Question 1

Regulators have proposed that operational risk should be measured for the purpose of meeting overall capital adequacy.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) economies of scale 
B) diseconomies of scale 
C) economies of scope 
D) diseconomies of scope 
A) economies of scale 
B) diseconomies of scale 
C) economies of scope 
D) diseconomies of scope

Question 3

A major advantage of EFTPOS is that:

Accepted Answer

A) the transaction value will be debited from the customer's account at a later point in time 
B) customers can use cheques to pay for their purchases 
C) customers do not have to carry cash to make purchases 
D) All of the listed options are correct. 
A) the transaction value will be debited from the customer's account at a later point in time 
B) customers can use cheques to pay for their purchases 
C) customers do not have to carry cash to make purchases 
D) All of the listed options are correct.

Question 4

The term daylight overdraft refers to a situation in which an FI's reserve account at the central bank becomes negative within the banking day.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is false?

Accepted Answer

A) The long-run implication of economies of scale on the FI sector is that the larger and most cost-efficient FIs will drive out smaller FIs. 
B) A potential long-run implication of economies of scale on the FI sector is an increase in large-firm dominance. 
C) A potential long-run implication of economies of scale on the FI sector is a concentration in financial services production. 
D) A potential long-run implication of economies of scale on the FI sector is a decrease in large-firm dominance. 
A) The long-run implication of economies of scale on the FI sector is that the larger and most cost-efficient FIs will drive out smaller FIs. 
B) A potential long-run implication of economies of scale on the FI sector is an increase in large-firm dominance. 
C) A potential long-run implication of economies of scale on the FI sector is a concentration in financial services production. 
D) A potential long-run implication of economies of scale on the FI sector is a decrease in large-firm dominance.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

What are the advantages and disadvantages of technological advancements from the viewpoint of FIs? Use examples where appropriate.

Accepted Answer

Technological improvements in the servic

Question 8

The most important banking area in which technology has impacted wholesale or corporate customer services is a financial institution's ability to provide:

Accepted Answer

A) cash-management services 
B) residential mortgage lending 
C) issuance of certificates of deposit 
D) credit approval 
A) cash-management services 
B) residential mortgage lending 
C) issuance of certificates of deposit 
D) credit approval

Question 9

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%, Bank B has assets of $20 million and average costs of 13% while Bank C has assets of $30 million with average costs of 12%.Average costs are measured as a proportion of total assets.The above figures indicate that:

Accepted Answer

A) there are significant economies of scale still present in the local markets 
B) there are significant diseconomies of scale still present in the local markets 
C) there are significant economies of scope still present in the local markets 
D) there are significant diseconomies of scope still present in the local markets 
A) there are significant economies of scale still present in the local markets 
B) there are significant diseconomies of scale still present in the local markets 
C) there are significant economies of scope still present in the local markets 
D) there are significant diseconomies of scope still present in the local markets

Question 10

How can operating expenses 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. 
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.

Question 11

Customer relationships (as sources of operational risk) are internally controllable by FI management.

Accepted Answer

A) True 
 B)False

Question 12

Economies of scope refers to the:

Accepted Answer

A) fall in an FI's average costs of production as its output increases 
B) increase in an FI's average costs of production as its output increases 
C) situation in which the costs of joint production of FI services are higher than they would be if they were produced independently 
D) ability of an FI to generate synergistic cost savings through joint use of inputs in producing multiple outputs 
A) fall in an FI's average costs of production as its output increases 
B) increase in an FI's average costs of production as its output increases 
C) situation in which the costs of joint production of FI services are higher than they would be if they were produced independently 
D) ability of an FI to generate synergistic cost savings through joint use of inputs in producing multiple outputs

Question 13

Diseconomies of scale refers to the increase in an FI's average costs of production as its output increases.

Accepted Answer

A) True 
 B)False

Question 14

External fraud (as sources of operational risk) is internally controllable by FI management.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements is true?

Accepted Answer

A) Various studies have shown that economies of scale best explain cost discrepancies between FIs. 
B) Various studies have shown that economies of scope best explain cost discrepancies between FIs. 
C) Various studies have shown that X-inefficiencies best explain cost discrepancies between FIs. 
D) Various studies have shown that Y-inefficiencies best explain cost discrepancies between FIs. 
A) Various studies have shown that economies of scale best explain cost discrepancies between FIs. 
B) Various studies have shown that economies of scope best explain cost discrepancies between FIs. 
C) Various studies have shown that X-inefficiencies best explain cost discrepancies between FIs. 
D) Various studies have shown that Y-inefficiencies best explain cost discrepancies between FIs.

Question 16

The average cost of producing an FI's output of financial services is measured as follows:

Accepted Answer

A) AC = TC - S 
B) AC = TC + S 
C) AC = TC * S 
D) AC = TC / S 
A) AC = TC - S 
B) AC = TC + S 
C) AC = TC * S 
D) AC = TC / S

Question 17

Which of the following statements is true?

Accepted Answer

A) Operational risk is not considered to be important in FI's and thus regulatory authorities assume that it is captured by an FI's general risk management framework. 
B) Operational risk is considered to be important and thus the Basel Committee requires FI's to provision against their operational risk exposures. 
C) Operational risk is considered to be important and thus the Basel Committee requires FI's to allocate capital against their operational risk exposures. 
D) Operational risk is considered to be important; however, regulators are aware that FI's have well-functioning operational risk defence mechanisms in place. 
A) Operational risk is not considered to be important in FI's and thus regulatory authorities assume that it is captured by an FI's general risk management framework. 
B) Operational risk is considered to be important and thus the Basel Committee requires FI's to provision against their operational risk exposures. 
C) Operational risk is considered to be important and thus the Basel Committee requires FI's to allocate capital against their operational risk exposures. 
D) Operational risk is considered to be important; however, regulators are aware that FI's have well-functioning operational risk defence mechanisms in place.

Question 18

Operational risk came into prominence during the global financial crisis (GFC) due to:

Accepted Answer

A) Lehman Brothers using 'recycled collateral' to expand their funding beyond on-balance-sheet assets 
B) the classification of 'sophisticated investors' led to investment banks not providing material information about the riskiness of derivative transactions 
C) the credit default swap market was likely to cause systemic market risk due to difficulties in settling out trades with distressed or failed counterparties 
D) All of the listed options are correct. 
A) Lehman Brothers using 'recycled collateral' to expand their funding beyond on-balance-sheet assets 
B) the classification of 'sophisticated investors' led to investment banks not providing material information about the riskiness of derivative transactions 
C) the credit default swap market was likely to cause systemic market risk due to difficulties in settling out trades with distressed or failed counterparties 
D) All of the listed options are correct.

Question 19

Diseconomies of scope refers to the:

Accepted Answer

A) fall in an FI's average costs of production as its output increases 
B) increase in an FI's average costs of production as its output increases 
C) situation in which the costs of joint production of FI services are higher than they would be if they were produced independently 
D) ability of an FI to generate synergistic cost savings through joint use of inputs in producing multiple outputs 
A) fall in an FI's average costs of production as its output increases 
B) increase in an FI's average costs of production as its output increases 
C) situation in which the costs of joint production of FI services are higher than they would be if they were produced independently 
D) ability of an FI to generate synergistic cost savings through joint use of inputs in producing multiple outputs

Question 20

Specific problems that can create employee risk include:

Accepted Answer

A) war; external fraud 
B) management information 
C) money laundering; rogue trading and fraud risk 
D) taxation risk; confidentiality breach 
A) war; external fraud 
B) management information 
C) money laundering; rogue trading and fraud risk 
D) taxation risk; confidentiality breach

Regulators have proposed that operational risk should be measured for the purpose of meeting overall capital adequacy.

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

A major advantage of EFTPOS is that:

The term daylight overdraft refers to a situation in which an FI's reserve account at the central bank becomes negative within the banking day.

Which of the following statements is false?

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

What are the advantages and disadvantages of technological advancements from the viewpoint of FIs? Use examples where appropriate.

The most important banking area in which technology has impacted wholesale or corporate customer services is a financial institution's ability to provide:

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

Customer relationships (as sources of operational risk) are internally controllable by FI management.

Economies of scope refers to the:

Diseconomies of scale refers to the increase in an FI's average costs of production as its output increases.

External fraud (as sources of operational risk) is internally controllable by FI management.

Which of the following statements is true?

The average cost of producing an FI's output of financial services is measured as follows:

Which of the following statements is true?

Operational risk came into prominence during the global financial crisis (GFC) due to:

Diseconomies of scope refers to the:

Specific problems that can create employee risk include:

Why Are Financial Institutions Special

The Financial Service Industry: Depository Institutions

The Financial Service Industry: Other Financial Institutions

Risks of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: the Duration Model

Managing Interest Rate Risk Using Off-Balance-Sheet Instruments

Managing Interest Rate Risk Using Securitisation

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Capital Management and Adequacy

Filters

Exam 17: Technology and Other Operational Risks

Regulators have proposed that operational risk should be measured for the purpose of meeting overall capital adequacy.

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

A major advantage of EFTPOS is that:

The term daylight overdraft refers to a situation in which an FI's reserve account at the central bank becomes negative within the banking day.

Which of the following statements is false?

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

What are the advantages and disadvantages of technological advancements from the viewpoint of FIs? Use examples where appropriate.

The most important banking area in which technology has impacted wholesale or corporate customer services is a financial institution's ability to provide:

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

Customer relationships (as sources of operational risk) are internally controllable by FI management.

Economies of scope refers to the:

Diseconomies of scale refers to the increase in an FI's average costs of production as its output increases.

External fraud (as sources of operational risk) is internally controllable by FI management.

Which of the following statements is true?

The average cost of producing an FI's output of financial services is measured as follows:

Which of the following statements is true?

Operational risk came into prominence during the global financial crisis (GFC) due to:

Diseconomies of scope refers to the:

Specific problems that can create employee risk include:

Why Are Financial Institutions Special

The Financial Service Industry: Depository Institutions

The Financial Service Industry: Other Financial Institutions

Risks of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: the Duration Model

Managing Interest Rate Risk Using Off-Balance-Sheet Instruments

Managing Interest Rate Risk Using Securitisation

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Capital Management and Adequacy

Filters