Question 1

Regulators' overall evaluation of the riskiness of a depository institution is measured by the ________.

Accepted Answer

A) Basel Accord 
B) CRA rating 
C) CAMELS rating 
D) Exposure scale 
E) FFIEC score 
A) Basel Accord 
B) CRA rating 
C) CAMELS rating 
D) Exposure scale 
E) FFIEC score

Question 2

A bank has on-balance-sheet assets with a book value of $940 million and a market value of $985 million and on-balance-sheet liabilities with a book value of $900 million and a market value of $930 million. The bank also has off-balance-sheet assets currently valued at $150 million and off-balance-sheet liabilities worth $160 million. Stockholders' net worth should be valued at ________ million.

Accepted Answer

A) $30 
B) $40 
C) $45 
D) $50 
E) $55 
A) $30 
B) $40 
C) $45 
D) $50 
E) $55

Question 3

Breakdowns of ATMs and fraudulent use of information stored on a bank's computer system are examples of operational risk.

Accepted Answer

A) True 
 B)False

Question 4

How does foreign exchange risk arise for an FI?

Accepted Answer

Trading in foreign currencies;

Question 5

The subprime crisis is a good example of the credit risk faced by financial institutions.

Accepted Answer

A) True 
 B)False

Question 6

In May 2007,the largest known credit card theft was discovered when it was revealed that 200 million card numbers were stolen from TJX Company. This is an example of

Accepted Answer

A) credit risk. 
B) operational risk. 
C) liquidity risk. 
D) technological risk. 
E) regulatory risk. 
A) credit risk. 
B) operational risk. 
C) liquidity risk. 
D) technological risk. 
E) regulatory risk.

Question 7

Rising interest rates decrease the value of fixed-income assets and increase the value of fixed-income liabilities.

Accepted Answer

A) True 
 B)False

Question 8

Rank order the net charge-off rates from high to low for the following loan types:
I. C&I loans
II. Credit card loans
III. Real estate loans

Accepted Answer

A) I,II,III 
B) I,III,II 
C) II,I,III 
D) II,III,I 
E) III,I,II 
A) I,II,III 
B) I,III,II 
C) II,I,III 
D) II,III,I 
E) III,I,II

Question 9

Why would an FI be willing to issue a letter of credit guarantee to a municipal bond issuer?

Accepted Answer

Most guarantees are not used and the FI

Question 10

A guarantee issued by an FI that obligates the FI to pay if the purchaser of the letter defaults on a debt is called a

Accepted Answer

A) loan commitment. 
B) forward rate agreement. 
C) credit swap agreement. 
D) collar. 
E) None of these options are correct. 
A) loan commitment. 
B) forward rate agreement. 
C) credit swap agreement. 
D) collar. 
E) None of these options are correct.

Question 11

The Fed allowed nonbank financial institutions to borrow money from the discount window during the mortgage crisis and even allowed nonbanks to swap mortgages for Treasury securities. This was an attempt by the Fed to reduce ________ at institutions.

Accepted Answer

A) operational risk 
B) technological risk 
C) liquidity risk 
D) foreign exchange risk 
E) diversifiable risk 
A) operational risk 
B) technological risk 
C) liquidity risk 
D) foreign exchange risk 
E) diversifiable risk

Question 12

In year one,a bank facing reinvestment risk earns 11 percent on its assets and pays 10 percent on its liabilities. In year two,the bank had a negative profit spread of 100 basis points. Which of the following is true? In year two,

Accepted Answer

A) rates rose 100 basis points. 
B) rates rose 200 basis points. 
C) rates fell 100 basis points. 
D) rates fell 200 basis points. 
E) None of these options are correct. 
A) rates rose 100 basis points. 
B) rates rose 200 basis points. 
C) rates fell 100 basis points. 
D) rates fell 200 basis points. 
E) None of these options are correct.

Question 13

Maintaining a diversified loan portfolio helps a bank reduce systematic credit risk.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following would normally be banking book assets rather than trading book assets?

Accepted Answer

A) Long position in Gold 
B) Short position in bonds 
C) FX forward contracts 
D) Long-term loans 
E) Options on interest rates 
A) Long position in Gold 
B) Short position in bonds 
C) FX forward contracts 
D) Long-term loans 
E) Options on interest rates

Question 15

Interest rate risk is probably greatest at which of the following intermediaries?

Accepted Answer

A) Commercial banks 
B) Savings institutions 
C) Life insurers 
D) Pension funds 
A) Commercial banks 
B) Savings institutions 
C) Life insurers 
D) Pension funds

Regulators' overall evaluation of the riskiness of a depository institution is measured by the ________.

Breakdowns of ATMs and fraudulent use of information stored on a bank's computer system are examples of operational risk.

How does foreign exchange risk arise for an FI?

The subprime crisis is a good example of the credit risk faced by financial institutions.

In May 2007,the largest known credit card theft was discovered when it was revealed that 200 million card numbers were stolen from TJX Company. This is an example of

Rising interest rates decrease the value of fixed-income assets and increase the value of fixed-income liabilities.

Rank order the net charge-off rates from high to low for the following loan types: I. C&I loans II. Credit card loans III. Real estate loans

Why would an FI be willing to issue a letter of credit guarantee to a municipal bond issuer?

A guarantee issued by an FI that obligates the FI to pay if the purchaser of the letter defaults on a debt is called a

The Fed allowed nonbank financial institutions to borrow money from the discount window during the mortgage crisis and even allowed nonbanks to swap mortgages for Treasury securities. This was an attempt by the Fed to reduce ________ at institutions.

In year one,a bank facing reinvestment risk earns 11 percent on its assets and pays 10 percent on its liabilities. In year two,the bank had a negative profit spread of 100 basis points. Which of the following is true? In year two,

Maintaining a diversified loan portfolio helps a bank reduce systematic credit risk.

Which of the following would normally be banking book assets rather than trading book assets?

Interest rate risk is probably greatest at which of the following intermediaries?

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, monetary Policy, and Interest Rates

Money Markets

Bond Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters

Exam 19: Types of Risks Incurred by Financial Institutions

Regulators' overall evaluation of the riskiness of a depository institution is measured by the ________.

Breakdowns of ATMs and fraudulent use of information stored on a bank's computer system are examples of operational risk.

How does foreign exchange risk arise for an FI?

The subprime crisis is a good example of the credit risk faced by financial institutions.

In May 2007,the largest known credit card theft was discovered when it was revealed that 200 million card numbers were stolen from TJX Company. This is an example of

Rising interest rates decrease the value of fixed-income assets and increase the value of fixed-income liabilities.

Rank order the net charge-off rates from high to low for the following loan types: I. C&I loans II. Credit card loans III. Real estate loans

Why would an FI be willing to issue a letter of credit guarantee to a municipal bond issuer?

A guarantee issued by an FI that obligates the FI to pay if the purchaser of the letter defaults on a debt is called a

The Fed allowed nonbank financial institutions to borrow money from the discount window during the mortgage crisis and even allowed nonbanks to swap mortgages for Treasury securities. This was an attempt by the Fed to reduce ________ at institutions.

In year one,a bank facing reinvestment risk earns 11 percent on its assets and pays 10 percent on its liabilities. In year two,the bank had a negative profit spread of 100 basis points. Which of the following is true? In year two,

Maintaining a diversified loan portfolio helps a bank reduce systematic credit risk.

Which of the following would normally be banking book assets rather than trading book assets?

Interest rate risk is probably greatest at which of the following intermediaries?

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, monetary Policy, and Interest Rates

Money Markets

Bond Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters