Question 1

Interest rate risk is the risk financial institutions face due to changes in market interest rates.

Accepted Answer

A) True 
 B)False

Question 2

An investment maturity strategy which calls for a bank to have one-half of its investment portfolio in very short term assets and the other half in long term assets is known as the ________________________.

Accepted Answer

The answer of An investment maturity strategy which calls for...

Question 3

The Stumbaugh State Bank is thinking about purchasing a corporate bond that pays a coupon of 9%.The bank has a marginal tax rate of 40%.What is the after-tax yield on this bond?

Accepted Answer

A) 15% 
B) 9% 
C) 5.4% 
D) 3.6% 
E) None of the options is correct 
A) 15% 
B) 9% 
C) 5.4% 
D) 3.6% 
E) None of the options is correct

Question 4

A lending institution that sells lower-yielding securities at a loss in order to reduce current taxable income,while simultaneously purchasing higher-yielding new securities in order to boost future returns is doing a(n)_______________.

Accepted Answer

The answer of A lending institution that sells lower-yielding securities...

Question 5

Fluctuations in the timing of cash-flows arising out of an underlying pool of securitized assets is referred to as:

Accepted Answer

A) income risk. 
B) prepayment risk. 
C) liquidity risk. 
D) capital risk. 
E) None of the options is correct. 
A) income risk. 
B) prepayment risk. 
C) liquidity risk. 
D) capital risk. 
E) None of the options is correct.

Question 6

Investments in securities provide diversification for a bank's assets because most loans come from the local areas served by a bank's offices.

Accepted Answer

A) True 
 B)False

Question 7

A security issued by the federal government with greater than 10 years to maturity at the time of issue is called a(n)_______________.

Accepted Answer

The answer of A security issued by the federal government...

Question 8

A(n)_________________________ is an interest-bearing receipt for the deposit of funds in a bank for a stipulated time period.Ones that are oriented towards business customers or institutions are known as jumbos.

Accepted Answer

certificat

Question 9

Business risk is the risk that a bank may experience a cash shortage and will have to sell some of its investments securities.

Accepted Answer

A) True 
 B)False

Question 10

Moody's Investor Service has added the numbers 1,2,and 3 to some of their ratings.What type of risk are these ratings attempting to measure?

Accepted Answer

A) Credit risk 
B) Interest rate risk 
C) Business risk 
D) Call risk 
E) Prepayment risk 
A) Credit risk 
B) Interest rate risk 
C) Business risk 
D) Call risk 
E) Prepayment risk

Question 11

A bank that is concerned that the economic conditions of the market area they serve may take a downturn with falling demand for loans and higher bankruptcies in the areas,is concerned about which of the following?

Accepted Answer

A) Business risk 
B) Liquidity risk 
C) Tax exposure 
D) Credit risk 
E) Inflation risk 
A) Business risk 
B) Liquidity risk 
C) Tax exposure 
D) Credit risk 
E) Inflation risk

Question 12

________________ are instruments that are closely related to CMOs that also partition the cash flow from a pool of mortgage loans or mortgage-backed securities into multiple maturity classes in order to reduce the cash-flow uncertainty of investors.

Accepted Answer

Real estat

Question 13

An eligible acceptance is one that can be used as collateral for borrowing from the Federal Reserve Banks.

Accepted Answer

A) True 
 B)False

Question 14

The Carey State Bank has purchased a bank-qualified municipal bond with a coupon rate of 6%.The bank has had to borrow funds to make this purchase at a cost of 5.25%.The bank is in the 40% tax bracket.What is the net after-tax return on this bank-qualified municipal bond?

Accepted Answer

A) 6.00% 
B) 0.75% 
C) 2.85% 
D) 2.43% 
E) None of the options is correct 
A) 6.00% 
B) 0.75% 
C) 2.85% 
D) 2.43% 
E) None of the options is correct

Question 15

The Dillinger State Bank has purchased a bond issued by the Interstate Manufacturing Company that has 15 years to maturity and has a coupon rate of 12.5%.Market interest rates have recently declined to 8% and the Dillinger State Bank is worried that the Interstate Manufacturing Company will retire the bond and issue new ones with a lower coupon rate.What type of risk is the Dillinger State Bank worried about?

Accepted Answer

A) Credit risk 
B) Interest-rate risk 
C) Business risk 
D) Call risk 
E) Inflation risk 
A) Credit risk 
B) Interest-rate risk 
C) Business risk 
D) Call risk 
E) Inflation risk

Question 16

When a bank irrevocably guarantees a commercial paper issue,the bank's credit rating substitutes for the borrower's credit rating.

Accepted Answer

A) True 
 B)False

Question 17

A security issued by the federal government with 1 to 10 years to maturity when it is issued is called a(n)________________________.

Accepted Answer

The answer of A security issued by the federal government...

Question 18

The Price Perpetual Bank has purchased a bond that has a coupon rate of 5.5% and a face value of $1,000.It has 11 years to maturity and is currently selling in the market for $887.52.The bond makes annual coupon payments.The Price Perpetual Bank is planning on selling this bond at the end of 5 years for $1,036.50 (ex-interest).What is the holding period return on this bond?

Accepted Answer

A) 5.5% 
B) 7% 
C) 11% 
D) 9.82% 
E) None of the options is correct 
A) 5.5% 
B) 7% 
C) 11% 
D) 9.82% 
E) None of the options is correct

Question 19

Mortgage prepayment risk:

Accepted Answer

A) is higher on high interest rate mortgages. 
B) is felt most dramatically when interest rates rise. 
C) is eliminated by the use of mortgage backed securities. 
D) is eliminated by the purchase of a stripped mortgage obligation. 
E) All the options are true. 
A) is higher on high interest rate mortgages. 
B) is felt most dramatically when interest rates rise. 
C) is eliminated by the use of mortgage backed securities. 
D) is eliminated by the purchase of a stripped mortgage obligation. 
E) All the options are true.

Question 20

Capital gains on municipal bonds are:

Accepted Answer

A) fully taxable without any exceptions. 
B) tax exempt. 
C) tax deductible. 
D) fully taxable except for appreciation to par for bonds originally issued at a discount. 
E) tax exempt for bonds issued at a premium. 
A) fully taxable without any exceptions. 
B) tax exempt. 
C) tax deductible. 
D) fully taxable except for appreciation to par for bonds originally issued at a discount. 
E) tax exempt for bonds issued at a premium.

Interest rate risk is the risk financial institutions face due to changes in market interest rates.

An investment maturity strategy which calls for a bank to have one-half of its investment portfolio in very short term assets and the other half in long term assets is known as the ________________________.

The Stumbaugh State Bank is thinking about purchasing a corporate bond that pays a coupon of 9%.The bank has a marginal tax rate of 40%.What is the after-tax yield on this bond?

A lending institution that sells lower-yielding securities at a loss in order to reduce current taxable income,while simultaneously purchasing higher-yielding new securities in order to boost future returns is doing a(n)_______________.

Fluctuations in the timing of cash-flows arising out of an underlying pool of securitized assets is referred to as:

Investments in securities provide diversification for a bank's assets because most loans come from the local areas served by a bank's offices.

A security issued by the federal government with greater than 10 years to maturity at the time of issue is called a(n)_______________.

A(n)_________________________ is an interest-bearing receipt for the deposit of funds in a bank for a stipulated time period.Ones that are oriented towards business customers or institutions are known as jumbos.

Business risk is the risk that a bank may experience a cash shortage and will have to sell some of its investments securities.

Moody's Investor Service has added the numbers 1,2,and 3 to some of their ratings.What type of risk are these ratings attempting to measure?

A bank that is concerned that the economic conditions of the market area they serve may take a downturn with falling demand for loans and higher bankruptcies in the areas,is concerned about which of the following?

________________ are instruments that are closely related to CMOs that also partition the cash flow from a pool of mortgage loans or mortgage-backed securities into multiple maturity classes in order to reduce the cash-flow uncertainty of investors.

An eligible acceptance is one that can be used as collateral for borrowing from the Federal Reserve Banks.

The Carey State Bank has purchased a bank-qualified municipal bond with a coupon rate of 6%.The bank has had to borrow funds to make this purchase at a cost of 5.25%.The bank is in the 40% tax bracket.What is the net after-tax return on this bank-qualified municipal bond?

When a bank irrevocably guarantees a commercial paper issue,the bank's credit rating substitutes for the borrower's credit rating.

A security issued by the federal government with 1 to 10 years to maturity when it is issued is called a(n)________________________.

Mortgage prepayment risk:

Capital gains on municipal bonds are:

An Overview of the Changing Financial-Services Sector

The Impact of Government Policy and Regulation on the Financial-Services Industry

The Organization and Structure of Banking and the Financial-Services Industry

Establishing New Banks, Branches, ATMs, Telephone Services, and Websites

The Financial Statements of Banks and Their Principal Competitors

Measuring and Evaluating the Performance of Banks and Their Principal Competitors

Risk Management for Changing Interest Rates: Asset-Liability Management and Duration Techniques

Investment Banking,Insurance,and Other Sources of Fee Income

Risk Management: Asset-Backed Securities, Loan Sales, Credit Standbys, and Credit Derivatives

Liquidity and Reserves Management: Strategies and Policies

Managing and Pricing Deposit Services

Managing Nondeposit Liabilities

Investment Banking, insurance, and Other Sources of Fee Income

The Management of Capital

Lending Policies and Procedures: Managing Credit Risk

Lending to Business Firms and Pricing Business Loans

Consumer Loans, Credit Cards, and Real Estate Lending

Acquisitions and Mergers in Financial-Services Management

International Banking and the Future of Banking and Financial Services

Filters

Exam 10: The Investment Function in Financial-Services Management

Interest rate risk is the risk financial institutions face due to changes in market interest rates.

An investment maturity strategy which calls for a bank to have one-half of its investment portfolio in very short term assets and the other half in long term assets is known as the ________________________.

The Stumbaugh State Bank is thinking about purchasing a corporate bond that pays a coupon of 9%.The bank has a marginal tax rate of 40%.What is the after-tax yield on this bond?

A lending institution that sells lower-yielding securities at a loss in order to reduce current taxable income,while simultaneously purchasing higher-yielding new securities in order to boost future returns is doing a(n)_______________.

Fluctuations in the timing of cash-flows arising out of an underlying pool of securitized assets is referred to as:

Investments in securities provide diversification for a bank's assets because most loans come from the local areas served by a bank's offices.

A security issued by the federal government with greater than 10 years to maturity at the time of issue is called a(n)_______________.

A(n)_________________________ is an interest-bearing receipt for the deposit of funds in a bank for a stipulated time period.Ones that are oriented towards business customers or institutions are known as jumbos.

Business risk is the risk that a bank may experience a cash shortage and will have to sell some of its investments securities.

Moody's Investor Service has added the numbers 1,2,and 3 to some of their ratings.What type of risk are these ratings attempting to measure?

A bank that is concerned that the economic conditions of the market area they serve may take a downturn with falling demand for loans and higher bankruptcies in the areas,is concerned about which of the following?

________________ are instruments that are closely related to CMOs that also partition the cash flow from a pool of mortgage loans or mortgage-backed securities into multiple maturity classes in order to reduce the cash-flow uncertainty of investors.

An eligible acceptance is one that can be used as collateral for borrowing from the Federal Reserve Banks.

The Carey State Bank has purchased a bank-qualified municipal bond with a coupon rate of 6%.The bank has had to borrow funds to make this purchase at a cost of 5.25%.The bank is in the 40% tax bracket.What is the net after-tax return on this bank-qualified municipal bond?

When a bank irrevocably guarantees a commercial paper issue,the bank's credit rating substitutes for the borrower's credit rating.

A security issued by the federal government with 1 to 10 years to maturity when it is issued is called a(n)________________________.

Mortgage prepayment risk:

Capital gains on municipal bonds are:

An Overview of the Changing Financial-Services Sector

The Impact of Government Policy and Regulation on the Financial-Services Industry

The Organization and Structure of Banking and the Financial-Services Industry

Establishing New Banks, Branches, ATMs, Telephone Services, and Websites

The Financial Statements of Banks and Their Principal Competitors

Measuring and Evaluating the Performance of Banks and Their Principal Competitors

Risk Management for Changing Interest Rates: Asset-Liability Management and Duration Techniques

Investment Banking,Insurance,and Other Sources of Fee Income

Risk Management: Asset-Backed Securities, Loan Sales, Credit Standbys, and Credit Derivatives

Liquidity and Reserves Management: Strategies and Policies

Managing and Pricing Deposit Services

Managing Nondeposit Liabilities

Investment Banking, insurance, and Other Sources of Fee Income

The Management of Capital

Lending Policies and Procedures: Managing Credit Risk

Lending to Business Firms and Pricing Business Loans

Consumer Loans, Credit Cards, and Real Estate Lending

Acquisitions and Mergers in Financial-Services Management

International Banking and the Future of Banking and Financial Services

Filters