Exam 17: Technology and Other Operational Risks

The following information is available on the average costs of the three major banks in a given local market.Bank A has assets of $10 million and average costs are 15 percent,Bank B has assets of $20 million and average costs of 13 percent while Bank C has assets of $30 million with average costs of 12 percent.Average costs are measured as a proportion of total assets. The above values indicate that

Technological advances in payment systems appear to have decreased the incentive to commit white-collar crime.

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

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

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. What must be the minimum annual cost savings in order to accept this project? Assume a five-year horizon and 8 percent discount rate.

A new computer system is expected to cost $40 million and generate annual savings of $12 million over the next five years. Should the bank invest in this project if the discount rate is 18 percent?

As of December 2014,which of the following represented the highest percent of the dollar value of noncash transactions worldwide?

Account reconciliation redirects funds from accounts in a large number of different banks to a few centralized accounts at one bank.

Daylight overdrafts occur when

The Clearing House Internet Payment System (CHIPS)is use in clearing mostly international payments such as foreign exchange and Eurodollar transfers.

As far as regulation is concerned,the increased use of technology

Fedwire is a wire transfer network of over 9,300 international FIs with the Federal Reserve System.

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?

The following information is available on the average costs of the three major banks in a given local market.Bank A has assets of $10 million and average costs are 15 percent,Bank B has assets of $20 million and average costs of 13 percent while Bank C has assets of $30 million with average costs of 12 percent.Average costs are measured as a proportion of total assets. By how much should operating costs of the combined entity (Bank A + Bank B)be reduced in order to stay competitive in the local market,ceteris paribus?

Which of the following is NOT a source of operational risk for an FI?

Technological advances and the ability to access a nationwide market from one location allowed the growth of Industrial Loan Corporations (ILCs)during the 1990s and illustrate competitive risks of other FIs.Which of the following is true of ILCs?

As of December 2014,credit cards used in either a credit or debit function accounted for less than 5 percent of the dollar value of payments made in the U.S.

The increased use of technology may have positive and negative effects on the perceived service quality provided to retail customers.

Which of the following is NOT TRUE concerning The Clearing House Internet Payment System (CHIPS)?

Which of the following occur when managers undertake growth-oriented investments to increase an FI's size that may be inconsistent with stockholders' value-maximizing objectives?