Exam 17: Technology and Other Operational Risks

New retail products and services based heavily on technology often are risky because of the high usage rate necessary to make them positive net present value projects.

Which of the following best describes economies of scope?

Daylight overdraft risk occurs because banks often provide immediate credit to customers for deposits,even though the funds may not arrive until later in the day.

In recent years,U.S.banks have alone spent $20 billion per year in technology related expenditures.

Wholesale cash management services allow corporate customers to minimize cash balances and to monitor quickly cash transactions and balances.

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. The maximum cost savings that can be generated with this new equipment has been estimated to be $264,237.In order to accept this project,what is the minimum number of years the projected savings must be realized before the project breaks even?

Investing in appropriate technology allows an FI to access lower-cost funding markets.

Which of the following is consistent with economies of scope? The subscript "b" refers to a banking firm,"s" for a securities firm,"AC" is average costs and "TC" is total costs.

As of the 2014,non-interest expense was approximately 10 times larger than interest expense for all FDIC insured banks.

Which of the following is NOT a risk associated with an electronic transfer payment system?

The increased use of wire transfers as a replacement for check and cash payments has decreased the risk of fraud.

Which of the following implies that small FIs are more cost efficient than large FIs,and that in a freely competitive environment for financial services,small FIs may outperform their larger counterparts?

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