Exam 17: Technology and Other Operational Risks

A new computer system is expected to cost $40 million and generate annual savings of $12 million over the next five years -What is the IRR for this investment?

As of the first quarter 2012, non-interest expense was approximately 640 percent larger than interest expense for all FDIC insured banks.

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

As of January 2012, which of the following represented the highest percent of the dollar value of noncash transactions worldwide?

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?

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

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

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

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

According to economic theory involving economies of scale, larger and more cost-efficient FIs should prevail over smaller, less cost-efficient FIs.

Which of the following statements is NOT true?

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 figures indicate that

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

Delaware and South Dakota have become leading states in the distribution of some financial services because of liberal regulations.

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?

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?

Which of the following are the two basic approaches to analyzing the cost functions of FIs?

Which of the following best describes/defines X-inefficiencies?

Which of the following is a centralized collection service for corporate payments that helps reduce the float?

Funds transferred on the Fedwire are settled immediately.