behalf of themselves and customers.

Accepted Answer

A) True 
 B)False

Question 15

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 16

Which of the following are potential benefits of technology for an FI?

Accepted Answer

A) Improved service quality, especially for customers of large banks. 
B) The rate of innovation of new products can be increased. 
C) FIs can more easily cross-market new and existing products to customers. 
D) Improved flexibility in financial transactions for retail customers. 
E) All of these. 
A) Improved service quality, especially for customers of large banks. 
B) The rate of innovation of new products can be increased. 
C) FIs can more easily cross-market new and existing products to customers. 
D) Improved flexibility in financial transactions for retail customers. 
E) All of these.

Question 17

The Bank of Canada has recently proposed that banks carry a capital cushion against losses resulting from operational risk.

Accepted Answer

A) True 
 B)False

Question 18

As banks have increased the use of technology over the past 20 years,

Accepted Answer

A) noninterest income as a percent of total operating income has approximately doubled. 
B) there has been a decrease in the importance of the LVTS. 
C) there has been an increase in negative net present value because of the speed in which rivals can replicate innovations. 
D) banks no longer need to consolidate because they can access customers worldwide through internet services. 
E) noninterest expense as a percent of total operating income has decreased as supporting branch banking has decreased in importance. 
A) noninterest income as a percent of total operating income has approximately doubled. 
B) there has been a decrease in the importance of the LVTS. 
C) there has been an increase in negative net present value because of the speed in which rivals can replicate innovations. 
D) banks no longer need to consolidate because they can access customers worldwide through internet services. 
E) noninterest expense as a percent of total operating income has decreased as supporting branch banking has decreased in importance.

Question 19

Recent evidence strongly suggests that economies of scope exist for both asset and liability products, but not for off-balance-sheet products.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is NOT a retail banking service?

Accepted Answer

A) Cheque deposit services. 
B) Point of sale/debit cards. 
C) Telephone bill paying services. 
D) Pre-authorized debits/credits. 
E) Automated teller machines. 
A) Cheque deposit services. 
B) Point of sale/debit cards. 
C) Telephone bill paying services. 
D) Pre-authorized debits/credits. 
E) Automated teller machines.

Exam 17: Technology and Other Operational Risks

The initial steps of cross selling financial products can easily occur with computer technology.

What is float?

Combining the e-mail capability of the internet and the interbank payment networks to assist in the presentation and collection of invoices.

A centralized collection service for corporate payments to reduce the delay in check clearing.

Which of the following implies reduced unit costs as the range of products offered increases inputs in producing multiple products?

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

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

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

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

A feature that records which checks have been paid by the FI.

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

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

Fedwire is a wire transfer network operated through the Federal Reserve System to assist banks with U.S. operations to make financial transactions among themselves, on behalf of themselves and customers.

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

Which of the following are potential benefits of technology for an FI?

The Bank of Canada has recently proposed that banks carry a capital cushion against losses resulting from operational risk.

As banks have increased the use of technology over the past 20 years,

Recent evidence strongly suggests that economies of scope exist for both asset and liability products, but not for off-balance-sheet products.

Which of the following is NOT a retail banking service?

Why Are Financial Institutions Special

Deposit-Taking Institutions

Finance Companies

Securities, Brokerage, and Investment Banking

Mutual Funds, Hedge Funds, and Pension Funds

Insurance Companies

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loans

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

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 Index

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.