Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

The expenses relating to increased technological improvements made by FIs during the last several years has the most impact on which of the following?

Accepted Answer

A) Interest expense. 
B) Noninterest expense. 
C) Net income. 
D) Provision for loan losses. 
E) Net securities gains or losses 
A) Interest expense. 
B) Noninterest expense. 
C) Net income. 
D) Provision for loan losses. 
E) Net securities gains or losses

Question 3

How can interest expense of an FI be reduced by improved technological efficiency?

Accepted Answer

A) By improving the efficiency of management of information flows. 
B) By obtaining access to low cost sources of funds. 
C) By linking services to the quality of the FI's technology. 
D) By innovating new interest earning products. 
E) By complying with all government regulations. 
A) By improving the efficiency of management of information flows. 
B) By obtaining access to low cost sources of funds. 
C) By linking services to the quality of the FI's technology. 
D) By innovating new interest earning products. 
E) By complying with all government regulations.

Question 4

Although secure communications can be carried out between an FI and their customers in dedicated message centers, the centers have yet to replace e-mail communications as the primary means of customer contact.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

As of January 2012, credit cards used in either a credit or debit function accounted for over 60 percent of the number of payments made in the U.S.

Accepted Answer

A) True 
 B)False

Question 7

How can interest income of an FI be increased by improved technological efficiency?

Accepted Answer

A) By improving the efficiency of management of information flows. 
B) By obtaining access to low cost sources of funds. 
C) By linking services to the quality of the FI's technology. 
D) By innovating new interest earning products. 
E) By complying with all government regulations. 
A) By improving the efficiency of management of information flows. 
B) By obtaining access to low cost sources of funds. 
C) By linking services to the quality of the FI's technology. 
D) By innovating new interest earning products. 
E) By complying with all government regulations.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Banks in given size classes tend to have very little difference in cost structures.

Accepted Answer

A) True 
 B)False

Question 11

Recent evidence suggests that economies of scale may exist for banks up to the $10 billion to $25 billion range.

Accepted Answer

A) True 
 B)False

Question 12

How can noninterest operating income of an FI be increased by improved technological efficiency?

Accepted Answer

A) By improving the efficiency of management of information flows. 
B) By obtaining access to low cost sources of funds. 
C) By linking services to the quality of the FI's technology. 
D) By innovating new interest earning products. 
E) By complying with all government regulations. 
A) By improving the efficiency of management of information flows. 
B) By obtaining access to low cost sources of funds. 
C) By linking services to the quality of the FI's technology. 
D) By innovating new interest earning products. 
E) By complying with all government regulations.

Question 13

Which of the following best describes economies of scale?

Accepted Answer

A) The average cost of production decreases as the level of output increases. 
B) The effects on costs related to managerial ability and other hard-to-quantify factors. 
C) Cost savings are realized from using many of the same inputs to produce multiple products. 
D) The average cost of production increases as the level of output increases. 
E) Cost increases are realized from using many of the same inputs to produce multiple products. 
A) The average cost of production decreases as the level of output increases. 
B) The effects on costs related to managerial ability and other hard-to-quantify factors. 
C) Cost savings are realized from using many of the same inputs to produce multiple products. 
D) The average cost of production increases as the level of output increases. 
E) Cost increases are realized from using many of the same inputs to produce multiple products.

Question 14

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.

Accepted Answer

A) True 
 B)False

Question 15

Suppose that the doubling of a bank's deposit funding allows the bank to triple its loan output. What can you conclude about the bank's production technology?

Accepted Answer

A) It exhibits economies of scale using the production approach. 
B) It exhibits diseconomies of scale using the production approach. 
C) It exhibits diseconomies of scale using the intermediation approach. 
D) It exhibits economies of scale using the intermediation approach. 
E) It exhibits neither economies nor diseconomies of scale. 
A) It exhibits economies of scale using the production approach. 
B) It exhibits diseconomies of scale using the production approach. 
C) It exhibits diseconomies of scale using the intermediation approach. 
D) It exhibits economies of scale using the intermediation approach. 
E) It exhibits neither economies nor diseconomies of scale.

Question 16

According to Hitachi Data Systems, recovery time from system failures averages 12 hours.

Accepted Answer

A) True 
 B)False

Question 17

An increase in the cost of the joint production of services as compared to the production of those services independently is an example of diseconomies of scale.

Accepted Answer

A) True 
 B)False

Question 18

As of January 2012, 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.

Accepted Answer

A) True 
 B)False

Question 19

Regulation F, a part of the FDIC Improvement Act of 1991, requires financial institutions to develop internal procedures to limit settlement exposures to correspondent banks.

Accepted Answer

A) True 
 B)False

Question 20

Investment in technology has allowed FIs to lower the amount of non-interest income as a percent of total operating income.

Accepted Answer

A) True 
 B)False

Exam 17: Technology and Other Operational Risks

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

The expenses relating to increased technological improvements made by FIs during the last several years has the most impact on which of the following?

How can interest expense of an FI be reduced by improved technological efficiency?

Although secure communications can be carried out between an FI and their customers in dedicated message centers, the centers have yet to replace e-mail communications as the primary means of customer contact.

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

As of January 2012, credit cards used in either a credit or debit function accounted for over 60 percent of the number of payments made in the U.S.

How can interest income of an FI be increased by improved technological efficiency?

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

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

Banks in given size classes tend to have very little difference in cost structures.

Recent evidence suggests that economies of scale may exist for banks up to the $10 billion to $25 billion range.

How can noninterest operating income of an FI be increased by improved technological efficiency?

Which of the following best describes economies of scale?

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.

Suppose that the doubling of a bank's deposit funding allows the bank to triple its loan output. What can you conclude about the bank's production technology?

According to Hitachi Data Systems, recovery time from system failures averages 12 hours.

An increase in the cost of the joint production of services as compared to the production of those services independently is an example of diseconomies of scale.

As of January 2012, 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.

Regulation F, a part of the FDIC Improvement Act of 1991, requires financial institutions to develop internal procedures to limit settlement exposures to correspondent banks.

Investment in technology has allowed FIs to lower the amount of non-interest income as a percent of total operating income.

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Brokerage and Investment Banking

Financial Services: Mutual Funds and Hedge Funds

Financial Services: Insurance

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