Question 1

Why are banks different from other depository institutions?

Accepted Answer

Banks are the main conduit of monetary policy; they are also critical in operating the nation's payments system. The banking industry constitutes the nation's largest intermediary and is one of the major methods of allocating credit in the economy. Banks provide risk,liquidity,and maturity intermediation that encourages savers to make their money available to the system and thus encourages economic growth.

Question 2

A contingent promise by a bank to pay a bill when it comes due if the bill's originator fails to pay is an example of a

Accepted Answer

A) swap agreement. 
B) standby letters of credit. 
C) forward contract. 
D) loan commitment. 
E) commitment to buy foreign exchange. 
A) swap agreement. 
B) standby letters of credit. 
C) forward contract. 
D) loan commitment. 
E) commitment to buy foreign exchange. B

Question 3

Why are loans such a high percentage of total assets at the typical bank?
 What four broad classes of loans do banks engage in?

Accepted Answer

Loans are the highest earning asset on the bank's balance sheet. In order to compete and reward its shareholders,banks must invest heavily in their highest returning asset. Prior to deregulation and increased competition,banks held much lower percentages of loans.
The four major loan categories are commercial and industrial loans (loans to businesses),mortgage loans,consumer loans,and the ubiquitous "other" category.

Question 4

A bank is earning 6 percent on its $150 million in earning assets and is paying 4.75 percent on its liabilities. The bank's interest rate spread is __________.

Accepted Answer

A) 6.00 percent 
B) 4.75 percent 
C) 1.25 percent 
D) 10.75 percent 
E) 1.26 percent 
A) 6.00 percent 
B) 4.75 percent 
C) 1.25 percent 
D) 10.75 percent 
E) 1.26 percent

Question 5

Small banks control about 70 percent of banking industry assets.

Accepted Answer

A) True 
 B)False

Question 6

An ILC is a type of

Accepted Answer

A) finance company. 
B) thrift institution. 
C) credit card bank. 
D) nonbank bank. 
E) foreign-owned loan corporation. 
A) finance company. 
B) thrift institution. 
C) credit card bank. 
D) nonbank bank. 
E) foreign-owned loan corporation.

Question 7

Nontransaction deposits at banks include NOW accounts and demand deposits.

Accepted Answer

A) True 
 B)False

Question 8

Banks differ from other types of depository institutions in that
I. banks have more diversified asset portfolios.
II. banks obtain funds from more different types of sources.
III. the average size bank is larger than other depository institutions.

Accepted Answer

A) I only 
B) I and II only 
C) I and III only 
D) II and III only 
E) I,II,and III 
A) I only 
B) I and II only 
C) I and III only 
D) II and III only 
E) I,II,and III

Question 9

Nationally chartered banks receive chartering and merger approval from the

Accepted Answer

A) Federal Deposit Insurance Corporation. 
B) Office of Comptroller of the Currency. 
C) Federal Reserve System. 
D) Office of Thrift Supervision. 
E) Any of the options may grant a charter and approve a merger. 
A) Federal Deposit Insurance Corporation. 
B) Office of Comptroller of the Currency. 
C) Federal Reserve System. 
D) Office of Thrift Supervision. 
E) Any of the options may grant a charter and approve a merger.

Question 10

Since 1980,the number of banks in the United States has been increasing dramatically due to deregulation of the industry.

Accepted Answer

A) True 
 B)False

Question 11

Most of the changes in size,structure,and composition of the banking industry in recent years are due to

Accepted Answer

A) bank failures. 
B) increasing regulations. 
C) new charters granted. 
D) declines in the number of branch offices. 
E) mergers and acquisitions. 
A) bank failures. 
B) increasing regulations. 
C) new charters granted. 
D) declines in the number of branch offices. 
E) mergers and acquisitions.

Question 12

On average,bank liabilities tend to have shorter maturities and greater liquidity than bank assets.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following could result in a negative NIM?

Accepted Answer

A) Growth in net interest income 
B) Lower non-interest expense 
C) Decline in net interest income 
D) Higher non-interest income 
E) Positive net interest spread 
A) Growth in net interest income 
B) Lower non-interest expense 
C) Decline in net interest income 
D) Higher non-interest income 
E) Positive net interest spread

Question 14

What are the major advantages a bank gains by expanding into international bank services?
 What are three disadvantages of international expansion?

Accepted Answer

Better diversification by expanding beyo

Question 15

What are the major sources of funds for banks?
 Provide a breakdown of all the major sources of funds at a bank and briefly describe the different types of deposits/non-deposit sources.

Accepted Answer

*Equity: Common stock,paid-in capital,an

Question 16

The majority of banks are nationally chartered and insured by the FDIC.

Accepted Answer

A) True 
 B)False

Question 17

Advantages of going global for U.S. banks include all but which one of the following?

Accepted Answer

A) Diversification of earnings 
B) Greater opportunities to exploit economies of scale 
C) Greater sources of funds 
D) Conducting business in less regulated environments 
E) Low fixed costs involved in international expansion 
A) Diversification of earnings 
B) Greater opportunities to exploit economies of scale 
C) Greater sources of funds 
D) Conducting business in less regulated environments 
E) Low fixed costs involved in international expansion

Question 18

Which of the following is the primary regulator of bank holding company activities?

Accepted Answer

A) Federal Bank Holding Company Board 
B) FDIC 
C) Federal Reserve 
D) State regulatory agency in the chartering states 
E) U.S. Treasury 
A) Federal Bank Holding Company Board 
B) FDIC 
C) Federal Reserve 
D) State regulatory agency in the chartering states 
E) U.S. Treasury

Question 19

A contingent item that may eventually be placed on the right-hand side of the balance sheet or expensed on the income statement is a(n)

Accepted Answer

A) loan commitment. 
B) off-balance-sheet liability. 
C) off-balance-sheet asset. 
D) net charge-off. 
E) loan sold without recourse. 
A) loan commitment. 
B) off-balance-sheet liability. 
C) off-balance-sheet asset. 
D) net charge-off. 
E) loan sold without recourse.

Question 20

A bank has an interest rate spread of 150 basis points on $30 million in earning assets funded by interest-bearing liabilities. However,the interest rate on its assets is fixed and the interest rate on its liabilities is variable. If all interest rates go up 50 basis points,the bank's new pretax net interest income will be __________.

Accepted Answer

A) $600,000 
B) $450,000 
C) $300,000 
D) $250,000 
E) $175,000 
A) $600,000 
B) $450,000 
C) $300,000 
D) $250,000 
E) $175,000

Exam 11: Commercial Banks: Industry Overview

Why are banks different from other depository institutions?

A contingent promise by a bank to pay a bill when it comes due if the bill's originator fails to pay is an example of a

Why are loans such a high percentage of total assets at the typical bank? What four broad classes of loans do banks engage in?

A bank is earning 6 percent on its $150 million in earning assets and is paying 4.75 percent on its liabilities. The bank's interest rate spread is __________.

Small banks control about 70 percent of banking industry assets.

An ILC is a type of

Nontransaction deposits at banks include NOW accounts and demand deposits.

Banks differ from other types of depository institutions in that I. banks have more diversified asset portfolios. II. banks obtain funds from more different types of sources. III. the average size bank is larger than other depository institutions.

Nationally chartered banks receive chartering and merger approval from the

Since 1980,the number of banks in the United States has been increasing dramatically due to deregulation of the industry.

Most of the changes in size,structure,and composition of the banking industry in recent years are due to

On average,bank liabilities tend to have shorter maturities and greater liquidity than bank assets.

Which of the following could result in a negative NIM?

What are the major advantages a bank gains by expanding into international bank services? What are three disadvantages of international expansion?

What are the major sources of funds for banks? Provide a breakdown of all the major sources of funds at a bank and briefly describe the different types of deposits/non-deposit sources.

The majority of banks are nationally chartered and insured by the FDIC.

Advantages of going global for U.S. banks include all but which one of the following?

Which of the following is the primary regulator of bank holding company activities?

A contingent item that may eventually be placed on the right-hand side of the balance sheet or expensed on the income statement is a(n)

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, Monetary Policy, and Interest Rates

Money Markets

Bond Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, Credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters