Banking 3

Front 1

65. A financial institution that has ready access to immediately spendable funds at reasonable cost at precisely the time those funds are needed is:
A) Risk free
B) Liquid
C) Efficient
D) Profitable
E) None of the above

Back 1

B) Liquid

Front 2

66. Which of the following is not a reason that banks to hold liquid assets?
A) To meet customer's needs for currency.
B) To meet capital requirements.
C) To meet required reserves.
D) To compensate for correspondent bank services.
E) To assist in the check clearing process

Back 2

B) To meet capital requirements.

Front 3

67. The two most pressing demands for liquidity from a bank come from, first, customers withdrawing their deposits and, second, from:
A) Credit requests from those customers the bank wishes to keep
B) Checks being cashed at local stores and directly from the bank
C) Demands for wired funds from correspondent banks.
D) Legal reserve requirements set by the Federal Reserve Board.
E) None of the above.

Back 3

A) Credit requests from those customers the bank wishes to keep

Front 4

68. A bank expects in the week about to begin $30 million in incoming deposits, $20 million in deposit withdrawals, $15 million in revenues from the sale of nondeposit services, $25 million in customer loan repayments, $5 million in sales of bank assets, $45 million in money market borrowings, $60 million in acceptable loan requests, $10 million in repayments of bank borrowings, $5 million in cash outflows to cover other operating expenses, and $10 million in dividend payments to its stockholders. This bank's net liquidity position for the week is:
A) $30 million
B) $20 million
C) $10 million
D) $15 million
E) None of the above

Back 4

D) $15 million

Front 5

69. There is a trade-off problem between liquidity and:
A) Risk exposure
B) Safety.
C) Profitability
D) Efficiency
E) None of the above

Back 5

C) Profitability

Front 6

70. Financial institutions face significant liquidity problems because of:
A) Imbalances between the maturities of their assets and their principal liabilities.
B) Their high proportion of liabilities subject to immediate withdrawal.
C) Their sensitivity to changes in interest rates.
D) Both A and B
E) All of the above.

Back 6

E) All of the above.

Front 7

71. Sources of liquidity for banks include:
A) Deposit inflows
B) Money market borrowings
C) Sales of marketable securities
D) Loan repayments
E) All of the above

Back 7

E) All of the above

Front 8

72. Which of the following is not a source of liquidity for financial institutions?
A) Deposits
B) Money market borrowings
C) Sales of marketable securities
D) Dividend payments to stockholders
E) All of the above

Back 8

D) Dividend payments to stockholders

Front 9

73. Which of the following liquidity strategies is the most effective for banks today?
A) Asset Management
B) Liability Management
C) Balanced Liquidity Management
D) All of the above
E) A and B above

Back 9

C) Balanced Liquidity Management

Front 10

74. When a bank's sources of liquidity exceed it uses of liquidity, the bank will have a _______________ liquidity gap.
A) Positive
B) Negative
C) Cyclical
D) Seasonal
E) None of the above

Back 10

A) Positive

Front 11

75. "Core deposits", "hot money", and "vulnerable money" are categories of funds under which of the following methods of estimating a bank's liquidity needs?
A) Sources and Uses of Funds Approach
B) Structure of Funds Approach
C) Liquidity Indicator Approach
D) None of the above
E) A and C

Back 11

B) Structure of Funds Approach

Front 12

76. Factors that influence a bank's choice among the various sources of reserves include which of the following?
A) Immediacy of the need
B) Duration of the need
C) Interest rate outlook
D) Regulations
E) All of the above

Back 12

E) All of the above

Front 13

77. The risk that liquid funds will not be available in the volume needed by a bank is often called:
A) Market risk
B) Price risk
C) Availability risk
D) Interest-rate risk
E) None of the above

Back 13

C) Availability risk

Front 14

78. A bank following an _________________________ liquidity management strategy must take care that those assets with the least profit potential are sold first. The strategy that correctly fills in the blank in the foregoing sentence is:
A) Asset conversion
B) Liability management
C) Availability
D) Funds source
E) None of the above

Back 14

A) Asset conversion

Front 15

79. When some of a bank's expected demand for liquidity are stored in its assets, while other unexpected cash needs are met from near-term borrowings this approach to liquidity management is described by which of the terms listed below?
A) Liability management
B) Asset conversion
C) Borrowed liquidity management
D) Balanced liquidity management
E) None of the above

Back 15

D) Balanced liquidity management

Front 16

80. The notion that bank management should strive to meet all good loans that walk in the door in order to build lasting customer relationships is referred to as the:
A) Asset conversion liquidity strategy
B) Customer relationship doctrine
C) Loan accommodation doctrine
D) Balanced funds management doctrine
E) None of the above

Back 16

B) Customer relationship doctrine

Front 17

81. A bank manager responsible for overseeing the institution’s legal reserve account is called:
A) Reserve manager
B) Money market manager
C) Money position manager
D) Legal counselor
E) None of the above

Back 17

C) Money position manager

Front 18

82. If a bank's management uses "the discipline of the financial marketplace" to gauge its liquidity position one indicator of this market test of the adequacy of a bank's liquidity position is:
A) The bank's return on equity capital
B) The volume of bank stock outstanding
C) The bank's return on assets
D) The size of risk premiums on CDs the bank issues
E) None of the above

Back 18

D) The size of risk premiums on CDs the bank issues

Front 19

83. Which of the following is an example of a use of funds for the bank?
A) A customer withdraws $1000 from their account
B) A borrower repays $1500 of a loan they have received
C) The bank issues a $1,000,000 CD
D) The bank sells $5,000,000 of T-Bills
E) None of the above are uses of funds

Back 19

A) A customer withdraws $1000 from their account

Front 20

84. Which of the following is an example of a source of funds?
A) A customer withdraws $1000 from their account
B) A borrower repays $1500 of a loan they have received
C) A bank increases its Fed funds sold by $1,000,000
D) The bank purchases $5,000,000 in T-Bills
E) None of the above are uses of funds

Back 20

B) A borrower repays $1500 of a loan they have received

Front 21

85. A bank currently has $150 million in "hot money" deposits against which they want to hold an 80 percent reserve. This bank has $90 million in vulnerable deposits against which they want to hold a 30 percent reserve and this bank has $45 million in stable deposits against which they want to hold a 5 percent reserve. The legal reserves for this bank are 5 percent of all deposits. What is this bank's liability liquidity reserve?
A) $149.25 million
B) $285 million
C) $141.7875 million
D) $216.60 million
E) None of the above

Back 21

C) $141.7875 million

Front 22

86. A bank maintains a clearing balance of $5,000,000 with the Federal Reserve. The Federal funds rate is currently 6.5 percent. What credit will this bank earn over the reserve maintenance period to offset any fees charged this bank by the Federal Reserve?
A) $325,000
B) $8,357,143
C) $194,444
D) $12,639
E) None of the above

Back 22

D) $12,639

Front 23

87. A bank maintains a clearing balance of $1,000,000 with the Federal Reserve. The Federal funds rate is currently 4.5 percent. What credit will this bank earn over the reserve maintenance period to offset any fees charged this bank by the Federal Reserve?
A) $17,500
B) $1,750
C) $45,000
D) $12,500
E) None of the above

Back 23

B) $1,750

Front 24

88. A bank currently holds $105 million in transaction deposits subject to legal reserves but has managed to enter into sweep account arrangements affecting $55 million of these accounts. Given that the bank must hold 3 percent legal reserves up to $47.8 million of transaction deposits and 10 percent legal reserves on any amount above that, how much has this bank reduced its total legal reserves as a result of these sweep arrangements?
A) $5.500 million
B) $1.449 million
C) $7.119 million
D) $1.619 million
E) None of the above

Back 24

A) $5.500 million

Front 25

89. A bank money manager estimates that the bank will experience a liquidity deficit of $400 million with a probability of 10 percent, a liquidity deficit of $900 million with a probability of 20 percent, a liquidity surplus of $600 million with a probability of 30 percent and a liquidity surplus of $1200 with a probability of 40 percent over the next month. What is this bank's expected liquidity deficit or surplus over this next month?
A) $880 liquidity surplus
B) $440 liquidity deficit
C) $440 liquidity surplus
D) $880 liquidity deficit
E) None of the above

Back 25

C) $440 liquidity surplus

Front 26

90. A bank expects in the week to come $55 million in incoming deposits, $75 million in acceptable loan requests, $35 million in money market borrowings, $10 million in deposit withdrawals and $30 million in loan repayments. This bank is expecting a:
A) Liquidity deficit
B) Liquidity surplus
C) Balanced liquidity position
D) None of the above

Back 26

B) Liquidity surplus

Front 27

91. A financial institution has estimated that its growth rate in deposits over the last ten years has averaged 6 percent per year. This is the _________________________ of estimating future deposits.
A) Trend component
B) Seasonal component
C) Cyclical component
D) Stationary component
E) None of the above

Back 27

A) Trend component

Front 28

92. A financial institution has estimated that over the last ten years the deposit withdrawals during Christmas time is about 25% higher than during any other time of the year. This is the _________________________ of estimating future deposits.
A) Trend component
B) Seasonal component
C) Cyclical component
D) Stationary component
E) None of the above

Back 28

B) Seasonal component

Front 29

93. Which of the following is a guideline for liquidity managers of banks?
A) The liquidity manager must keep track of the activities of all departments of the bank
B) The liquidity manager must know in advance (if possible) the plans of major creditors and depositors
C) The liquidity manager should make sure the bank has clear priorities and objectives for liquidity management
D) The liquidity manager must analyze the liquidity needs of the bank on a continuous basis
E) All of the above are guidelines for liquidity managers

Back 29

E) All of the above are guidelines for liquidity managers

Front 30

94. A manager that uses ratios such as cash and due from banks to total assets and U.S. government securities to total assets to measure their liquidity position is using:
A) The sources and uses of funds approach
B) The structured funds approach
C) The liquidity indicator approach
D) Signals from the market place
E) None of the above

Back 30

C) The liquidity indicator approach

Front 31

95. A manager that examines the stock price behavior of the bank and the risk premium on the bank CD's to measure their liquidity position is using:
A) The sources and uses of funds approach
B) The structured funds approach
C) The liquidity indicator approach
D) Signals from the marketplace
E) None of the above

Back 31

D) Signals from the marketplace

Front 32

96. A manager that looks at deposit increases and decreases and loan increases and decreases among other things to measure their liquidity position is using:
A) The sources and uses of funds approach
B) The structured funds approach
C) The liquidity indicator approach
D) Signals from the marketplace
E) None of the above

Back 32

A) The sources and uses of funds approach

Front 33

97. Which of the following statements is correct?
A) The demands for liquidity and sources of liquidity for a bank are generally equal to each other
B) Most liquidity problems in banking arise from outside the bank
C) The liquidity problems for a bank are made easier because most of their liabilities are not subject to immediate repayment
D) Liquidity management is easy for a bank because a bank that is very liquid is also very profitable.
E) All of the above statements are correct

Back 33

B) Most liquidity problems in banking arise from outside the bank

Front 34

98. The Fed funds market is most volatile on bank:
A) Computation day
B) Settlement day
C) Reserve day
D) Maintenance day
E) Holiday

Back 34

B) Settlement day

Front 35

99. The Fed funds rate usually hovers around the Feds:
A) Target rate
B) Set rate
C) Quoted rate
D) Limit rate
E) Average rate

Back 35

A) Target rate

Front 36

100. A bank or financial service institution can generally meet reserve requirements using all of the following except:
A) Selling liquid investments
B) Borrowing in the fed funds market
C) Drawing on any excess correspondent balances
D) Borrowing in the repo market
E) Selling new shares

Back 36

E) Selling new shares

Front 37

101. The Shirley State Bank has $90 in transaction deposits subject to legal reserves. This bank must hold 3 percent legal reserves up to $43.9 of transaction deposits and 10 percent legal reserves on any amount above this. What is this bank’s total legal reserves?
A) $2.700 million
B) $1.449 million
C) $5.924 million
D) $4.170 million
E) None of the above

Back 37

C) $5.924 million

Front 38

102. John Camey, the money manager of the First State Bank, has estimated that the bank has a 20 percent chance of a liquidity deficit of $700, a 30 percent chance of a liquidity deficit of $200, a 30 percent chance of a liquidity surplus of $400 and a 20 percent chance of a liquidity surplus of $900 over the next week. What is this bank’s expected liquidity deficit or surplus over the next week?
A) $100 liquidity surplus
B) $100 liquidity deficit
C) $400 liquidity surplus
D) $500 liquidity surplus
E) $0 liquidity surplus

Back 38

A) $100 liquidity surplus

Front 39

103. A bank currently has $50 million in stable deposits against which they want to keep 10% reserves, $100 in vulnerable deposits against which they want to keep 40% reserves and they have $50 million in “hot money’ deposits against which they want to keep 90% reserves. The legal reserves for this bank are 10% of all deposits. What is this bank’s liability liquidity reserve?
A) $90 million
B) $81 million
C) $70 million
D) $20 million
E) None of the above

Back 39

B) $81 million

Front 40

104. The Hollingsworth National Bank maintains a clearing balance of $7,000,000 with the Federal Reserve. The Federal Funds rate is currently 5.25 percent. What is the credit this bank will earn over the maintenance period to offset any fees charged this bank by the Federal Reserve?
A) $367,500
B) $1021
C) $14,292
D) $30,625
E) None of the above

Back 40

C) $14,292

Front 41

105. A bank must maintain an average daily balance at the Fed of $600. In the first 2 days of the maintenance period, they maintain a balance of $450, the next three days they maintain a balance of $700, the next two days they maintain a balance of $650, the next three days they maintain a balance of $450 and the next three days they maintain a balance of $650. What does their balance at the Fed have to be on the last day of the maintenance period in order to have a zero cumulative reserve deficit?
A) $600
B) $400
C) $500
D) $800
E) None of the above

Back 41

D) $800

Front 42

106. A bank must maintain an average daily balance at the Fed of $700. On the first day of the maintenance period they maintain a balance of $750, the next two days they maintain a balance of $725, the next three days they maintain a balance of $625, the next two days they maintain a balance of $775, the next two days they maintain a balance of $700 and the next two days they maintain a balance of $675. What does their balance have to be on the last day of the maintenance period in order to have a cumulative reserve deficit?
A) $700
B) $650
C) $750
D) $325
E) None of the above

Back 42

B) $650

Front 43

107. David Ashby has just paid off the balance on his home mortgage with First American Bank. What source of liquidity does this represent to the bank?
A) Incoming customer deposit
B) Revenues from the same of nondeposit services
C) Customer loan repayment
D) Sale of an asset
E) Borrowings from the money market

Back 43

C) Customer loan repayment

Front 44

108. The Harmony Bank of the South has just increased its Federal Funds Purchased. What source of liquidity does this represent to the bank?
A) Incoming customer deposit
B) Revenues from the same of nondeposit services
C) Customer loan repayment
D) Sale of an asset
E) Borrowings from the money market

Back 44

D) Sale of an asset

Front 45

109. The Peace Bank of Ohio has just received a $50 million credit at the local clearing house. Which type of factor affecting legal reserves is this for the bank?
A) A controllable factor increasing legal reserves
B) A noncontrollable factor increasing legal reserves
C) A controllable factor decreasing legal reserves
D) A noncontrollable factor decreasing legal reserves
E) None of the above

Back 45

B) A noncontrollable factor increasing legal reserves

Front 46

110. The Sasser State Bank has just sold $25 million in Treasury Bills. Which type of factor affecting legal reserves is this for the bank?
A) A controllable factor increasing legal reserves
B) A noncontrollable factor increasing legal reserves
C) A controllable factor decreasing legal reserves
D) A noncontrollable factor decreasing legal reserves
E) None of the above

Back 46

A) A controllable factor increasing legal reserves

Front 47

111. The Hora National Bank has just received notice that a large depositor with the bank wants to close their account immediately. Which type of factor affecting legal reserves is this for the bank?
A) A controllable factor increasing legal reserves
B) A noncontrollable factor increasing legal reserves
C) A controllable factor decreasing legal reserves
D) A noncontrollable factor decreasing legal reserves
E) None of the above

Back 47

D) A noncontrollable factor decreasing legal reserves

Front 48

112. The Simpson State Bank of Stillwater has just sold Federal Funds to another bank in their Federal Reserve district. Which type of factor affecting legal reserves is this for the bank?
A) A controllable factor increasing legal reserves
B) A noncontrollable factor increasing legal reserves
C) A controllable factor decreasing legal reserves
D) A noncontrollable factor decreasing legal reserves
E) None of the above

Back 48

C) A controllable factor decreasing legal reserves

Front 49

113. The Burr Bank has just calculated the ratio of U.S. Government Securities to Total Assets. Which liquidity indicator is this?
A) Cash position indicator
B) Liquid securities indicator
C) Net federal funds and repurchase agreement position
D) Capacity ratio
E) Hot money ratio

Back 49

B) Liquid securities indicator

Front 50

114. The HTR Bank of Summerville has just calculated the ratios of money market (short term) assets to volatile liabilities. Which liquidity indicator is this?
A) Cash position indicator
B) Liquid securities indicator
C) Net federal funds and repurchase agreement position
D) Capacity ratio
E) Hot money ratio

Back 50

E) Hot money ratio

Front 51

115. Which of the following is an option when a liquidity deficit arises and the bank wants to borrow liquidity to cover the deficit?
A) Selling Treasury Bills
B) Reducing their correspondent deposits with another bank
C) Selling a municipal bond
D) Issuing a jumbo CD
E) All of the above

Back 51

D) Issuing a jumbo CD

Front 52

116. Which of the following is an option when a liquidity deficit arises and the bank wants to use their stored liquidity in their assets to cover the deficit?
A) Borrowing in the Federal Funds market
B) Issuing a jumbo CD
C) Selling Treasury Bills
D) Increasing their correspondent deposits with another bank
E) All of the above

Back 52

C) Selling Treasury Bills

Front 53

117. The Taylor Treadwell Bank has just calculated the ratio of net loans and leases to total assets. Which liquidity indicator is this?
A) Cash position indicator
B) Liquid securities indicator
C) Net federal funds and repurchase agreement position
D) Capacity ratio
E) None of the above

Back 53

D) Capacity ratio

Front 54

118. The Taylor Treadwell Bank has just calculated the ratio of demand deposits to total time deposits. Which liquidity indicator is this?
A) Deposit composition ratio
B) Liquid securities indicator
C) Net federal funds and repurchase agreement position
D) Capacity ratio
E) None of the above

Back 54

A) Deposit composition ratio

Front 55

68. Deposit accounts whose principal function is to make payments for purchases of goods and services are called:
A) Drafts
B) Second-party payments accounts
C) Thrift deposits
D) Transaction accounts
E) None of the above

Back 55

D) Transaction accounts

Front 56

Interest payments on regular checking accounts were prohibited in the United States under terms of the:
A) Glass-Steagall Act
B) McFadden-Pepper Act
C) National Bank Act
D) Garn-St. Germain Depository Institutions Act
E) None of the above

Back 56

A) Glass-Steagall Act

Front 57

Money-market deposit accounts (MMDAs), offering flexible interest rates, accessible for payments purposes, and designed to compete with share accounts offered by money market mutual funds, were authorized by the:
A) Glass-Steagall Act
B) Depository Institutions Deregulation and Monetary Control Act (DIDMCA)
C) Bank Holding Company Act
D) Garn-St.Germain Depository Institutions Act
E) None of the above

Back 57

D) Garn-St.Germain Depository Institutions Act

Front 58

The stable and predictable base of deposited funds that are not highly sensitive to movements in market interest rates but tend to remain with the bank are called:
A) Time deposits
B) Core deposits
C) Consumer CDs
D) Nontransaction deposits
E) None of the above

Back 58

B) Core deposits

Front 59

Noegotiable Orders of Withdrawal (NOW) accounts, interest-bearing savings accounts that can be used essentially the same as checking accounts, were authorized by:
A) Glass-Steagall Act
B) Depository Institutions Deregulation and Monetary Control Act (DIDMCA)
C) Bank Holding Company Act
D) Garn-St. Germain Depository Institutions Act
E) None of the above

Back 59

B) Depository Institutions Deregulation and Monetary Control Act (DIDMCA)

Front 60

A deposit which offers flexible money market interest rates but is accessible for spending by writing a limited number of checks or executing preauthorized drafts is known as a:
A) Demand deposit
B) NOW account
C) MMDAs
D) Time deposit
E) None of the above

Back 60

C) MMDAs

Front 61

The types of deposits that will be created by the banking system depend predominantly upon:
A) The level of interest rates
B) The state of the economy
C) The monetary policies of the central bank
D) Public preference
E) None of the above.

Back 61

D) Public preference

Front 62

The most profitable deposit for a bank is a:
A) Time deposit
B) Commercial checking account
C) Personal checking account
D) Passbook savings deposit
E) Special checking account

Back 62

B) Commercial checking account

Front 63

Some people feel that individuals are entitled to some minimum level of financial services no matter what their income level. This issue is often called:
A) Lifeline banking
B) Preference banking
C) Nondiscriminatory banking
D) Lifeboat banking
E) None of the above

Back 63

A) Lifeline banking

Front 64

The formula Operating Expense per unit of deposit service + Estimated overhead expense + Planned profit from each deposit service unit sold reflects what deposit pricing method listed below?
A) Marginal cost pricing
B) Cost plus pricing
C) Conditional pricing
D) Upscale target pricing
E) None of the above

Back 64

B) Cost plus pricing

Front 65

Using deposit fee schedules that vary deposit prices according to the number of transactions, the average balance in the deposit account, and the maturity of the deposit represents what deposit pricing method listed below?
A) Marginal cost pricing
B) Cost plus pricing
C) Conditional pricing
D) Upscale target pricing
E) None of the above.

Back 65

C) Conditional pricing

Front 66

The deposit pricing method that favors large-denomination deposits because services are free if the deposit account balance stays above some minimum figure is called:
A) Free pricing
B) Conditionally free pricing
C) Flat-rate pricing
D) Upscale target pricing
E) Marginal cost pricing

Back 66

B) Conditionally free pricing

Front 67

The federal law that requires U.S. depository institutions to make greater disclosure of the fees, interest rates, and other terms attached to the deposits they sell to the public is called the:
A) Consumer Credit Protection Act
B) Fair Pricing Act
C) Consumer Full Disclosure Act
D) Truth in Savings Act
E) None of the above

Back 67

D) Truth in Savings Act

Front 68

Depository institutions selling deposits to the public in the United States must quote the rate of return pledged to the owner of the deposit which reflects the customer's average daily balance kept in the deposit. This quoted rate of return is known as the:
A) Annual percentage rate (APR)
B) Annual percentage yield (APY)
C) Daily deposit yield (DDY)
D) Daily average return (DAR)
E) None of the above.

Back 68

B) Annual percentage yield (APY)

Front 69

According to recent studies cited in this book, in selecting a bank to hold their checking accounts household customers rank first which of the following factors?
A) Safety
B) High deposit interest rates
C) Convenient location
D) Availability of other services
E) Low fees and low minimum balance

Back 69

C) Convenient location

Front 70

According to recent studies cited in this chapter, in choosing a bank to hold their savings deposits household customers rank first which of the following factors?
A) Familiarity
B) Interest rate paid
C) Transactional convenience
D) Location
E) Fees charged.

Back 70

A) Familiarity

Front 71

According to recent studies cited in this chapter, in choosing a bank to supply their deposits and other services business firms rank first which of the following factors?
A) Quality of financial advice given
B) Financial health of lending institution
C) Whether loans are competitively priced
D) Whether cash management and operations services are provided.
E) Quality of bank officers.

Back 71

B) Financial health of lending institution

Front 72

A financial institution that charges customers based on the number of services they use and gives lower deposit fees or waives some fees for a customer that purchases two or more services is practicing:
A) Marginal cost pricing
B) Conditional pricing
C) Relationship pricing
D) Upscale target pricing
E) None of the above

Back 72

C) Relationship pricing

Front 73

A bank determines from an analysis on its deposits that account processing and other operating expenses cost the bank $3.95 per month. It has also determined that its non operating expenses on its deposits are $1.35 per month. The bank wants to have a profit margin which is 10 percent of monthly costs. What monthly fee should this bank charge on its deposit accounts?
A) $5.30 per month
B) $3.95 per month
C) $5.83 per month
D) $5.70 per month
E) None of the above

Back 73

C) $5.83 per month

Front 74

A bank determines from an analysis on its deposits that account processing and other operating expenses cost the bank $4.45 per month. The bank has also determined that nonoperating expenses on deposits are $1.15 per month. It has also decided that it wants a profit of $.45 on its deposits. What monthly fee should this bank charge on its deposit accounts?
A) $6.05
B) $5.60
C) $5.15
D) $4.45
E) None of the above

Back 74

A) $6.05

Front 75

A customer has a savings deposit for 45 days. During that time they earn $5 in interest and have an average daily balance of $1000. What is the annual percentage yield on this savings account?
A) 0.5%
B) 4.13%
C) 4.07%
D) 4.5%
E) None of the above

Back 75

B) 4.13%

Front 76

A customer has a savings account for one year. During that year they earn $65.50 in interest. For 180 days they have $2000 in the account for the other 180 days they have $1000 in the account. What is the annual percentage yield on this savings account.
A) 6.55%
B) 3.28%
C) 4.37%
D) 8.73%
E) None of the above

Back 76

C) 4.37%

Front 77

If you deposit $1,000 into a certificate of deposit that quotes you a 5.5% APY, how much will you have at the end of 1 year?
A) $1,050.00
B) $1,055.00
C) $1,550.00
D) $1,005.50
E) None of the above.

Back 77

B) $1,055.00

Front 78

A bank quotes an APY of 8%. A small business that has an account with this bank had $2,500 in their account for half the year and $5,000 in their account for the other half of the year. How much in total interest earnings did this bank make during the year?
A) $300
B) $200
C) $400
D) $150
E) None of the above

Back 78

A) $300

Front 79

Conditional deposit pricing may involve all of the following factors except:
A) The level of interest rates
B) The number of transactions passing through the account
C) The average balance in the account
D) The maturity of the account
E) All of the above are used

Back 79

A) The level of interest rates

Front 80

94. Customers who wish to set aside money in anticipation of future expenditures or financial emergencies put their money in
A) Drafts
B) Second-party payment accounts
C) Thrift Deposits
D) Transaction accounts
E) None of the above

Back 80

C) Thrift Deposits

Front 81

95. A savings account evidenced only by computer entry for which the customer gets a monthly printout is called:
A) Passbook savings account
B) Statement savings plan
C) Negotiable order of withdrawal
D) Money market mutual fund
E) None of the above

Back 81

B) Statement savings plan

Front 82

96. A traditional savings account where evidenced by the entries recorded in a booklet kept by the customer is called:
A) Passbook savings account
B) Statement savings plan
C) Negotiable order of withdrawal
D) Money market mutual fund
E) None of the above

Back 82

A) Passbook savings account

Front 83

97. An account at a bank that carries a fixed maturity date with a fixed interest rate and which often carries a penalty for early withdrawal of money is called:
A) Demand deposit
B) Transaction deposit
C) Time deposit
D) Money market mutual deposit
E) None of the above

Back 83

C) Time deposit

Front 84

98. A time deposit that has a denominations greater than $100,000 and are generally for wealthy individuals and corporations is known as a:
A) Negotiable CD
B) Bump-up CD
C) Step-up CD
D) Liquid CD
E) None of the above

Back 84

A) Negotiable CD

Front 85

99. A time deposit that is non-negotiable but where the promised interest rate can rise with market interest rates is called a:
A) Negotiable CD
B) Bump-up CD
C) Step-up CD
D) Liquid CD
E) None of the above

Back 85

B) Bump-up CD

Front 86

100. A time deposit that allows for a periodic upward adjustment to the promised rate is called a:
A) Negotiable CD
B) Bump-up CD
C) Step-up CD
D) Liquid CD
E) None of the above

Back 86

C) Step-up CD

Front 87

101. A time deposit that allows the depositor to withdraw some of his or her funds without a withdrawal penalty is called a:
A) Negotiable CD
B) Bump-up CD
C) Step-up CD
D) Liquid CD
E) None of the above

Back 87

D) Liquid CD

Front 88

102. What has made IRA and Keogh accounts more attractive to depositors recently?
A) Allowing the bank to have FDIC insurance on these accounts
B) Allowing the fund to grow tax free over the life of the fund
C) Allowing the depositor to pay no taxes on investment earnings when withdrawn
D) Requiring banks to pay at least 6% on these accounts to depositors
E) Increasing FDIC insurance coverage to $250,000 on these accounts

Back 88

E) Increasing FDIC insurance coverage to $250,000 on these accounts

Front 89

103. The dominant holder of bank deposits in the U.S. is:
A) The private sector
B) State and local governments
C) Foreign governments
D) Deposits of other banks
E) None of the above

Back 89

A) The private sector

Front 90

104. The deposit pricing method absent of any monthly account maintenance fee or per-transaction fee is called:
A) Free pricing
B) Conditionally free pricing
C) Flat-rate pricing
D) Marginal cost pricing
E) Nonprice competition

Back 90

A) Free pricing

Front 91

105. The deposit pricing method that charges a fixed charge per check or per period or both is called:
A) Free pricing
B) Conditionally free pricing
C) Flat-rate pricing
D) Marginal cost pricing
E) Nonprice competition

Back 91

C) Flat-rate pricing

Front 92

106. The deposit pricing method that focuses on the added cost of bringing in new funds is called:
A) Free pricing
B) Conditionally free pricing
C) Flat-rate pricing
D) Marginal cost pricing
E) Nonprice competition

Back 92

D) Marginal cost pricing

Front 93

107. Prior to Depository Institution Deregulation and Control Act (DIDMCA), banks used . This tended to distort the allocation of scarce resources.
A) Free pricing
B) Conditionally free pricing
C) Flat-rate pricing
D) Marginal cost pricing
E) Nonprice competition

Back 93

E) Nonprice competition

Front 94

108. A customer has a savings deposit for 60 days. During that time they earn $11 and have an average daily balance of $1500. What is the annual percentage yield on this savings account?
A) .73%
B) 4.3%
C) 4.5%
D) 4.7%
E) None of the above

Back 94

C) 4.5%

Front 95

109. A customer has a savings deposit for 15 days. During that time they earn $15 and have an average daily balance of $2200. What is the annual percentage yield on this savings account?
A) .68%
B) 16.36%
C) 16.59%
D) 17.98%
E) None of the above

Back 95

D) 17.98%

Front 96

110. A bank determines from an analysis on its deposits that account processing and other operating expenses cost the bank $4.15 per month. It has also determined that its none operating expenses on its deposits are $1.65 per month. The bank wants to have a profit margin which is 10 percent of monthly costs. What monthly fee should this bank charge on its deposit accounts?
A) $6.38 per month
B) $5.80 per month
C) $4.57 per month
D) $4.15 per month
E) None of the above

Back 96

A) $6.38 per month

Front 97

111. A bank has $200 in checking deposits. Interest and noninterest costs on these accounts are 4%. This bank has $400 in savings and time deposits with interest and noninterest costs of 8%. This bank has $200 in equity capital with a cost of 24%. This bank as estimated that reserve requirements, deposit insurance fees and uncollected balances reduce the amount of money available on checking deposits by 10% and on savings and time deposits by 5%. What is this bank’s before-tax cost of funds?
A) 11.00%
B) 11.32%
C) 11.50%
D) 12.00%
E) None of the above

Back 97

B) 11.32%

Front 98

112. A bank has $100 in checking deposits. Interest and noninterest costs on these accounts are 8%. This bank has $600 in savings and time deposits with interest and noninterest costs of 12%. This bank has $100 in equity capital with a cost of 26%. This bank has estimated that reserve requirements, deposit insurance fees and uncollected balances reduce the amount of money available on checking deposits by 20% and on savings and time deposits by 5%. What is the bank’s before-tax cost of funds?
A) 13.05%
B) 13.25%
C) 15.33%
D) 19.17%
E) None of the above

Back 98

A) 13.05%

Front 99

113. A bank has $500 in checking deposits. Interest and noninterest costs on these accounts are 6%. This bank has $250 in savings and time deposits with interest and noninterest costs of 14%. This bank has $250 in equity capital with a cost of 25%. This bank has estimated that reserve requirements, deposit insurance fees and uncollected balances reduce the amount of money available on checking deposits by 15% and on savings and time deposits by 4%. What is the bank’s before-tax cost of funds?
A) 15.00%
B) 12.75%
C) 13.42%
D) 15.74%
E) None of the above

Back 99

C) 13.42%

Front 100

114. A bank expects to raise $30 million in new money if it pays a deposit rate of 7%. It can raise $60 million in new money if it pays a deposit rate of 7.5%. It can raise $80 million in new money if it pays a deposit rate of 8% and it can raise $100 million in new money if it pays a deposit rate of 8.5%. This bank expects to earn 9% on all money that it receives in new deposits. What deposit rate should the bank offer on its deposits, if they use the marginal cost method of determining deposit rates?
A) 7%
B) 7.5%
C) 8%
D) 8.5%
E) None of the above

Back 100

B) 7.5%

Front 101

115. A bank expects to raise $30 million in new money if it pays a deposit rate of 7%. It can raise $60 million in new money if it pays a deposit rate of 7.5%. It can raise $80 million in new money if it pays a deposit rate of 8% and it can raise $100 million in new money if it pays a deposit rate of 8.5%. This bank expects to earn 9% on all money that it receives in new deposits. What is the marginal cost of deposits if the bank raises their deposit rate from 7 to 7.5%?
A) .5%
B) 7.5%
C) 8.0%
D) 9.5%
E) 10.5%

Back 101

C) 8.0%

Front 102

116. Under the Truth in Savings Act, a bank must inform its customers of the terms being quoted on their deposits. Which of the following is not one of the terms listed?
A) Loan rate information
B) Balance computation method
C) Early withdrawal penalty
D) Transaction limitations
E) Minimum balance requirements

Back 102

A) Loan rate information

Front 103

117. Which of these Acts is attempting to address the low savings rate of workers in the U.S. by including an automatic enrollment (“default option”) in employees’ retirement accounts?
A) The Economic Recovery Tax Act of 1981
B) The Tax Reform Act of 1986
C) The Tax Relief Act of 1997
D) The Pension Protection Act of 2006
E) None of the above

Back 103

D) The Pension Protection Act of 2006

Front 104

118. Business (commercial) transaction accounts are generally more profitable than personal checking accounts, according to the textbook. Which of the following explain the reasons for this statement:
A) The average size of the business transaction is smaller than the personal transaction
B) Lower interest expenses are associated with commercial deposit transaction
C) The bank receives more investable funds in the commercial deposits transaction
D) A and B
E) B and C

Back 104

E) B and C

Front 105

119. A bank expects to raise $30 million in new money if it pays a deposit rate of 7%. It can raise $60 million in new money if it pays a deposit rate of 7.5%. It can raise $80 million in new money if it pays a deposit rate of 8% and it can raise $100 million in new money if it pays a deposit rate of 8.5%. This bank expects to earn 9% on all money that it receives in new deposits. What is the marginal cost of deposits if this bank raises their deposit rate from 7.5% to 8%?
A) .5%
B) 7.5%
C) 8.0%
D) 9.5%
E) 10.5%

Back 105

D) 9.5%

Front 106

120. A bank expects to raise $30 million in new money if it pays a deposit rate of 7%. It can raise $60 million in new money if it pays a deposit rate of 7.5%. It can raise $80 million in new money if it pays a deposit rate of 8% and it can raise $100 million in new money if it pays a deposit rate of 8.5%. This bank expects to earn 9% on all money that it receives in new deposits. What is the marginal cost of deposits if this bank raises their deposit rate from 8% to 8.5%?
A) .5%
B) 7.5%
C) 8.0%
D) 9.5%
E) 10.5%

Back 106

E) 10.5%

Front 107

121. A bank expects to raise $20 million in new money if it pays a deposit rate of 7%. It can raise $60 million in new money if it pays a deposit rate of 7.5%. It can raise $100 million in new money if it pays a deposit rate of 8% and it can raise $120 in new money if it pays a deposit rate of 8.5%. This bank expects to earn 9.5% on all money that it receives in new deposits. What deposit rate should the bank offer on its deposits, if it uses the marginal cost method of determining deposits rates?
A) 7%
B) 7.5%
C) 8%
D) 8.5%
E) None of the above

Back 107

C) 8%

Front 108

122. A bank expects to raise $20 million in new money if it pays a deposit rate of 7%. It can raise $60 million in new money if it pays a deposit rate of 7.5%. It can raise $100 million in new money if it pays a deposit rate of 8% and it can raise $120 in new money if it pays a deposit rate of 8.5%. This bank expects to earn 9.5% on all money that it receives in new deposits. What is the marginal cost of deposits if this bank raises their deposit rate from 8 to 8.5%?
A) 11%
B) 8.75%
C) 7.75%
D) 7%
E) .5%

Back 108

A) 11%

Front 109

123. A bank expects to raise $20 million in new money if it pays a deposit rate of 7%. It can raise $60 million in new money if it pays a deposit rate of 7.5%. It can raise $100 million in new money if it pays a deposit rate of 8% and it can raise $120 in new money if it pays a deposit rate of 8.5%. This bank expects to earn 9.5% on all money that it receives in new deposits. What is the marginal cost of deposits if this bank raises their deposit rate from 7.5% to 8%?
A) 11%
B) 8.75%
C) 7.75%
D) 7%
E) .5%

Back 109

B) 8.75%

Front 110

61. The doctrine that the first priority of a bank is to make loans to all those customers from whom the bank expects to receive positive net earnings is called the:
A) Funds management doctrine
B) Customer relationship doctrine
C) Loan priority doctrine
D) Revenue flows doctrine
E) None of the above.

Back 110

B) Customer relationship doctrine

Front 111

62. The doctrine that banks should be able to buy the reserves they need to cover good-quality loan requests is known as:
A) Funds Management
B) Asset Management
C) Liability Management
D) Asset-Liability Coordinated Management
E) None of the above.

Back 111

C) Liability Management

Front 112

63. With liability management banking the control lever to regulate incoming bank funds is:
A) Management discretion
B) The volume of loan demand the bank faces.
C) Deposit growth
D) Price
E) None of the above.

Back 112

D) Price

Front 113

64. The most popular domestic source of borrowed reserves for U.S. banks is:
A) Federal funds market
B) Money market negotiable CDs
C) Eurodollar market
D) Borrowings from the Federal Reserve Banks
E) Commercial paper market

Back 113

A) Federal funds market

Front 114

66. Large time deposits are generally referred to as:
A) Mini CDs.
B) Jumbo CDs.
C) Large CDs.
D) Giant CDs.
E) Super CDs.

Back 114

B) Jumbo CDs.

Front 115

68. First National Bank has new loan requests of $225 million, needs to purchase $100 million in U.S. Treasury securities to meet pledging requirements, and anticipates draws against credit lines of $135 million. Deposits received today total $215 million and the bank expects to bring in an additional $100 million next week. What is First National's estimated funds gap for the coming week?
A) $225 million.
B) $145 million.
C) $135 million.
D) $100 million.
E) None of the above.

Back 115

B) $145 million.

Front 116

69. First National Bank has new loan requests of $175 million, needs to purchase $50 million in U.S. Treasury securities to meet pledging requirements, and anticipates draws against credit lines of $45 million. Deposits received today total $140 million and the bank expects to bring in an additional $230 million next week. What is First National's estimated funds gap for the coming week?
A) $225 million.
B) $145 million.
C) $135 million.
D) $100 million.
E) None of the above.

Back 116

D) $100 million.

Front 117

70. Factors that will affect a bank's decision as to which nondeposit sources of funds it will use to cover its projected funds gap include which of the following?
A) The relative cost of raising the funds.
B) The length of time the funds will be required.
C) The risk associated with each source of funds.
D) The size of the bank.
E) All of the above.

Back 117

E) All of the above.

Front 118

71. First National Bank is planning to raise $30 million through an offering of negotiable CDs. The current rate for similar CDs is 5.5%. Noninterest cost rate for CDs is 0.25 percent. First National pays a deposit insurance premium of 0.0023 per dollar of insured deposits. Due to other immediate cash needs, only $25 million will be fully invested. What is the effective cost rate of borrowing in the CD market?
A) 6.9%
B) 7.2%
C) 6.0%
D) 5.5%
E) None of the above.

Back 118

B) 7.2%

Front 119

72. CDs that are sold by the largest foreign banks through their U.S. branches are called:
A) Thrift CDs.
B) Domestic CDs.
C) EuroCDs.
D) Yankee CDs.
E) None of the above.

Back 119

D) Yankee CDs.

Front 120

73. Accommodating banks perform what role?
A) They act as intermediaries in the Eurodollar market.
B) They issue negotiable CDs for themselves and for other banks.
C) They sell commercial paper to raise funds for themselves and other firms belonging to their bank holding company.
D) They buy and sell federal funds simultaneously in order to make a market for reserves of customer banks.
E) None of the above.

Back 120

D) They buy and sell federal funds simultaneously in order to make a market for reserves of customer banks.

Front 121

74. A federal funds loan that is automatically renewed each day unless either the borrower or the lender decides to end the loan agreement is known as a:
A) Overnight loan.
B) Continuing contract.
C) Term loan.
D) Rollover loan agreement
E) None of the above

Back 121

B) Continuing contract.

Front 122

75. Longer-term federal funds contracts lasting several days, weeks, or months, often accompanied by a written contract, are known as:
A) Term loans.
B) Continuing contracts
C) Rollover loans.
D) Federal funds mutuality agreements
E) None of the above

Back 122

A) Term loans.

Front 123

76. The federal law that restricts Federal Reserve lending to undercapitalized banks and to banks that are "viable entities" is the:
A) Riegle Community Development and Regulatory Improvement Act
B) FDIC Improvement Act.
C) Financial Institutions Reform, Recovery, and Enforcement Act.
D) Depository Institutions Deregulation and Monetary Control Act.
E) None of the above.

Back 123

B) FDIC Improvement Act.

Front 124

77. The bank funding source that is really a "hybrid" account is the:
A) Federal funds loan.
B) Repurchase agreement.
C) Negotiable CD.
D) Eurodollar deposit.
E) None of the above

Back 124

C) Negotiable CD.

Front 125

78. A bank plans on borrowing $150 million through an RP transaction collateralized by T-bills. The bank plans on borrowing the money for 5 days and the current RP rate is 5.25 percent. What is this bank's total interest cost in dollars?
A) $7,875,000
B) $107,877
C) $21,875
D) $109,375
E) None of the above

Back 125

D) $109,375

Front 126

79. Suppose a bank promises an annual return of 6.5 percent on a three month (90 day) $150,000 CD) What will be the total amount due the customer at the end of the three month period?
A) $152,437.50
B) $2,437.50
C) $150,000
D) $152,404.11
E) None of the above

Back 126

A) $152,437.50

Front 127

80. The short-term notes, with maturities ranging from 3 or 4 days to 9 months, issued by well known companies are known as:
A) Negotiable CDs
B) Commercial paper
C) Federal funds
D) Repurchase agreements
E) None of the above

Back 127

B) Commercial paper

Front 128

81. The TRC Bank is planning on raising $500 million in a new offering of commercial paper through its holding company. The plan on using $475 million of it to fund new loans. The current interest rate for similar commercial paper is 6.45 percent and they expect .25 percent in issuing costs. What is the effective rate of interest on this issue of commercial paper?
A) 6.65%
B) 6.45%
C) 7.05%
D) 6.79%
E) None of the above

Back 128

C) 7.05%

Front 129

82. An agreement where one party agrees to sell T-bills to another party and at the same time agrees to buy them back at a set price is known as:
A) A repurchase agreement
B) Commercial paper
C) Federal Funds
D) Negotiable CDs
E) None of the above

Back 129

A) A repurchase agreement

Front 130

83. Which of the following is not an advantage of using a repurchase agreement?
A) The bank gains excess reserves which can used to make new deposits
B) The bank makes use of high-quality but low yielding assets without losing them permanently
C) If the agreement is made with a bank who keeps a checkable deposit with the bank it can reduce both the bank's deposits and reserve requirements
D) The interest rate the bank has to pay is usually low
E) All of the above are advantages of using a repurchase agreement

Back 130

A) The bank gains excess reserves which can used to make new deposits

Front 131

84. Which of the following is an example of a longer term nondeposit funding source?
A) Federal funds
B) Repurchase agreements
C) Capital notes and debentures
D) Negotiable CDs
E) None of the above

Back 131

C) Capital notes and debentures

Front 132

85. Suppose a bank expects to issue 45 day negotiable CDs for $150 million. The interest rate on these CDs is 6.35%. What is the dollar amount in interest the bank will owe on these CDs at the end of the 45 days?
A) $9,525,000
B) $1,190,625
C) $76,200,000
D) $6,750,000
E) None of the above

Back 132

B) $1,190,625

Front 133

86. Dollar denominated CDs issued by banks outside the United States are known as:
A) Domestic CDs
B) Euro CDs
C) Yankee CDs
D) Commercial paper
E) None of the above

Back 133

B) Euro CDs

Front 134

87. A repurchase agreement (RP) in which the collateral is specifically identified is known as:
A) A conventional RP
B) A General Collateral Finance RP
C) A specific RP
D) A general RP
E) An individual RP

Back 134

A) A conventional RP

Front 135

88. A conventional Repurchase Agreement (RP) is ________ flexible for the borrower than (as) a General Collateral Finance RP.
A) More
B) Less
C) As
D) Unknown
E) None of the above

Back 135

B) Less

Front 136

89. The following types of loans are all available at the discount window except:
A) Adjustment credit
B) Primary credit
C) Secondary credit
D) Seasonal credit
E) None of the above

Back 136

A) Adjustment credit

Front 137

90. In addition to the Federal Reserve, another governmental agency has also been loaning large amounts of money to banks and thrift institutions and is known as the:
A) FDIC
B) OCC
C) OTS
D) FHLB
E) RTC

Back 137

D) FHLB

Front 138

91. The Bridges State Bank has new loan requests of $315 and wants to purchase $125 million in U.S. Treasury securities and anticipates draws on lines of credit in the amount of $65 million. Deposits received today totaling $205 million and the bank expects to bring in an additional $185 million in deposits next week. What is the estimated funds gap for the Bridges State Bank?
A) $505 million
B) $390 million
C) $115 million
D) $315 million
E) None of the above

Back 138

C) $115 million

Front 139

92. The Williams National Bank has new loan requests of $585 million and wants to purchase $160 in U.S. Treasury securities. They also anticipate draws on lines of credit in the amount of $120 million. This bank received deposits totaling $300 million and they expect to bring in an additional $340 million in deposits next week. What is the estimated funds gap of the Williams National Bank?
A) $225 million
B) $585 million
C) $640 million
D) $865 million
E) None of the above

Back 139

A) $225 million

Front 140

93. The Willis Savings Bank is comparing the prevailing interest rate in the Fed Funds market with that in the negotiable CD market. They are making sure to include the noninterest costs and the deposit insurance costs as well as the amount of money that will actually be available for new loans. Which factor that affects a bank’s use of nondeposit sources of funds is the bank examining?
A) The relative cost of raising the funds
B) The length of time the funds will be required
C) The risk associated with each source of funds
D) The size of the bank
E) Regulations

Back 140

A) The relative cost of raising the funds

Front 141

94. The First State Bank of Summerville knows that, if they issue commercial paper through a subsidiary, money is very tight and the interest rate on the commercial paper may very high. What factor that affects a bank’s use of nondeposit sources of funds is the bank concerned about?
A) The relative cost of raising the funds
B) The length of time the funds will be required
C) The risk associated with each source of funds
D) The size of the bank
E) Regulations

Back 141

C) The risk associated with each source of funds

Front 142

95. The First State Bank of Summerville knows that, if they issue a large amount of the negotiable CD, money is tight. As a result, they choose to ration the credit and lend only to their most loyal clients. What risk factor that affects a bank’s use of nondeposit sources of funds is the concern here?
A) Interest rate changes
B) The length of time the funds will be required
C) The relative cost of raising the funds
D) Credit availability
E) Regulations

Back 142

D) Credit availability

Front 143

96. The manager of the First National Bank of Edmond needs $100 million this afternoon to satisfy an unexpected loan demand from an excellent customer of the bank. What factor that affects a bank’s use of nondeposit sources of funds is the manager concerned about?
A) The relative cost of raising the funds
B) The length of time the funds will be required
C) The risk associated with each source of funds
D) The size of the bank
E) Regulations

Back 143

B) The length of time the funds will be required

Front 144

97. The First State Bank of Summerville needs to raise $500,000 in nondeposit sources of funds. They know that the Eurodollar market requires a minimum denomination of $1 million. What factor that affects a bank’s use of nondeposit sources of funds is this bank concerned about?
A) The relative cost of raising the funds
B) The length of time the funds will be required
C) The risk associated with each source of funds
D) The size of the bank
E) Regulations

Back 144

D) The size of the bank

Front 145

98. Bank of America is concerned because they have heard that the Federal Reserve Board may impose legal reserve requirements on money borrowed in the Fed Funds market. Which factor that affects a bank’s use of nondeposit sources of funds is this bank concerned about?
A) The relative cost of raising the funds
B) The length of time the funds will be required
C) The risk associated with each source of funds
D) The size of the bank
E) Regulations

Back 145

E) Regulations

Front 146

99. The Bank of Boulder is planning on issuing $45 million in negotiable CDs. Currently other similar CDs have an interest rate of 4.75%. The Bank of Boulder has estimated that its noninterest costs of issuing these CDs are .15%. The Bank of Boulder must pay a deposit insurance premium of .0023 per dollar of insured funds. Due to other immediate cash needs, only $40 million of the funds raised will be fully invested. What is the effective cost rate for the Bank of Boulder to borrow in the CD market? (Round your answer to the nearest .01%)
A) 4.75%
B) 4.90%
C) 5.10%
D) 5.79%
E) None of the above

Back 146

D) 5.79%

Front 147

100. The Lawrence Bank of Cleveland is planning on issuing $60 million in negotiable CDs. Currently other similar CDs have an interest rate of 5.15%. The Lawrence Bank of Cleveland has estimated that is noninterest costs of issuing these CDs will be .2%. The Lawrence Bank of Cleveland must pay a deposit insurance premium of .0023 per dollar of insured funds. Due to other immediate cash needs, only $50 of the funds raised will be full invested. What is the effective cost rate for the Lawrence Bank of Cleveland to borrow in the CD market? (Round your answer to the nearest .01%)
A) 6.71%
B) 6.42%
C) 5.58%
D) 5.15%
E) None of the above

Back 147

A) 6.71%

Front 148

101. CDs issued by savings institutions are called:
A) Thrift CDs
B) Domestic CDs
C) Euro CDs
D) Yankee CDs
E) Variable rate CDs

Back 148

A) Thrift CDs

Front 149

102. When a foreign branch lends a Eurodeposit to its home office in the U.S., how is this listed on the balance sheet of the home office?
A) Loan from Subsidiary
B) Liabilities to Foreign Branches
C) Securities Sold under Agreement to Repurchase
D) Bankers Acceptance
E) None of the above

Back 149

B) Liabilities to Foreign Branches

Front 150

103. A Fed Funds loan that is an unwritten agreement negotiated via wire or telephone with the borrowed funds returned the next day is known as:
A) An overnight loan
B) A continuing contract
C) A term loan
D) A daytime loan
E) None of the above

Back 150

A) An overnight loan

Front 151

104. A bank plans on borrowing $225 million for 10 days through a RP transaction collateralized by T-Bills. The current RP rate is 4.5%. What is this bank’s total interest cost in dollars?
A) $10,125,000
B) $1,125,000
C) $281,250
D) $28,125
E) None of the above

Back 151

C) $281,250

Front 152

105. A bank plans on borrowing $450 million for 20 days through a RP transaction collateralized by T-Bills. The current RP rate is 6.25%. What is this bank’s total interest cost in dollars?
A) $28,125,000
B) $78,125
C) $1,406,250
D) $1,562,500
E) None of the above

Back 152

D) $1,562,500

Front 153

106. A bank promises an annual return of 7.75 percent on a 180 day, $250,000 CD. What will be the total amount due the customer at the end of the six month period?
A) $269,375.00
B) $259,687.50
C) $9687.50
D) $250,000.00
E) None of the above

Back 153

B) $259,687.50

Front 154

107. A bank promises an annual return of 4.85% on a 60 day, $300,000 CD. What will be the total amount due to the customer at the end of the two month period?
A) $302,425
B) $314,550
C) $14,550
D) $2,425
E) None of the above

Back 154

A) $302,425

Front 155

108. The HTR Bank is planning on raising $750 million in a new offering of commercial paper through its holding company. They plan on using $725 million of it to fund new loans. The current interest rate for similar commercial paper is 7.15% and they expect .15% in issuing costs. What is the effective rate of interest on this issue of commercial paper?
A) 7.30%
B) 7.15%
C) 7.40%
D) 7.55%
E) None of the above

Back 155

D) 7.55%

Front 156

109. The Carter State Bank is planning on raising $600 million in a new offering of commercial paper through its holding company. They plan on using $500 million of it to fund new loans. The current interest rate for similar commercial paper is 4.85% and they expect .3% in issuing costs. What is the effective rate of interest on this issue of commercial paper?
A) 5.15%
B) 6.18%
C) 5.82%
D) 4.85%
E) None of the above

Back 156

B) 6.18%

Front 157

110. Setting the Federal Reserve primary-credit discount rate above the Fed Funds rate mirrors what credit facilities used by several European central banks?
A) The Vince credit facilities
B) The Adam Smith credit facilities
C) The Lombard credit facilities
D) The Lower Back credit facilities
E) None of the above

Back 157

C) The Lombard credit facilities

Front 158

46. Customers purchasing nondeposit investment accounts sold by a bank operating in the United States must be told in writing:
A) Investment accounts are not federally insured
B) Investment accounts are not deposits in nor guaranteed by a depository institution
C) Investment accounts could suffer loss of principal
D) All of the above.
E) None of the above.

Back 158

D) All of the above.

Front 159

47. A trust department's activities often center around establishing:
A) An independent relationship with the customer
B) A partnership relationship with the customer
C) A fiduciary relationship with the customer
D) A subservient relationship with the customer
E) None of the above

Back 159

C) A fiduciary relationship with the customer

Front 160

48. A bank would offer insurance services in addition to traditional banking services if it believed in the potential the benefits of:
A) Reputation
B) Economies of scale
C) Economies of scope
D) Investment services
E) None of the above

Back 160

C) Economies of scope

Front 161

49. Which of the following is an example of a nondeposit investment product of the bank?
A) Time deposit
B) NOW account
C) Passbook savings account
D) Proprietary mutual fund
E) All of the above

Back 161

D) Proprietary mutual fund

Front 162

50. Which of the following trust agreements allows wealth to be passed free of gift and estate tax to heirs?
A) Revocable trust
B) Irrevocable trust
C) Charitable trust
D) Indenture trusts
E) None of the above

Back 162

B) Irrevocable trust

Front 163

51. Which of the following trust agreements allows the bank trust officer to act on behalf of a living customer?
A) Revocable trust
B) Irrevocable trust
C) Charitable trust
D) Indenture trusts
E) None of the above

Back 163

A) Revocable trust

Front 164

52. Which of the following trust agreements is used to back the issue of securities by a corporation?
A) Revocable trust
B) Irrevocable trust
C) Charitable trust
D) Indenture trusts
E) None of the above

Back 164

D) Indenture trusts

Front 165

53. A bank is considering adding life insurance underwriting to the services it offers. It has estimated that the expected return and standard deviation of its traditional services are 12 percent and 6 percent respectively. It has also estimated that the expected return and standard deviation of its new underwriting services are 18 percent and 10 percent respectively. The correlation between these services has been estimated to be +.10 and the bank estimates that 90 percent of its business will be from traditional services and 10 percent from the new underwriting services. What is the expected return of the new combination of services?
A) 17.40%
B) 12.60%
C) 5.59%
D) 15.00
E) None of the above

Back 165

B) 12.60%

Front 166

54. A bank is considering adding life insurance underwriting to the services it offers. It has estimated that the expected return and standard deviation of its traditional services are 12 percent and 6 percent respectively. It has also estimated that the expected return and standard deviation of its new underwriting services are 18 percent and 10 percent respectively. The correlation between these services has been estimated to be +.10 and the bank estimates that 90 percent of its business will be from traditional services and 10 percent from the new underwriting services. What is the expected standard deviation of the new combination of services?
A) 6.40%
B) 12.60%
C) 5.59%
D) 9.08%
E) None of the above

Back 166

C) 5.59%

Front 167

55. A bank is considering adding life insurance underwriting to the services it offers. It has estimated that the expected return and standard deviation of its traditional services are 12 percent and 6 percent respectively. It has also estimated that the expected return and standard deviation of its new underwriting services are 18 percent and 10 percent respectively. The correlation between these services has been estimated to be +.10 and the bank estimates that 90 percent of its business will be from traditional services and 10 percent from the new underwriting services. If the bank is expecting that the overall risk of the bank will be reduced from adding the life insurance underwriting to the bank, what type of effect are they expecting?
A) Product Line Diversification Effect
B) Economies of Scope Effect
C) Economies of Scale Effect
D) Geographic Diversification Effect
E) None of the above

Back 167

A) Product Line Diversification Effect

Front 168

56. When a bank is expecting that the overall risk of FHC will be reduced when they combine investment banking services with the traditional banking services, what type of effect are they expecting?
A) Product Line Diversification Effect
B) Economies of Scope Effect
C) Economies of Scale Effect
D) Geographic Diversification Effect
E) None of the above

Back 168

A) Product Line Diversification Effect

Front 169

57. When a bank is expecting to be able to employ the same managers, employees and physical resources to offer multiple products and generate costs savings they are expecting which of the following effects?
A) Product Line Diversification Effect
B) Economies of Scope Effect
C) Economies of Scale Effect
D) Geographic Diversification Effect
E) None of the above

Back 169

B) Economies of Scope Effect

Front 170

58. Trust Department activities include all of the following except:
A) safeguarding
B) asset management
C) generate large deposits
D) lending
E) source of new deposits

Back 170

D) lending

Front 171

59. A financial holding company may include all of the following services except:
A) IPO
B) Consumer lending
C) Trust services
D) Investment banking
E) Insurance

Back 171

A) IPO

Front 172

60. Historically, what has prevented universal banks from operating in the United States?
A) The Universal Bank Prohibition Act
B) The Glass-Stegall Act
C) Sarbanes-Oxley Act
D) Universal banks have less risk diversification capabilities than traditional U.S. based banks.
E) A and C

Back 172

B) The Glass-Stegall Act

Front 173

61. Among potential advantages of combining various financial services activities in one FHC are all of the following except:
A) Supplementing traditional sources of funds with new funds
B) Supplementing traditional revenue with new revenue sources
C) Lowering the cost of service production through economies of scale and scope
D) Reducing the risk of failure
E) Increasing earnings fluctuations

Back 173

E) Increasing earnings fluctuations

Front 174

62. If the correlation between revenues from traditional banking and nontraditional services offered by a bank rises, potential diversification benefits:
A) Will rise
B) Will fall
C) Will remain the same
D) Will remain the same but only under certain conditions
E) Cannot be determined

Back 174

B) Will fall

Front 175

63. A company that offers shares in a pool of securities and flows through any earnings generated to the shareholders is called:
A) A mutual fund
B) An annuity
C) The net asset value
D) A hedge fund
E) None of the above

Back 175

A) A mutual fund

Front 176

64. A savings instrument where the customer makes a lump sum payment to the investment manager who invests the payment in earning assets and later receives a stream of income from the assets is called:
A) A mutual fund
B) An annuity
C) The net asset value
D) A hedge fund
E) None of the above

Back 176

B) An annuity

Front 177

65. A customer’s pro rata value of a share in a mutual fund if the assets of the fund were liquidated and liabilities paid off is called:
A) A mutual fund
B) An annuity
C) The net asset value
D) A hedge fund
E) None of the above

Back 177

C) The net asset value

Front 178

66. A private partnership whose shares are primarily offered to wealthy individuals and large institutions and which often makes high-stakes bets on the direction of the market is called:
A) A mutual fund
B) An annuity
C) The net asset value
D) A hedge fund
E) None of the above

Back 178

D) A hedge fund

Front 179

67. A bank is considering adding security underwriting services to the services it offers. It has estimated that the expected return and standard deviation of its traditional service are 8% and 10% respectively. It has estimated that the expected return and standard deviation of its new securities underwriting services are 16% and 20% respectively. The correlation between these services has been estimated to be -0.3 and the bank estimates that 80% of its business will be from traditional services and 20% from the new services. What is the expected return of the new combined firm?
A) 8.0%
B) 9.6%
C) 12.0%
D) 14.4%
E) 16%

Back 179

B) 9.6%

Front 180

68. A bank is considering adding security underwriting services to the services it offers. It has estimated that the expected return and standard deviation of its traditional service are 8% and 10% respectively. It has estimated that the expected return and standard deviation of its new securities underwriting services are 16% and 20% respectively. The correlation between these services has been estimated to be -.3 and the bank estimates that 80% of its business will be from traditional services and 20% from the new services. What is the standard deviation of the new combined firm?
A) 7.8%
B) 10.0%
C) 12.0%
D) 15.5%
E) 20.0%

Back 180

A) 7.8%

Front 181

69. A bank is considering adding security brokerage services to the services it offers. It has estimated that the expected return and standard deviation of its traditional service are 6% and 14% respectively. It has estimated that the expected return and standard deviation of its new securities brokerage services are 14% and 24% respectively. The correlation between these services has been estimated to be -.4 and the bank estimates that 60% of its business will be from traditional services and 40% from the new services. What is the expected return of the new combined firm?
A) 14.0%
B) 10.8%
C) 10.0%
D) 9.2%
E) 6.0%

Back 181

D) 9.2%

Front 182

70. A bank is considering adding security brokerage services to the services it offers. It has estimated that the expected return and standard deviation of its traditional service are 6% and 14% respectively. It has estimated that the expected return and standard deviation of its new securities brokerage services are 14% and 24% respectively. The correlation between these services has been estimated to be -.4 and the bank estimates that 60% of its business will be from traditional services and 40% from the new services. What is the standard deviation of the new combined firm?
A) 24.00%
B) 18.00%
C) 15.07%
D) 14.00%
E) 9.91%

Back 182

E) 9.91%