Exam 17: Technology and Other Operational Risks

Funds transferred on the Clearing House Internet Payment System (CHIPS)are settled at the end of the day rather than intra-day as with the Fedwire system.

(True/False)

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Question 81

The success in technologically related innovation often is dependent on changes in regulations and regulatory procedures.

(True/False)

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Question 82

Although cloud computing is a technology that FIs can provide to business clients,the FI itself seldom uses cloud computing in their own operations.

(True/False)

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Question 83

Which of the following is NOT a wholesale banking service?

(Multiple Choice)

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Question 84

The "flash crash" on the NYSE in May 2010 was directly attributable to the manipulation of LIBOR by Barclays PLC.

(True/False)

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Question 85

Funds transferred on the Fedwire are settled immediately.

(True/False)

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Question 86

Retail banking services and products in recent years have moved strongly toward electronic payment technology.

(True/False)

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Question 87

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

(Multiple Choice)

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Question 88

Between 2011 and 2014,the dollar value of all methods cashless payment more than doubled.

(True/False)

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Question 89

The Fed now charges 20 basis points annually for daylight overdrafts.

(True/False)

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Question 90

The Bank for International Settlements has stated that banks should carry extra capital as a cushion against operational risks.

(True/False)

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Question 91

Two important input factors in financial intermediation are capital and labor.

(True/False)

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Question 92

Match the description with the correct service provided by modern FIs from the list below.

Combining the e-mail capability of the internet and the interbank payment networks to assist in the presentation and collection of invoices.

Check deposit services

Encoding, endorsing, microfilming, and handling customers' checks.

Treasury management software

A feature that records which checks have been paid by the FI.

Electronic lockbox

Correct Answer:

Verified

Combining the e-mail capability of the internet and the interbank payment networks to assist in the presentation and collection of invoices.

Encoding, endorsing, microfilming, and handling customers' checks.

A feature that records which checks have been paid by the FI.

Using encryption technology to assist in the electronic transaction of business between customers and businesses.

A centralized collection service where the payments are received on-line for corporate customers.

Moving funds from accounts in several FIs into a few centralized accounts at one FI.

Allows efficient management of multiple currency and security portfolios for trading and investment purposes.

Coordinating the need for funds early in the day with a wire transfer to allow disbursement of the funds later in the day.

Helping small firms set up electronic infrastructure for payment capabilities and interactive website capability.

Allows customers in a network to access FI computers to initiate letters of credit.

Automating the information flow associated with the procurement and distribution of goods and services between businesses.

Providing for the transmission of invoices, purchase orders, and shipping notices automatically using FIs as Clearing Houses.

A centralized collection service for corporate payments to reduce the delay in check clearing.

The transmission of payments and payment messages by CHIPS, SWIFT, Fedwire, etc.

(Matching)

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Question 93

Why has empirical evidence on economies of scale and scope been so contradictory?

(Multiple Choice)

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Question 94

The U.S.Treasury has recently proposed that banks carry a capital cushion against losses resulting from operational risk.

(True/False)

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Question 95

In the U.S. ,electronic methods of payment account for a larger number of transactions,but a lower aggregate dollar value than non-electronic methods of payment.

(True/False)

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Question 96

If AC_{X + Y} < AC_X + AC_Y,where AC is average production cost and X and Y are products,economies of scope are present.

(True/False)

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Question 97

Technological efficiency focuses exclusively on the cost side of financial intermediation.

(True/False)

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Question 98

Noninterest expense has increased faster than interest expense for all U.S.insured commercial banks in recent years.

(True/False)

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Question 99

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. Should the bank undertake the project given the above information?

(Multiple Choice)

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Question 100

Exam 17: Technology and Other Operational Risks

Funds transferred on the Clearing House Internet Payment System (CHIPS)are settled at the end of the day rather than intra-day as with the Fedwire system.

The success in technologically related innovation often is dependent on changes in regulations and regulatory procedures.

Although cloud computing is a technology that FIs can provide to business clients,the FI itself seldom uses cloud computing in their own operations.

Which of the following is NOT a wholesale banking service?

The "flash crash" on the NYSE in May 2010 was directly attributable to the manipulation of LIBOR by Barclays PLC.

Funds transferred on the Fedwire are settled immediately.

Retail banking services and products in recent years have moved strongly toward electronic payment technology.

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

Between 2011 and 2014,the dollar value of all methods cashless payment more than doubled.

The Fed now charges 20 basis points annually for daylight overdrafts.

The Bank for International Settlements has stated that banks should carry extra capital as a cushion against operational risks.

Two important input factors in financial intermediation are capital and labor.

Why has empirical evidence on economies of scale and scope been so contradictory?

The U.S.Treasury has recently proposed that banks carry a capital cushion against losses resulting from operational risk.

In the U.S. ,electronic methods of payment account for a larger number of transactions,but a lower aggregate dollar value than non-electronic methods of payment.

If ACX + Y < ACX + ACY,where AC is average production cost and X and Y are products,economies of scope are present.

Technological efficiency focuses exclusively on the cost side of financial intermediation.

Noninterest expense has increased faster than interest expense for all U.S.insured commercial banks in recent years.

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

If AC_{X + Y} < AC_X + AC_Y,where AC is average production cost and X and Y are products,economies of scope are present.