Question 1

A bank can raise capital by:

Accepted Answer

A) Offering long-term CDs 
B) Issuing Stock 
C) Retaining earnings 
D) Both issuing stocks and offering long-term CDs 
E) Both issuing stocks and retaining earnings 
A) Offering long-term CDs 
B) Issuing Stock 
C) Retaining earnings 
D) Both issuing stocks and offering long-term CDs 
E) Both issuing stocks and retaining earnings

Question 2

The AU ratio measures the bank's ability to ________ and the PM ratio measures the bank's ability to ________.

Accepted Answer

A) control expenses; generate income from assets 
B) generate income from assets; control expenses 
C) maximize interest revenue; minimize interest expense 
D) control leverage; minimize physical plant 
E) None of these choices are correct. 
A) control expenses; generate income from assets 
B) generate income from assets; control expenses 
C) maximize interest revenue; minimize interest expense 
D) control leverage; minimize physical plant 
E) None of these choices are correct.

Question 3

Banks generally pay higher interest rates on NOW accounts than on MMDAs.

Accepted Answer

A) True 
 B)False

Question 4

Fernando Bank has interest expense of $150 million,earning assets of $1,400 million and a NIM of 5.00 percent. The bank also has interest-bearing liabilities of $1,100 million. Fernando Bank's spread is

Accepted Answer

A) 1.10 percent. 
B) 1.65 percent. 
C) 1.94 percent. 
D) 2.08 percent. 
E) 2.16 percent. 
A) 1.10 percent. 
B) 1.65 percent. 
C) 1.94 percent. 
D) 2.08 percent. 
E) 2.16 percent.

Question 5

In ratio analysis,the profit margin times the asset utilization ratio equals return on assets.

Accepted Answer

A) True 
 B)False

Question 6

A construction firm cannot obtain the necessary permits to begin building a shopping mall until it can show it either has or will have the necessary funding to complete the project. The firm may ask a bank for which of the following to allow it to obtain the permits?
I. Commercial letter of credit
II. Loan commitment
III. Credit line
IV. Repurchase agreement

Accepted Answer

A) I or II 
B) II or III 
C) II or IV 
D) III or IV 
E) I or IV 
A) I or II 
B) II or III 
C) II or IV 
D) III or IV 
E) I or IV

Question 7

If a bank has more purchased funds than the average bank,you would not be surprised to see a higher than average ________ ratio.

Accepted Answer

A) provision for loan loss 
B) tax 
C) noninterest expense 
D) interest expense 
E) None of these choices are correct. 
A) provision for loan loss 
B) tax 
C) noninterest expense 
D) interest expense 
E) None of these choices are correct.

Question 8

Core deposits are deposits that are

Accepted Answer

A) at the bank solely for the interest rate earned. 
B) very stable funds sources. 
C) typically for larger denominations than hot money sources. 
D) very frequently turned over. 
A) at the bank solely for the interest rate earned. 
B) very stable funds sources. 
C) typically for larger denominations than hot money sources. 
D) very frequently turned over.

Question 9

The First Bank of the Ozarks generates $0.0155 dollars of net income per dollar of assets and it has a profit margin of 12.25 percent. How much operating income per dollar of total assets does First Bank generate?

Accepted Answer

A) 12.50 percent 
B) 12.65 percent 
C) 12.75 percent 
D) 12.85 percent 
E) 12.95 percent 
A) 12.50 percent 
B) 12.65 percent 
C) 12.75 percent 
D) 12.85 percent 
E) 12.95 percent

Question 10

How has the negotiable feature of wholesale CDs improved banks' ability to manage their liquidity?

Accepted Answer

Time deposits carry a substantial intere

Question 11

Purchased funds include all but which one of the following?

Accepted Answer

A) Brokered deposits 
B) Wholesale CDs 
C) Fed funds purchased 
D) Repurchase agreements 
E) Demand deposits 
A) Brokered deposits 
B) Wholesale CDs 
C) Fed funds purchased 
D) Repurchase agreements 
E) Demand deposits

Question 12

If the average net interest margin for this type of bank is 4.65 percent,then,ceteris paribus,this particular bank is performing

Accepted Answer

A) the same as average because this bank has a NIM of 4.65 percent. 
B) better than average because this bank has a NIM of 6.55 percent. 
C) poorer than average because this bank has a NIM of 4.08 percent. 
D) better than average because this bank has a NIM of 5.23 percent. 
E) One can't determine with the information given. 
A) the same as average because this bank has a NIM of 4.65 percent. 
B) better than average because this bank has a NIM of 6.55 percent. 
C) poorer than average because this bank has a NIM of 4.08 percent. 
D) better than average because this bank has a NIM of 5.23 percent. 
E) One can't determine with the information given.

Question 13

Composite rating 5 is the rating for the soundest financial institutions.

Accepted Answer

A) True 
 B)False

Question 14

Blue Ridge Bank has a PM of 12 percent,an interest income to total assets ratio of 6.00 percent,and a noninterest income to assets ratio of 1.50 percent. Blue Ridge also has $9 in assets per dollar in equity capital. Blue Ridge's ROE is

Accepted Answer

A) 7.50 percent. 
B) 9.00 percent. 
C) 8.10 percent. 
D) 6.48 percent. 
E) 5.75 percent. 
A) 7.50 percent. 
B) 9.00 percent. 
C) 8.10 percent. 
D) 6.48 percent. 
E) 5.75 percent.

Question 15

Cash in the process of collection is

Accepted Answer

A) a deposit at another financial institution. 
B) a Fed funds transaction. 
C) checks the bank owes other institutions that have not yet been paid. 
D) checks that the bank is owed but has not yet collected. 
E) equity capital. 
A) a deposit at another financial institution. 
B) a Fed funds transaction. 
C) checks the bank owes other institutions that have not yet been paid. 
D) checks that the bank is owed but has not yet collected. 
E) equity capital.

Question 16

All but which one of the following is an example of noninterest income or noninterest expense?

Accepted Answer

A) Income from service charges on deposits 
B) Income from trust services 
C) Gains and losses from trading account assets 
D) Earnings on securities held for investment 
E) Salaries and benefits paid to employees 
A) Income from service charges on deposits 
B) Income from trust services 
C) Gains and losses from trading account assets 
D) Earnings on securities held for investment 
E) Salaries and benefits paid to employees

Question 17

What must net noninterest income (net of noninterest expense)be in order for FNB to have a 12 percent ROE? Based on your answer,must FNB be performing better or worse than the industry average in this area? Explain.

Accepted Answer

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

Question 18

The lower the interest expense ratio,the provision for loan loss ratio,the noninterest expense ratio,and the tax ratio the ________ the ________.

Accepted Answer

A) lower; PM 
B) higher; PM 
C) lower; AU 
D) higher; AU 
E) lower; EM 
A) lower; PM 
B) higher; PM 
C) lower; AU 
D) higher; AU 
E) lower; EM

Question 19

C&I loans are loans to businesses used to finance capital needs,equipment purchases,and plant expansions.

Accepted Answer

A) True 
 B)False

Question 20

Loans are the major asset on a bank's balance sheet,and they generate the largest amount of revenue.

Accepted Answer

A) True 
 B)False

Exam 12: Commercial Banks Financial Statements and Analysis

A bank can raise capital by:

The AU ratio measures the bank's ability to ________ and the PM ratio measures the bank's ability to ________.

Banks generally pay higher interest rates on NOW accounts than on MMDAs.

Fernando Bank has interest expense of $150 million,earning assets of $1,400 million and a NIM of 5.00 percent. The bank also has interest-bearing liabilities of $1,100 million. Fernando Bank's spread is

In ratio analysis,the profit margin times the asset utilization ratio equals return on assets.

If a bank has more purchased funds than the average bank,you would not be surprised to see a higher than average ________ ratio.

Core deposits are deposits that are

The First Bank of the Ozarks generates $0.0155 dollars of net income per dollar of assets and it has a profit margin of 12.25 percent. How much operating income per dollar of total assets does First Bank generate?

How has the negotiable feature of wholesale CDs improved banks' ability to manage their liquidity?

Purchased funds include all but which one of the following?

If the average net interest margin for this type of bank is 4.65 percent,then,ceteris paribus,this particular bank is performing

Composite rating 5 is the rating for the soundest financial institutions.

Blue Ridge Bank has a PM of 12 percent,an interest income to total assets ratio of 6.00 percent,and a noninterest income to assets ratio of 1.50 percent. Blue Ridge also has $9 in assets per dollar in equity capital. Blue Ridge's ROE is

Cash in the process of collection is

All but which one of the following is an example of noninterest income or noninterest expense?

What must net noninterest income (net of noninterest expense)be in order for FNB to have a 12 percent ROE? Based on your answer,must FNB be performing better or worse than the industry average in this area? Explain.

The lower the interest expense ratio,the provision for loan loss ratio,the noninterest expense ratio,and the tax ratio the ________ the ________.

C&I loans are loans to businesses used to finance capital needs,equipment purchases,and plant expansions.

Loans are the major asset on a bank's balance sheet,and they generate the largest amount of revenue.

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

The AU ratio measures the bank's ability to and the PM ratio measures the bank's ability to .

The lower the interest expense ratio,the provision for loan loss ratio,the noninterest expense ratio,and the tax ratio the the .