Question 1

Both retail and wholesale CDs are negotiable instruments despite their different denominations.

Accepted Answer

A) True 
 B)False  False

Question 2

The bank's asset utilization ratio is

Accepted Answer

A) 58.04 percent. 
B) 6.12 percent. 
C) 5.46 percent. 
D) 4.29 percent. 
E) 6.81 percent. 
A) 58.04 percent. 
B) 6.12 percent. 
C) 5.46 percent. 
D) 4.29 percent. 
E) 6.81 percent. E

Question 3

Interest-bearing retail accounts with limited checking features designed to compete with money market mutual fund investments are called ________.

Accepted Answer

A) NOWs 
B) retail CDs 
C) MMDAs 
D) special savings deposits 
E) negotiable CDs 
A) NOWs 
B) retail CDs 
C) MMDAs 
D) special savings deposits 
E) negotiable CDs C

Question 4

What is the largest operating expense for a bank?

Accepted Answer

A) Employee salaries 
B) Interest paid on loans from Federal Reserve 
C) Interest paid on deposits 
D) Interest paid on loans borrowed from other banks 
E) Employee benefits 
A) Employee salaries 
B) Interest paid on loans from Federal Reserve 
C) Interest paid on deposits 
D) Interest paid on loans borrowed from other banks 
E) Employee benefits

Question 5

Loans to consumers and to individuals are jointly termed C&I loans on a bank's balance sheet.

Accepted Answer

A) True 
 B)False

Question 6

Which one of the following is the definition of the NIM?

Accepted Answer

A) (Net interest income − Net noninterest income)/Earning assets 
B) Net interest income/Interest-bearing liabilities 
C) (Interest income − Interest expense)/Earning assets 
D) (Interest income − Interest expense)/Interest-bearing liabilities 
E) (Interest income/Earning assets)− (Interest expense/Interest-bearing liabilities) 
A) (Net interest income − Net noninterest income)/Earning assets 
B) Net interest income/Interest-bearing liabilities 
C) (Interest income − Interest expense)/Earning assets 
D) (Interest income − Interest expense)/Interest-bearing liabilities 
E) (Interest income/Earning assets)− (Interest expense/Interest-bearing liabilities)

Question 7

Uniform principles,standards,and report forms for depository institutions are prescribed by the

Accepted Answer

A) FDIC. 
B) Federal Reserve. 
C) Federal Financial Institutions Examination Council. 
D) Office of Comptroller of Currency. 
A) FDIC. 
B) Federal Reserve. 
C) Federal Financial Institutions Examination Council. 
D) Office of Comptroller of Currency.

Question 8

If the net noninterest income were to increase to −$16,what would the average loan rate (ALR)have to be to generate a 12 percent ROE? Compared to the industry,does this ALR appear feasible? If not,what options does FNB have?

Accepted Answer

NI/Equity = 0.12; NI/$125 = 0.12 so NI =

Question 9

Which of the following is not an off-balance sheet activity?

Accepted Answer

A) Commercial letter of credit 
B) Standby letter of credit 
C) Swap transaction 
D) Futures contract 
E) Consumer loans 
A) Commercial letter of credit 
B) Standby letter of credit 
C) Swap transaction 
D) Futures contract 
E) Consumer loans

Question 10

At almost all banks noninterest expense is greater than noninterest income; hence,the overhead efficiency ratio is usually greater than 100 percent.

Accepted Answer

A) True 
 B)False

Question 11

Net loans and leases plus ________ plus ________ equals gross loans and leases.

Accepted Answer

A) earned income; provision for loan and lease losses 
B) unearned income; the allowance for loan and lease losses 
C) net charge-offs; provision for loan and lease losses 
D) provision for loan and lease losses; allowance for loan and lease losses 
E) None of these choices are correct. 
A) earned income; provision for loan and lease losses 
B) unearned income; the allowance for loan and lease losses 
C) net charge-offs; provision for loan and lease losses 
D) provision for loan and lease losses; allowance for loan and lease losses 
E) None of these choices are correct.

Question 12

Bank A has a higher ROA than Bank B. Both banks have similar interest income to asset ratios and noninterest income to asset ratios. We know that
I. Bank A has a higher profit margin than Bank B.
II. Bank A has a higher AU ratio than Bank B.
III. Bank A must have a higher PLL/OI ratio.

Accepted Answer

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

Question 13

At the start of the quarter a bank has $55 million (gross)in its loan portfolio,and has $1 million in its allowance for loan loss account. During the quarter,loan audits indicate that an additional $300,000 of loans will not be paid as promised. These loans have not yet been written off as uncollectible,however. What are the starting and ending gross and net loan amounts and the provision for loan loss account,and what is the effect on the bank's quarterly earnings?

Accepted Answer

The provision for loan loss (P

Question 14

The bank's ROE is

Accepted Answer

A) 15.65 percent. 
B) 13.21 percent. 
C) 19.55 percent. 
D) 11.17 percent. 
E) 12.67 percent. 
A) 15.65 percent. 
B) 13.21 percent. 
C) 19.55 percent. 
D) 11.17 percent. 
E) 12.67 percent.

Question 15

The bank's profit margin is

Accepted Answer

A) 27.27 percent. 
B) 23.08 percent. 
C) 21.31 percent. 
D) 18.46 percent. 
E) None of these choices are correct. 
A) 27.27 percent. 
B) 23.08 percent. 
C) 21.31 percent. 
D) 18.46 percent. 
E) None of these choices are correct.

Question 16

What is the difference between a loan commitment and a letter of credit?

Accepted Answer

A loan commitment is a promise made by a

Question 17

Which of the following assets are used to increase a bank's liquidity position?

Accepted Answer

A) Commercial loans 
B) Treasury securities 
C) Personal loans 
D) Mortgage loans 
E) Corporate bonds 
A) Commercial loans 
B) Treasury securities 
C) Personal loans 
D) Mortgage loans 
E) Corporate bonds

Question 18

A(n)________ is a contra asset account.

Accepted Answer

A) loan commitment 
B) provision for loan and lease losses 
C) allowance for loan and lease losses 
D) net charge-off 
A) loan commitment 
B) provision for loan and lease losses 
C) allowance for loan and lease losses 
D) net charge-off

Question 19

Rate-sensitive funding sources at a bank are termed core deposits.

Accepted Answer

A) True 
 B)False

Question 20

Banks have higher leverage than most manufacturing firms.

Accepted Answer

A) True 
 B)False

Exam 12: Commercial Banks Financial Statements and Analysis

Both retail and wholesale CDs are negotiable instruments despite their different denominations.

The bank's asset utilization ratio is

Interest-bearing retail accounts with limited checking features designed to compete with money market mutual fund investments are called ________.

What is the largest operating expense for a bank?

Loans to consumers and to individuals are jointly termed C&I loans on a bank's balance sheet.

Which one of the following is the definition of the NIM?

Uniform principles,standards,and report forms for depository institutions are prescribed by the

If the net noninterest income were to increase to −$16,what would the average loan rate (ALR)have to be to generate a 12 percent ROE? Compared to the industry,does this ALR appear feasible? If not,what options does FNB have?

Which of the following is not an off-balance sheet activity?

At almost all banks noninterest expense is greater than noninterest income; hence,the overhead efficiency ratio is usually greater than 100 percent.

Net loans and leases plus ________ plus ________ equals gross loans and leases.

Bank A has a higher ROA than Bank B. Both banks have similar interest income to asset ratios and noninterest income to asset ratios. We know that I. Bank A has a higher profit margin than Bank B. II. Bank A has a higher AU ratio than Bank B. III. Bank A must have a higher PLL/OI ratio.

The bank's ROE is

The bank's profit margin is

What is the difference between a loan commitment and a letter of credit?

Which of the following assets are used to increase a bank's liquidity position?

A(n)________ is a contra asset account.

Rate-sensitive funding sources at a bank are termed core deposits.

Banks have higher leverage than most manufacturing firms.

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

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

Types of Risks Incurred by Financial Institutions

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

Net loans and leases plus plus equals gross loans and leases.