Use the following information to answer questions: \(\begin{array}{lll} &\text { National Benchmark } & \text { Bank A } & \text { Bank B } \\ \text { Consumer Loans } & 50 \text { percent } & 65 \text { percent } & 35 \text { percent } \\ \text { Commercial Loans} & 50 \text { percent } & 35 \text { percent } & 65 \text { percent } \end{array}\) -Using standard deviations,which bank is in a better position if the average earnings on the assets of Bank A is 11 percent and Bank B is 12 percent (ignore all other factors)?

A) Bank B,because its earnings of 12 percent is higher than Bank A's 11 percent while,its standard deviation is lower. B) Bank B,because its earnings of 12 percent is higher compared to Bank A's 11 percent,while its standard deviation is higher. C) Bank B,because its earnings of 12 percent is higher compared to Bank A's 11 percent,while its standard deviation is the same. D) Bank A,because although its earnings of 11 percent is lower compared to Bank B's 12 percent,its standard deviation is significantly lower. A) Bank B,because its earnings of 12 percent is higher than Bank A's 11 percent while,its standard deviation is lower. B) Bank B,because its earnings of 12 percent is higher compared to Bank A's 11 percent,while its standard deviation is higher. C) Bank B,because its earnings of 12 percent is higher compared to Bank A's 11 percent,while its standard deviation is the same. D) Bank A,because although its earnings of 11 percent is lower compared to Bank B's 12 percent,its standard deviation is significantly lower.

Use the following information to answer questions: \(\begin{array}{lll} &\text { National Banks } & \text { Bank A } & \text { Bank B } \\ \text { Real Estate Loans } & 60 \text { percent } & 30 \text { percent } & 56 \text { percent } \\ \text { Consumer Losts } & 20 \text { percent } & 30 \text { percent } & 28 \text { percent } \\ \text { Commercial Loans} & 20 \text { percent } & 10 \text { percent } & 16 \text { percent } \end{array}\) -What is Bank A's standard deviation of its asset allocation proportions relative to the national banks average? Use the formula in the textbook.

A) 7.23 percent. B) 10.89 percent. C) 18.71 percent. D) 19.15 percent. A) 7.23 percent. B) 10.89 percent. C) 18.71 percent. D) 19.15 percent.

Use the following information to answer questions: \(\begin{array}{lll} &\text { National Banks } & \text { Bank A } & \text { Bank B } \\ \text { Real Estate Loans } & 60 \text { percent } & 30 \text { percent } & 56 \text { percent } \\ \text { Consumer Losts } & 20 \text { percent } & 30 \text { percent } & 28 \text { percent } \\ \text { Commercial Loans} & 20 \text { percent } & 10 \text { percent } & 16 \text { percent } \end{array}\) -If Bank A's average return on its loan portfolio is lower than that of Bank B's,

A) its risk-adjusted return is higher than Bank B's. B) its risk-adjusted return is lower than Bank B's. C) its standard deviation is lower than Bank B's. D) its standard deviation is higher than Bank B's. E) its risk-adjusted return is lower than Bank B's and its standard deviation is higher than Bank B's. A) its risk-adjusted return is higher than Bank B's. B) its risk-adjusted return is lower than Bank B's. C) its standard deviation is lower than Bank B's. D) its standard deviation is higher than Bank B's. E) its risk-adjusted return is lower than Bank B's and its standard deviation is higher than Bank B's.

Exam 11: Credit Risk: Loan Portfolio and Concentration Risk

If the amount lost per dollar on a defaulted loan is 40 percent,then a bank that does not permit the loss of a loan to exceed 10 percent of its bank capital should set its concentration limit (as a percentage of capital)to

(Multiple Choice)

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Question 21

What is the FI's expected return on its loan portfolio?

(Multiple Choice)

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Question 22

Use the following information to answer questions: National Benchmark Bank A Bank B Consumer Loans 50 percent 65 percent 35 percent Commercial Loans 50 percent 35 percent 65 percent -Using standard deviations,which bank is in a better position if the average earnings on the assets of Bank A is 11 percent and Bank B is 12 percent (ignore all other factors)?

(Multiple Choice)

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Question 23

Migration analysis is a tool to measure credit concentration risk and refers to

(Multiple Choice)

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Question 24

Under which model does an FI compare its own allocation of loans in any specific area with the national allocations across borrowers to measure the extent to which its loan portfolio deviates from the market portfolio benchmark?

(Multiple Choice)

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Question 25

Kansas Bank has a policy of limiting their loans to any single customer so that the maximum loss as a percent of capital will not exceed 20 percent for both secured and unsecured loans.The limit has been adopted under the assumption that if the unsecured loan is defaulted,there will be no recovery of interest or principal payments.For loans that are secured (collateralized),it is expected that 40 percent of interest and principal will be collected. What is the concentration limit (as a percent of capital)for unsecured loans made by Kansas Bank?

(Multiple Choice)

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Question 26

According to Moody's Analytics,default correlations tend to be _ and lie between ___.

(Multiple Choice)

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Question 27

In 1994,The Federal Reserve Board ruled against a proposal to use quantitative models to assess credit concentration risk because

(Multiple Choice)

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Question 28

Included in the Moody's Analytics model are recovery rates on defaulted loans.

(True/False)

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Question 29

One advantage of portfolio diversification methods is that they are applicable to all FIs,regardless of their size.

(True/False)

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Question 30

Migration analysis is not appropriate for an FI to use in the analysis of credit risk of consumer loans and credit card portfolios.

(True/False)

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Question 31

In the Moody's Analytics portfolio model,the expected return on a loan is the

(Multiple Choice)

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Question 32

Commercial bank call reports are provided by banks to the Federal Reserve and are useful in determining the proportion of loans in different classifications for the entire banking system.

(True/False)

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Question 33

Banks whose loan portfolio composition deviates from the national benchmark should immediately implement policies to move toward benchmark alignment.

(True/False)

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Question 34

Kansas Bank has a policy of limiting their loans to any single customer so that the maximum loss as a percent of capital will not exceed 20 percent for both secured and unsecured loans.The limit has been adopted under the assumption that if the unsecured loan is defaulted,there will be no recovery of interest or principal payments.For loans that are secured (collateralized),it is expected that 40 percent of interest and principal will be collected. What is the concentration limit (as a % of capital)for secured loans made by this bank?

(Multiple Choice)

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(80)

Question 35

Use the following information to answer questions: National Banks Bank A Bank B Real Estate Loans 60 percent 30 percent 56 percent Consumer Losts 20 percent 30 percent 28 percent Commercial Loans 20 percent 10 percent 16 percent -What is Bank A's standard deviation of its asset allocation proportions relative to the national banks average? Use the formula in the textbook.

(Multiple Choice)

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Question 36

Use the following information to answer questions: National Banks Bank A Bank B Real Estate Loans 60 percent 30 percent 56 percent Consumer Losts 20 percent 30 percent 28 percent Commercial Loans 20 percent 10 percent 16 percent -If Bank A's average return on its loan portfolio is lower than that of Bank B's,

(Multiple Choice)

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Question 37

Modern portfolio theory models consider only how well diversified the entire loan portfolio is without regard to bonds that may be issued by sectors within the portfolio.

(True/False)

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Question 38

What does Moody's Analytics Portfolio Manager Model use to identify the overall risk of the portfolio?

(Multiple Choice)

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Question 39

Which of the following is a source of loan volume data?

(Multiple Choice)

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(70)

Question 40

Showing 21 - 40 of 65

Exam 11: Credit Risk: Loan Portfolio and Concentration Risk

If the amount lost per dollar on a defaulted loan is 40 percent,then a bank that does not permit the loss of a loan to exceed 10 percent of its bank capital should set its concentration limit (as a percentage of capital)to

What is the FI's expected return on its loan portfolio?

Migration analysis is a tool to measure credit concentration risk and refers to

Under which model does an FI compare its own allocation of loans in any specific area with the national allocations across borrowers to measure the extent to which its loan portfolio deviates from the market portfolio benchmark?

According to Moody's Analytics,default correlations tend to be _____ and lie between _______.

In 1994,The Federal Reserve Board ruled against a proposal to use quantitative models to assess credit concentration risk because

Included in the Moody's Analytics model are recovery rates on defaulted loans.

One advantage of portfolio diversification methods is that they are applicable to all FIs,regardless of their size.

Migration analysis is not appropriate for an FI to use in the analysis of credit risk of consumer loans and credit card portfolios.

In the Moody's Analytics portfolio model,the expected return on a loan is the

Commercial bank call reports are provided by banks to the Federal Reserve and are useful in determining the proportion of loans in different classifications for the entire banking system.

Banks whose loan portfolio composition deviates from the national benchmark should immediately implement policies to move toward benchmark alignment.

Modern portfolio theory models consider only how well diversified the entire loan portfolio is without regard to bonds that may be issued by sectors within the portfolio.

What does Moody's Analytics Portfolio Manager Model use to identify the overall risk of the portfolio?

Which of the following is a source of loan volume data?

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

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

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

According to Moody's Analytics,default correlations tend to be _ and lie between ___.