Question 1

The term daylight overdraft refers to a situation in which an FI's:

Accepted Answer

A)  reserve account at the central bank is negative at the end of a banking day. 
B)  reserve account at the central bank is negative at the beginning of a banking day. 
C)  reserve account at the central bank becomes negative within the banking day. 
D)  account with another FI becomes negative within the banking day. 
A)  reserve account at the central bank is negative at the end of a banking day. 
B)  reserve account at the central bank is negative at the beginning of a banking day. 
C)  reserve account at the central bank becomes negative within the banking day. 
D)  account with another FI becomes negative within the banking day.

Question 2

Assume that ABC Bank produces product A for a corporate client, while XYZ Bank produces product B for the client. The total operating cost for producing product A is $200 000 and $300 000 for product B. The resulting business volumes for the FI are $7 500 000 for product A and $10 000 000 for product B. Further assume that if the two banks merged they would be able to achieve $50 000 in cost efficiencies. What is the average cost of producing products A and B if the two institutions merged (round to two decimals)?

Accepted Answer

A)  3.14 per cent 
B)  5.08 per cent 
C)  5.67 per cent 
D)  2.57 per cent 
A)  3.14 per cent 
B)  5.08 per cent 
C)  5.67 per cent 
D)  2.57 per cent

Question 3

What are the advantages and disadvantages of technological advancements from the viewpoint of FIs? Use examples where appropriate.

Accepted Answer

Technological improvements in the servic

Question 4

Which of the following statements is true?

Accepted Answer

A)  Operational risk is not considered to be important in FIs and thus regulatory authorities assume that it is captured by an FI's general risk management framework. 
B)  Operational risk is considered to be important and thus the Basel Committee requires FIs to provision against their operational risk exposures. 
C)  Operational risk is considered to be important and thus the Basel Committee requires FIs to allocate capital against their operational risk exposures. 
D)  Operational risk is considered to be important, however, regulators are aware that FIs have well-functioning operational risk defence mechanisms in place. 
A)  Operational risk is not considered to be important in FIs and thus regulatory authorities assume that it is captured by an FI's general risk management framework. 
B)  Operational risk is considered to be important and thus the Basel Committee requires FIs to provision against their operational risk exposures. 
C)  Operational risk is considered to be important and thus the Basel Committee requires FIs to allocate capital against their operational risk exposures. 
D)  Operational risk is considered to be important, however, regulators are aware that FIs have well-functioning operational risk defence mechanisms in place.

Question 5

Which of the following observations concerning the production approach is true?

Accepted Answer

A)  It views FIs' outputs of services as having three underlying inputs. 
B)  Labour and capital are the only inputs. 
C)  It views the output as being produced by labour, capital and the funds used to produce intermediated services. 
D)  Deposit costs are viewed as an input in the banking and non-banking deposit institutions. 
A)  It views FIs' outputs of services as having three underlying inputs. 
B)  Labour and capital are the only inputs. 
C)  It views the output as being produced by labour, capital and the funds used to produce intermediated services. 
D)  Deposit costs are viewed as an input in the banking and non-banking deposit institutions.

Question 6

According to KPMG there has been a decline in the number of credit cards on issue, while there was no slow-down in transaction activity.

Accepted Answer

A) True 
 B)False

Question 7

Some of the most important retail payment product innovations are:

Accepted Answer

A)  ATMs, EFTPOS and online banking. 
B)  home banking, telephone banking and business-to-business ecommerce. 
C)  online banking, smart cards and account reconciliation. 
D)  All of the listed options are correct. 
A)  ATMs, EFTPOS and online banking. 
B)  home banking, telephone banking and business-to-business ecommerce. 
C)  online banking, smart cards and account reconciliation. 
D)  All of the listed options are correct.

Question 8

Smart cards allow customers to:

Accepted Answer

A)  spend money for various transactions, whereby the transaction value will be directly debited from the customer's account. 
B)  store and spend money for various transactions using a card that has a chip-storage device. 
C)  spend money for various transactions without having to pay the balance until a pre-set due date. 
D)  access their funds overseas. 
A)  spend money for various transactions, whereby the transaction value will be directly debited from the customer's account. 
B)  store and spend money for various transactions using a card that has a chip-storage device. 
C)  spend money for various transactions without having to pay the balance until a pre-set due date. 
D)  access their funds overseas.

Question 9

Which of the following statements is true?

Accepted Answer

A)  FIs should invest in as much technology as possible as it will provide the FI with a competitive advantage. 
B)  FIs need to strike a balance as both, too much and too little investment in technology can be bad for the FI. 
C)  FIs should invest in as little technology as possible as these investments are too risky. 
D)  Technology investments do not have an impact on the survival and profitability of the FI. 
A)  FIs should invest in as much technology as possible as it will provide the FI with a competitive advantage. 
B)  FIs need to strike a balance as both, too much and too little investment in technology can be bad for the FI. 
C)  FIs should invest in as little technology as possible as these investments are too risky. 
D)  Technology investments do not have an impact on the survival and profitability of the FI.

Question 10

Which of the following statements is true?

Accepted Answer

A)  The profitability of any product innovation is negatively related to the size of the initial set-up and development costs and the FIs cost of capital. 
B)  The profitability of any product innovation is positively related to the size of the initial set-up and development costs and the FIs cost of capital. 
C)  The profitability of any product innovation is unrelated to the size of the initial set-up and development costs and the FIs cost of capital. 
D)  The relationship depends on the FI's individual situation. 
A)  The profitability of any product innovation is negatively related to the size of the initial set-up and development costs and the FIs cost of capital. 
B)  The profitability of any product innovation is positively related to the size of the initial set-up and development costs and the FIs cost of capital. 
C)  The profitability of any product innovation is unrelated to the size of the initial set-up and development costs and the FIs cost of capital. 
D)  The relationship depends on the FI's individual situation.

Question 11

Which of the following wholesale services offered by FIs to businesses allows the FI to combine the email capabilities of the internet with the FIs ability to process payments electronically through the interbank payment networks?

Accepted Answer

A)  electronic data exchange 
B)  ecommerce facilitation 
C)  electronic billing 
D)  electronic funds transfer 
A)  electronic data exchange 
B)  ecommerce facilitation 
C)  electronic billing 
D)  electronic funds transfer

Question 12

Which of the following scenarios is most desirable for the FI?

Accepted Answer

A)  The initial set-up and development costs are lower than the sum of the discounted present values of cash flows from selling the product. 
B)  The initial set-up and development costs exceed the sum of the discounted present values of cash flows from selling the product. 
C)  The initial set-up and development costs equal the sum of the discounted present values of cash flows from selling the product. 
D)  The most desirable scenario depends on the FI's individual situation. 
A)  The initial set-up and development costs are lower than the sum of the discounted present values of cash flows from selling the product. 
B)  The initial set-up and development costs exceed the sum of the discounted present values of cash flows from selling the product. 
C)  The initial set-up and development costs equal the sum of the discounted present values of cash flows from selling the product. 
D)  The most desirable scenario depends on the FI's individual situation.

Question 13

External and internal fraud are both sources of operational risk.

Accepted Answer

A) True 
 B)False

Question 14

Economies of scale refers to the:

Accepted Answer

A)  fall in an FI's average costs of production as its output decreases. 
B)  fall in an FI's average costs of production as its output increases. 
C)  fall in an FI's average costs of production as its output remains stable. 
D)  increase in an FI's average costs of production as its output increases. 
A)  fall in an FI's average costs of production as its output decreases. 
B)  fall in an FI's average costs of production as its output increases. 
C)  fall in an FI's average costs of production as its output remains stable. 
D)  increase in an FI's average costs of production as its output increases.

Question 15

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

Accepted Answer

A)  Service quality, especially for customers of large banks. 
B)  The rate of innovation of new products has increased. 
C)  FIs can more easily cross-market new and existing products to customers. 
D)  All of the listed options are correct. 
A)  Service quality, especially for customers of large banks. 
B)  The rate of innovation of new products has increased. 
C)  FIs can more easily cross-market new and existing products to customers. 
D)  All of the listed options are correct.

Question 16

How can operating expenses of an FI be reduced by improved technological efficiency?

Accepted Answer

A)  By improving the efficiency of management of information flows. 
B)  By obtaining access to low cost sources of funds. 
C)  By linking services to the quality of the FI's technology. 
D)  By innovating new interest earning products. 
A)  By improving the efficiency of management of information flows. 
B)  By obtaining access to low cost sources of funds. 
C)  By linking services to the quality of the FI's technology. 
D)  By innovating new interest earning products.

Question 17

Which of the following statements is true?

Accepted Answer

A)  RTGS stands for Real Transaction Gross Settlement. 
B)  RTGS allows large transactions to be settled at the end of the banking day. 
C)  The use of RTGS eliminates settlement risk. 
D)  RTGS allows detecting any failure to complete settlement during the day that the transactions occur. 
A)  RTGS stands for Real Transaction Gross Settlement. 
B)  RTGS allows large transactions to be settled at the end of the banking day. 
C)  The use of RTGS eliminates settlement risk. 
D)  RTGS allows detecting any failure to complete settlement during the day that the transactions occur.

Question 18

Specific problems that can create capital asset risk include:

Accepted Answer

A)  fire/flood. 
B)  contractual disagreement. 
C)  war. 
D)  error. 
A)  fire/flood. 
B)  contractual disagreement. 
C)  war. 
D)  error.

Question 19

Regulators have proposed that operational risk should be measured for the purpose of meeting overall capital adequacy.

Accepted Answer

A) True 
 B)False

Question 20

The average cost of producing an FI's output of financial services is measured as follows:

Accepted Answer

A)  AC = TC - S 
B)  AC = TC + S 
C)  AC = TC $\times$ S 
D)  AC = TC / S 
A)  AC = TC - S 
B)  AC = TC + S 
C)  AC = TC $\times$ S 
D)  AC = TC / S

The term daylight overdraft refers to a situation in which an FI's:

What are the advantages and disadvantages of technological advancements from the viewpoint of FIs? Use examples where appropriate.

Which of the following statements is true?

Which of the following observations concerning the production approach is true?

According to KPMG there has been a decline in the number of credit cards on issue, while there was no slow-down in transaction activity.

Some of the most important retail payment product innovations are:

Smart cards allow customers to:

Which of the following statements is true?

Which of the following statements is true?

Which of the following wholesale services offered by FIs to businesses allows the FI to combine the email capabilities of the internet with the FIs ability to process payments electronically through the interbank payment networks?

Which of the following scenarios is most desirable for the FI?

External and internal fraud are both sources of operational risk.

Economies of scale refers to the:

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

How can operating expenses of an FI be reduced by improved technological efficiency?

Which of the following statements is true?

Specific problems that can create capital asset risk include:

Regulators have proposed that operational risk should be measured for the purpose of meeting overall capital adequacy.

The average cost of producing an FI's output of financial services is measured as follows:

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: the Duration Model

Managing Interest Rate Risk Using Off Balance Sheet Instruments

Credit Risk I: Individual Loan Risk

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Capital Management and Adequacy

Filters

Exam 17: Technology and Other Operational Risk

The term daylight overdraft refers to a situation in which an FI's:

What are the advantages and disadvantages of technological advancements from the viewpoint of FIs? Use examples where appropriate.

Which of the following statements is true?

Which of the following observations concerning the production approach is true?

According to KPMG there has been a decline in the number of credit cards on issue, while there was no slow-down in transaction activity.

Some of the most important retail payment product innovations are:

Smart cards allow customers to:

Which of the following statements is true?

Which of the following statements is true?

Which of the following wholesale services offered by FIs to businesses allows the FI to combine the email capabilities of the internet with the FIs ability to process payments electronically through the interbank payment networks?

Which of the following scenarios is most desirable for the FI?

External and internal fraud are both sources of operational risk.

Economies of scale refers to the:

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

How can operating expenses of an FI be reduced by improved technological efficiency?

Which of the following statements is true?

Specific problems that can create capital asset risk include:

Regulators have proposed that operational risk should be measured for the purpose of meeting overall capital adequacy.

The average cost of producing an FI's output of financial services is measured as follows:

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: the Duration Model

Managing Interest Rate Risk Using Off Balance Sheet Instruments

Credit Risk I: Individual Loan Risk

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Capital Management and Adequacy

Filters