BFIN 357 Final Exam Study Guide | Business Finance Comprehensive Review & Practice
Questions 2026
An increase in interest rates could reduce a commercial bank's expected cash flows because the
interest paid on deposits may increase to a greater degree than the interest earned on loans
and investments.
a. True b. False - ✔✔a. True
Whether a bank has a temporary or a permanent need for funds, the decision should be to
borrow in the federal funds market.
a. True b. False - ✔✔b. False
Prussian Bank has assets with an average duration of 2.78 years and liabilities with an average
duration of 3.00 years. The market value of Prussian's assets is $100 million, and the market
value of Prussian's liabilities is $150 million. Prussian's duration gap is
a. -1.72.
b. 0.78.
c. 1.72.
d. 1.17.
e. None of these choices are correct. - ✔✔a. -1.72
The value of a commercial bank can be modeled as the present vale of its future cash flows.
a. True b. False - ✔✔a. True
Which of the following was not a provision of the Depository Institutions Deregulation and
Monetary Control Act (DIDMCA)?
a. the allowance of checkable deposits for all depository institutions
b. new lending flexibility for depository institutions
,c. the phaseout of deposit rate ceilings
d. the permission of depository institutions to offer money market deposit accounts (MMDAs)
e. All of these choices were provisions of DIDMCA. - ✔✔d. the permission of depository
institutions to offer money market deposit accounts (MMDAs)
Shortly after the Reigle-Neal Act was passed, many interstate banks divided their operations so
that their branches reported to the state subsidiaries rather than to the main holding company.
a. True b. False - ✔✔b. False
If the risk premium on a commercial bank rises, so will the required rate of return by investors
who invest in the bank.
a. True b. False - ✔✔a. True
The loan loss provision should increase during periods when loan losses are more likely, such as
during a recessionary period.
a. True b. False - ✔✔a. True
A bank can usually simultaneously maximize its return on assets and minimize credit risk.
a. True b. False - ✔✔b. False
Banks with relatively ________ ROAs often incur ________ noninterest expenses.
a. Answer [low; excessive] and [high; few] are correct.
b. high; excessive
c. high; few
d. low; excessive
e. low; few - ✔✔a. Answer [low; excessive] and [high; few] are correct.
, The largest 100 banks account for about ________ percent of all bank assets.
a. 50
b. 10
c. 75
d. 100
e. 25 - ✔✔c. 75
The main use of bank funds is for
a. fixed assets.
b. cash.
c. investment in securities.
d. bank loans.
e. None of these choices are correct. - ✔✔d. bank loans.
Which of the following is not a corrective action taken by regulators when a bank is identified as
a problem bank?
a. Regulators have the authority to take legal action against a problem bank if the bank does not
comply with their suggested remedies.
b. Regulators may examine such banks frequently and thoroughly.
c. Regulators can require that additional financial information be periodically updated to allow
continued monitoring.
d. Regulators may request that a bank boost its capital level or delay its plans to expand.
e. All of these choices are possible corrective actions taken by bank regulators. - ✔✔e. All of
these choices are possible corrective actions taken by bank regulators.
________ is not a method used to assess interest rate risk.
a. Regression analysis
Questions 2026
An increase in interest rates could reduce a commercial bank's expected cash flows because the
interest paid on deposits may increase to a greater degree than the interest earned on loans
and investments.
a. True b. False - ✔✔a. True
Whether a bank has a temporary or a permanent need for funds, the decision should be to
borrow in the federal funds market.
a. True b. False - ✔✔b. False
Prussian Bank has assets with an average duration of 2.78 years and liabilities with an average
duration of 3.00 years. The market value of Prussian's assets is $100 million, and the market
value of Prussian's liabilities is $150 million. Prussian's duration gap is
a. -1.72.
b. 0.78.
c. 1.72.
d. 1.17.
e. None of these choices are correct. - ✔✔a. -1.72
The value of a commercial bank can be modeled as the present vale of its future cash flows.
a. True b. False - ✔✔a. True
Which of the following was not a provision of the Depository Institutions Deregulation and
Monetary Control Act (DIDMCA)?
a. the allowance of checkable deposits for all depository institutions
b. new lending flexibility for depository institutions
,c. the phaseout of deposit rate ceilings
d. the permission of depository institutions to offer money market deposit accounts (MMDAs)
e. All of these choices were provisions of DIDMCA. - ✔✔d. the permission of depository
institutions to offer money market deposit accounts (MMDAs)
Shortly after the Reigle-Neal Act was passed, many interstate banks divided their operations so
that their branches reported to the state subsidiaries rather than to the main holding company.
a. True b. False - ✔✔b. False
If the risk premium on a commercial bank rises, so will the required rate of return by investors
who invest in the bank.
a. True b. False - ✔✔a. True
The loan loss provision should increase during periods when loan losses are more likely, such as
during a recessionary period.
a. True b. False - ✔✔a. True
A bank can usually simultaneously maximize its return on assets and minimize credit risk.
a. True b. False - ✔✔b. False
Banks with relatively ________ ROAs often incur ________ noninterest expenses.
a. Answer [low; excessive] and [high; few] are correct.
b. high; excessive
c. high; few
d. low; excessive
e. low; few - ✔✔a. Answer [low; excessive] and [high; few] are correct.
, The largest 100 banks account for about ________ percent of all bank assets.
a. 50
b. 10
c. 75
d. 100
e. 25 - ✔✔c. 75
The main use of bank funds is for
a. fixed assets.
b. cash.
c. investment in securities.
d. bank loans.
e. None of these choices are correct. - ✔✔d. bank loans.
Which of the following is not a corrective action taken by regulators when a bank is identified as
a problem bank?
a. Regulators have the authority to take legal action against a problem bank if the bank does not
comply with their suggested remedies.
b. Regulators may examine such banks frequently and thoroughly.
c. Regulators can require that additional financial information be periodically updated to allow
continued monitoring.
d. Regulators may request that a bank boost its capital level or delay its plans to expand.
e. All of these choices are possible corrective actions taken by bank regulators. - ✔✔e. All of
these choices are possible corrective actions taken by bank regulators.
________ is not a method used to assess interest rate risk.
a. Regression analysis
