Question 1

Which is the most important banking area in which technology has an impact?

Accepted Answer

A) Cash-management services. 
B) Residential mortgage lending. 
C) Issuance of certificates of deposit. 
D) Credit approval. 
A) Cash-management services. 
B) Residential mortgage lending. 
C) Issuance of certificates of deposit. 
D) Credit approval.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Which of the following observations concerning e-money is NOT true?

Accepted Answer

A) Check writing lays the foundation of e-money. 
B) E-money removes the middleman from a transaction. 
C) The e-money user transfers the money from his or her bank account to the account of the funds' receiver. 
D) The primary function of e-money is to facilitate transactions on the Internet. 
E) E-money is not a cost efficient way of managing transactions that are small in value. 
A) Check writing lays the foundation of e-money. 
B) E-money removes the middleman from a transaction. 
C) The e-money user transfers the money from his or her bank account to the account of the funds' receiver. 
D) The primary function of e-money is to facilitate transactions on the Internet. 
E) E-money is not a cost efficient way of managing transactions that are small in value.

Question 4

Which of the following wholesale services offered by FIs allows businesses to transfer and transact invoices,purchase orders,and shipping notices automatically?

Accepted Answer

A) Electronic data exchange. 
B) E-commerce facilitation. 
C) Electronic billing. 
D) Electronic funds transfer. 
A) Electronic data exchange. 
B) E-commerce facilitation. 
C) Electronic billing. 
D) Electronic funds transfer.

Question 5

As of December 2014,credit cards used in either a credit or debit function accounted for over 60 percent of the number of payments made in the U.S.

Accepted Answer

A) True 
 B)False

Question 6

Cash management services include the collection,disbursement,and transfer of funds.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following observations is NOT true?

Accepted Answer

A) The use of electronic methods of payment is far higher in major developed countries other than the United States. 
B) E-money payments are virtually nonexistent in the United States. 
C) Money stored in e-money accounts and cards is covered by deposit insurance. 
D) U.S.FIs have been slow in adopting and using online banking and electronic payment methods extensively. 
A) The use of electronic methods of payment is far higher in major developed countries other than the United States. 
B) E-money payments are virtually nonexistent in the United States. 
C) Money stored in e-money accounts and cards is covered by deposit insurance. 
D) U.S.FIs have been slow in adopting and using online banking and electronic payment methods extensively.

Question 8

Which of the following statements is NOT true?

Accepted Answer

A) The Federal Reserve operates the Fedwire electronic payments system while CHIPS is a private network. 
B) Fedwire is used to transfer funds from the Fed to the banking system while CHIPS is used to make interbank funds transfers. 
C) The Fed guarantees all payments on Fedwire while CHIPS transfers are provisional until settlement. 
D) Large daylight overdrafts are incurred on both Fedwire and CHIPS. 
A) The Federal Reserve operates the Fedwire electronic payments system while CHIPS is a private network. 
B) Fedwire is used to transfer funds from the Fed to the banking system while CHIPS is used to make interbank funds transfers. 
C) The Fed guarantees all payments on Fedwire while CHIPS transfers are provisional until settlement. 
D) Large daylight overdrafts are incurred on both Fedwire and CHIPS.

Question 9

How can interest income of an FI be increased 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 10

As banks and other FIs increase the use of technology,an unintended consequence may be that

Accepted Answer

A) cost savings are seldom realized. 
B) customers are driven away because they still want to interact with a person for certain transactions. 
C) innovation of new products tends to take longer periods of time to attract new customers. 
D) the marginal cost of adding new customers tends to increase at an increasing rate. 
A) cost savings are seldom realized. 
B) customers are driven away because they still want to interact with a person for certain transactions. 
C) innovation of new products tends to take longer periods of time to attract new customers. 
D) the marginal cost of adding new customers tends to increase at an increasing rate.

Question 11

Investment in technology has allowed FIs to lower the amount of non-interest income as a percent of total operating income.

Accepted Answer

A) True 
 B)False

Question 12

Although secure communications can be carried out between an FI and their customers in dedicated message centers,the centers have yet to replace e-mail communications as the primary means of customer contact.

Accepted Answer

A) True 
 B)False

Question 13

Controlled disbursement accounts are designed to reduce the delay in check clearing.

Accepted Answer

A) True 
 B)False

Question 14

How can interest expense 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 15

Regulation F,a part of the FDIC Improvement Act of 1991,requires financial institutions to develop internal procedures to limit settlement exposures to correspondent banks.

Accepted Answer

A) True 
 B)False

Question 16

Consider the following two FIs: Company A has $500 million in total assets and total costs equal to $200 million.Company B has $60 million in total assets and total costs equal to $24 million.

What are average costs for each FI?

Accepted Answer

A) 0.40 for A and 2.50 for B 
B) 2.50 for both A and B. 
C) 2.50 for A and 0.40 for B. 
D) 0.40 for both A and B. 
A) 0.40 for A and 2.50 for B 
B) 2.50 for both A and B. 
C) 2.50 for A and 0.40 for B. 
D) 0.40 for both A and B.

Question 17

Which of the following implies reduced unit costs as size or volume of assets increases?

Accepted Answer

A) Diseconomies of scale. 
B) Economies of scale. 
C) Economies of scope. 
D) Diseconomies of scope. 
A) Diseconomies of scale. 
B) Economies of scale. 
C) Economies of scope. 
D) Diseconomies of scope.

Question 18

Consider the following two FIs: Company A has $500 million in total assets and total costs equal to $200 million.Company B has $60 million in total assets and total costs equal to $24 million.

What can you conclude about the cost structure of the market consisting of the two FIs?

Accepted Answer

A) There are significant economies of scale because both companies A and B coexist in the industry. 
B) There are no significant economies of scale because company A is much larger than company B 
C) There are no significant economies of scale because the unit costs are constant. 
D) There are significant economies of scale because the unit costs decline as size increases. 
A) There are significant economies of scale because both companies A and B coexist in the industry. 
B) There are no significant economies of scale because company A is much larger than company B 
C) There are no significant economies of scale because the unit costs are constant. 
D) There are significant economies of scale because the unit costs decline as size increases.

Question 19

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. 
A) Diseconomies of scale. 
B) Economies of scale. 
C) Economies of scope. 
D) Diseconomies of scope.

Question 20

Appropriate technology may allow an FI to achieve lower-cost funding.

Accepted Answer

A) True 
 B)False

Exam 17: Technology and Other Operational Risks

Which is the most important banking area in which technology has an impact?

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

Which of the following observations concerning e-money is NOT true?

Which of the following wholesale services offered by FIs allows businesses to transfer and transact invoices,purchase orders,and shipping notices automatically?

As of December 2014,credit cards used in either a credit or debit function accounted for over 60 percent of the number of payments made in the U.S.

Cash management services include the collection,disbursement,and transfer of funds.

Which of the following observations is NOT true?

Which of the following statements is NOT true?

How can interest income of an FI be increased by improved technological efficiency?

As banks and other FIs increase the use of technology,an unintended consequence may be that

Investment in technology has allowed FIs to lower the amount of non-interest income as a percent of total operating income.

Although secure communications can be carried out between an FI and their customers in dedicated message centers,the centers have yet to replace e-mail communications as the primary means of customer contact.

Controlled disbursement accounts are designed to reduce the delay in check clearing.

How can interest expense of an FI be reduced by improved technological efficiency?

Regulation F,a part of the FDIC Improvement Act of 1991,requires financial institutions to develop internal procedures to limit settlement exposures to correspondent banks.

Consider the following two FIs: Company A has $500 million in total assets and total costs equal to $200 million.Company B has $60 million in total assets and total costs equal to $24 million. What are average costs for each FI?

Which of the following implies reduced unit costs as size or volume of assets increases?

Consider the following two FIs: Company A has $500 million in total assets and total costs equal to $200 million.Company B has $60 million in total assets and total costs equal to $24 million. What can you conclude about the cost structure of the market consisting of the two FIs?

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

Appropriate technology may allow an FI to achieve lower-cost funding.

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Firms and Investment Banks

Financial Services: Mutual Fund and Hedge Fund Companies

Financial Services: Insurance Companies

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

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

Filters