Question 1

The Northwest Bank of Charlotte has decided to issue new securities that have five years to maturity that have claims to assets that follow the claims of depositors.What way of meeting their capital needs is the bank taking?

Accepted Answer

A) Issuing common stock 
B) Issuing preferred stock 
C) Issuing subordinated notes and debentures 
D) Selling assets and leasing facilities 
E) Swapping stock for debt instruments

Question 2

Under the terms of Basel I,Tier 2 capital includes undivided profits.

Accepted Answer

A) True 
 B)False

Question 3

A bank has capital to risk-weighted assets of 9.2%,Tier 1 capital to risk-weighted assets of 4.5% and a leverage ratio of 3.7%.What type of bank is this?

Accepted Answer

A) Well capitalized 
B) Adequately capitalized 
C) Undercapitalized 
D) Significantly undercapitalized 
E) Critically undercapitalized

Question 4

For a bank with deficient capital ratios,which of the following actions could be required by regulators to increase the capital ratios,all else constant?

Accepted Answer

A) Cut the bank's dividend payment. 
B) Increase the bank's leverage. 
C) Reduce the bank's holdings of cash. 
D) Increase the bank's growth rate by making additional commercial loans. 
E) Reduce the bank's holdings of Treasury securities.

Question 5

According to recent research,bank stock prices usually drop within a week after a dividend cut is announced.

Accepted Answer

A) True 
 B)False

Question 6

The ratio of core capital to average total assets is called the:

Accepted Answer

A) supplemental capital ratio. 
B) leverage ratio. 
C) long-term capital ratio. 
D) GAAP capital ratio. 
E) None of the options is correct.

Question 7

Under the FDIC Improvement Act of 1991,a U.S.bank possessing a leverage ratio greater than 4 percent would be considered well capitalized.

Accepted Answer

A) True 
 B)False

Question 8

The fundamental purposes of regulating bank capital cited in the textbook include which of the following?

Accepted Answer

A) To reduce liquid funds held by the banks. 
B) To preserve public confidence in banks. 
C) To limit losses to the public arising from insurance claims. 
D) To increase the risk taking ability of the banks. 
E) To reduce liquid funds held by the banks and to increase the risk taking ability of the banks.

Question 9

Credit risk models measure the market risk of a portfolio whose value may decline due to adverse movements in interest rates,stock prices,currency values,or commodity prices.

Accepted Answer

A) True 
 B)False

Exam 15: The Management of Capital

The Northwest Bank of Charlotte has decided to issue new securities that have five years to maturity that have claims to assets that follow the claims of depositors.What way of meeting their capital needs is the bank taking?

Under the terms of Basel I,Tier 2 capital includes undivided profits.

A bank has capital to risk-weighted assets of 9.2%,Tier 1 capital to risk-weighted assets of 4.5% and a leverage ratio of 3.7%.What type of bank is this?

For a bank with deficient capital ratios,which of the following actions could be required by regulators to increase the capital ratios,all else constant?

According to recent research,bank stock prices usually drop within a week after a dividend cut is announced.

The ratio of core capital to average total assets is called the:

Under the FDIC Improvement Act of 1991,a U.S.bank possessing a leverage ratio greater than 4 percent would be considered well capitalized.

The fundamental purposes of regulating bank capital cited in the textbook include which of the following?

Credit risk models measure the market risk of a portfolio whose value may decline due to adverse movements in interest rates,stock prices,currency values,or commodity prices.