Banks Risk-Return

Front 1

Each of the following falls into the category of bank assets except:
a. other assets

b. loans

c. cash and due from banks

d. investment securities

e. demand deposits

Back 1

e) demand deposits

Front 2

Banks generate their largest portion of income from:

Select one:

a. demand deposits

b. loans

c. certificates of deposits

d. trading account gains & fees

e. short-term investments

Back 2

b) loans

Front 3

Which of the following adjustments are made to gross loans and leases to obtain net loans and leases?

Select one:

a. Loan and lease loss allowance and unearned income is subtracted from gross loans

b. Loan and lease loss allowance is added to gross loans

c. Loan and lease loss allowance is subtracted from gross loans and investment income is added to gross interest received

d.
Investment income is added to gross interest received

Back 3

A) Loan and lease loss allowance and unearned income is subtracted from gross loans

Front 4

The noncash expense item on a bank's Report of Income designed to shelter a bank's current earnings from taxes and to help prepare for bad loans is called:

Select one:

a. noninterest expense

b.

None of the options are correct.

c. provision for taxes

d. short-term debt interest

e. provision for possible loan losses

Back 4

e) provision for possible loan losses

Front 5

A financial institution's bad-debt reserve, as reported on its balance sheet, is called

Select one:

a. unearned income or discount

b. customer liability on acceptances

c. allowance for possible loan losses

d. intangible assets

e. None of the options are correct

Back 5

c. allowance for possible loan losses

Front 6

Nonperforming loans are credits on which any scheduled loan repayments and interest payments are past due for more than:

Select one:

a.
None of the options are correct

b. 90 days

c. 30 days

d. 180 days

e. 60 days

Back 6

b. 90 days

Front 7

A bank which starts with ALL of $1.48 million at the beginning of the year, charges off worthless loans of $0.94 million during the year, recovers $0.12 million on loans previously charged off and charges current income for a $1.02 million provision for loan losses, will have an ALL at the end of the year of:

Select one:

a. 0.66 million

b. The same amount as at the beginning of the year

c. 1.68 million

d. 1.28 million

e. 3.32 million

Back 7

c. 1.68 million

Front 8

A bank has total interest income of $67 million and total noninterest income of $14 million. This bank has total interest expenses of $35 million and total noninterest expenses (excluding PLL) of $28 million. Its provision for loan losses is $6 million and its taxes are $5. What is this bank's net interest income?

Select one:

a. 32

b. None of the options are correct

c. 14

d. 7

Back 8

a. 32

Front 9

Which of the following financial statements shows the revenues and expenses of a bank over a set period of time?

Select one:

a. The Statement of Stockholders Equity

b. The Report of Income

c. The Report of Financial Condition

d. None of the options are correct

e. The Funds-Flow Statement

Back 9

b. The Report of Income

Front 10

Which of the following accounts is also called the bank's primary reserves

Select one:

a. Trading account securities

b. None of the options are correct

c. Investment securities

d. Cash and deposits due from banks

e. Fed funds sold

Back 10

d. Cash and deposits due from banks

Front 11

Which of the following most accurately describes the principal type(s) of bank noninterest income?

Select one:

a. Fees from fiduciary transactions

b. All of the options are correct

c. Fees from deposit transactions

d. Fees from additional noninterest income

e. Fees from securities transactions

Back 11

b. All of the options are correct

Front 12

Securities purchased to provide short-term profits from short-term price movements are reported as:

Select one:

a. federal funds

b. investment securities

c. trading account assets

d. reverse repurchase agreements

e. due from depository institutions

Back 12

c. trading account assets

Front 13

A bank's ROE equals its ROA times its

Select one:

a. total assets divided by total equity capital

b. ratio of net after-tax income to total operating revenues

c. None of the options is correct

d. net profit margin

e. total operating revenues divided by total assets

Back 13

a. total assets divided by total equity capital

Front 14

The TRC Bank has a net profit margin of 7.5%, an asset utilization ratio of 18%, and an equity multiplier of 20. What is the bank's ROE?

Select one:

a. 27%

b. 4%

c. 1,35%

d. 3,6%

e. 6%

Back 14

a. 27%

Front 15

A larger proportion of small and medium-size bank's loans tend to be,

Select one:

a. higher-interest business loans

b. lower-interest-business loans

c. higher-interest consumer loans

d. lower-interest consumer loans

e. None of the options is correct

Back 15

c. higher-interest consumer loans

Front 16

What do loans and security investments represent for a bank?

Select one:

a. Earning assets

b. Market-valued assets

c. None of the options is correct

d. Contra-assets

e. Discretionary accounts

Back 16

a. Earning assets

Front 17

Which of the following ratios can be used to measure a bank's credit risk?

Select one:

a. Cash and equivalents/Total loans and leases

b. Net loans' duration/Total assets

c. Nonperforming assets/Total loans and leases e

d. Interest sensitive assets/Interest sensitive liabilities

e. Total assets/Number of full time employees

Back 17

c. Nonperforming assets/Total loans and leases e

Front 18

The risk that a financial institution may be forced to borrow emergency funds excessive cost to cover its immediate cash needs is known as:

Select one:

a. credit risk

b. liquidity risk

c. None of the options is correct

d. market risk

e. interest-rate risk

Back 18

b. liquidity risk

Front 19

The risk of deterioration in the value of a financial firm's assets as a result of fluctuating currency prices is known as:

Select one:

a. political risk

b. foreign-exchange risk

c. basis risk

d. country risk

Back 19

b. foreign-exchange risk

Front 20

Paul Smith is planning to invest in the stock of Capital City Bank. He is examining the ratios of interest sensitive assets to interest sensitive liabilities and uninsured deposits to total deposits. What type of risk is Paul attempting to measure with these ratios?

Select one:

a. Liquidity risk

b. Interest rate risk

c. Operational risk

d. Legal risk

e. Credit risk

Back 20

b. Interest rate risk

Front 21

Chaos State Bank has an old computer system which can go down for weeks at a time, leaving customers unable to access their accounts online. Many customers have left the bank for banks with more reliable computer systems. Which type of risk would this be an example of?

Select one:

a. Strategic risk

b. Reputation risk

c. Compliance risk

d. Legal risk

e. Operational risk

Back 21

e

Front 22

rian Smith, the CEO of Carter National Bank, anticipates that interest rates may fall in the future and as a result buys $100 million in 30 year Treasury Bonds for the bank's security portfolio. Instead, interest rates rise, causing the value of these bonds to fall. This would be an example of which of the following types of risk?

Select one:

a. Operational risk

b. Legal risk

c. Reputation risk

d. Compliance risk

e.
Strategic risk

Back 22

e

Front 23

The net interest margin of a bank is influenced by:

Select one:

a. changes in interest expense on deposits and other borrowed funds

b. changes in the volume of interest-bearing assets and interest-bearing liabilities

c. changes in the level of interest rates

d. All of the options are correct

e. changes in interest income from loans and investments

Back 23

D

Front 24

Which of the following types of banks tend to enjoy the highest net-interest margins in the industry?

Select one:

a. Federally chartered banks

b. Virtual banks

c. Large commercial banks

d.
investment banks

e. Small-sized banks

Back 24

E

Front 25

A financial institution with a low ROA can achieve a relatively high ROE through:

Select one:

a. high leverage

b. tax swap

c. None of the options is correct

d. low leverage

e. high owner's capital

Back 25

A

Front 26

What is the equity multiplier for a bank whose equity is equal to 10 percent of total assets?

Select one:

a. 30

b. 20

c. 10

d. 90

e. 15

Back 26

C