FIN 461 ACTUAL EXAM QUESTIONS WITH 100%
VERIFIED ANSWERS!!
Which of the following observations is NOT true of a liquid asset?
A. It can be turned into cash quickly.
B. Conversion to cash entails low transaction costs.
C. Conversion to cash happens with little or no loss in principal value.
D. It is traded in an active market.
E. Large transactions may move its market price substantially.
E. Large transactions may move its market price substantially.
Why do FIs face a return or interest earnings penalty by holding large amounts of assets such
as cash, T-bills, and T-bonds to reduce liquidity risk?
A. These assets carry a reserve requirement tax.
B. These assets offer low returns.
C. These assets offer higher returns that reflect their risk.
D. Inflation increases the purchasing power value of these assets.
E. All of the options.
B. These assets offer low returns.
Which of the following is considered to be the most liquid asset?
A. T-notes.
B. T-bills.
C. Cash.
D. T-bonds.
E. Wholesale CDs.
C. Cash.
,For a DI in the U.S. with $200 in assets and $180 in deposits, a liquid assets ratio of 15 percent
A. would require $27.00 in cash and liquid government securities.
B. would require $27.00 in liquid government securities.
C. would require $30.00 in cash and liquid government securities.
D. would require $30.00 in liquid government securities.
E. None of the options.
E. None of the options.
Buffer reserves at DIs are
A. reserves in excess of the minimum required reserves.
B. government securities that do not qualify as required reserves, but that can be converted
to cash quickly.
C. the portion of reserves that are calculated at a rate of ten percent of deposits.
D. non-government securities and loans that must be converted into cash.
E. the portion of life insurance company assets that require minimum reserves.
B. government securities that do not qualify as required reserves, but that can be converted to
cash quickly.
Which of the following is the result of using "sweep accounts" in which high reserve ratio
demand deposits are "swept" out of customers' accounts on Friday into higher interest-
bearing savings accounts?
A. Increased reserve requirements for the bank.
B. Higher average balances in a DI's demand deposit.
C. Lower required reserve holdings at the Federal Reserve.
D. Lower interest burden for the bank.
E. None of the options.
C. Lower required reserve holdings at the Federal Reserve.
,in October 2008, the opportunity cost of holding excess reserves for U.S. DIs
A. increased because new reserve requirements imposed by the Federal Reserve as a result of
the financial crisis.
B. decreased because subsidiary DIs were first allowed to issue commercial paper directly,
rather than through the parent holding company.
C. decreased because the Federal Reserve began to pay interest to DIs on excess reserves
held at the Fed.
D. increased because the Federal Reserve no longer accepted government securities as
meeting excess reserve requirements.
E. None of the options.
C. decreased because the Federal Reserve began to pay interest to DIs on excess reserves held
at the Fed.
Demand deposits
A. have the same amount of withdrawal risk as interest-bearing transaction accounts.
B. have less withdrawal risk than interest-bearing transaction accounts.
C. have more withdrawal risk than money market demand accounts.
D. have less withdrawal risk than money market demand accounts.
E. have the same amount of withdrawal risk as money market demand accounts.
C. have more withdrawal risk than money market demand accounts.
Why are passbook savings generally less liquid than demand deposits and NOW accounts?
A. They are noncheckable.
B. They usually involve physical presence at the institution for withdrawal.
C. The DI has the legal power to delay payment for as long as one month.
D. They tend to pay higher interest rates than demand deposits and NOW accounts.
E. All of the options.
E. All of the options.
, Medium term notes issued by a U.S. DI
A. generally have a maturity of five to seven years.
B. are a stable source of funds with low withdrawal risk.
C. are not subject to reserve requirements.
D. are not subject to deposit insurance.
E. All of the options.
E. All of the options.
The difference between the market value of assets and liabilities is the definition of the
A. accounting value of capital.
B. regulatory value of capital.
C. economic value of capital.
D. book value of net worth.
E. adjusted book value of net worth.
C. economic value of capital.
Regulatory-defined capital and required leverage ratios are based in whole or in part on
A. market value accounting concepts.
B. book value accounting concepts.
C. the net worth concept.
D. the economic meaning of capital.
E. None of the options.
B. book value accounting concepts
Each of the following is a function of capital EXCEPT
A. funding the branch and other real investments to provide financial services.
B. protecting the insurance fund and the taxpayers.
VERIFIED ANSWERS!!
Which of the following observations is NOT true of a liquid asset?
A. It can be turned into cash quickly.
B. Conversion to cash entails low transaction costs.
C. Conversion to cash happens with little or no loss in principal value.
D. It is traded in an active market.
E. Large transactions may move its market price substantially.
E. Large transactions may move its market price substantially.
Why do FIs face a return or interest earnings penalty by holding large amounts of assets such
as cash, T-bills, and T-bonds to reduce liquidity risk?
A. These assets carry a reserve requirement tax.
B. These assets offer low returns.
C. These assets offer higher returns that reflect their risk.
D. Inflation increases the purchasing power value of these assets.
E. All of the options.
B. These assets offer low returns.
Which of the following is considered to be the most liquid asset?
A. T-notes.
B. T-bills.
C. Cash.
D. T-bonds.
E. Wholesale CDs.
C. Cash.
,For a DI in the U.S. with $200 in assets and $180 in deposits, a liquid assets ratio of 15 percent
A. would require $27.00 in cash and liquid government securities.
B. would require $27.00 in liquid government securities.
C. would require $30.00 in cash and liquid government securities.
D. would require $30.00 in liquid government securities.
E. None of the options.
E. None of the options.
Buffer reserves at DIs are
A. reserves in excess of the minimum required reserves.
B. government securities that do not qualify as required reserves, but that can be converted
to cash quickly.
C. the portion of reserves that are calculated at a rate of ten percent of deposits.
D. non-government securities and loans that must be converted into cash.
E. the portion of life insurance company assets that require minimum reserves.
B. government securities that do not qualify as required reserves, but that can be converted to
cash quickly.
Which of the following is the result of using "sweep accounts" in which high reserve ratio
demand deposits are "swept" out of customers' accounts on Friday into higher interest-
bearing savings accounts?
A. Increased reserve requirements for the bank.
B. Higher average balances in a DI's demand deposit.
C. Lower required reserve holdings at the Federal Reserve.
D. Lower interest burden for the bank.
E. None of the options.
C. Lower required reserve holdings at the Federal Reserve.
,in October 2008, the opportunity cost of holding excess reserves for U.S. DIs
A. increased because new reserve requirements imposed by the Federal Reserve as a result of
the financial crisis.
B. decreased because subsidiary DIs were first allowed to issue commercial paper directly,
rather than through the parent holding company.
C. decreased because the Federal Reserve began to pay interest to DIs on excess reserves
held at the Fed.
D. increased because the Federal Reserve no longer accepted government securities as
meeting excess reserve requirements.
E. None of the options.
C. decreased because the Federal Reserve began to pay interest to DIs on excess reserves held
at the Fed.
Demand deposits
A. have the same amount of withdrawal risk as interest-bearing transaction accounts.
B. have less withdrawal risk than interest-bearing transaction accounts.
C. have more withdrawal risk than money market demand accounts.
D. have less withdrawal risk than money market demand accounts.
E. have the same amount of withdrawal risk as money market demand accounts.
C. have more withdrawal risk than money market demand accounts.
Why are passbook savings generally less liquid than demand deposits and NOW accounts?
A. They are noncheckable.
B. They usually involve physical presence at the institution for withdrawal.
C. The DI has the legal power to delay payment for as long as one month.
D. They tend to pay higher interest rates than demand deposits and NOW accounts.
E. All of the options.
E. All of the options.
, Medium term notes issued by a U.S. DI
A. generally have a maturity of five to seven years.
B. are a stable source of funds with low withdrawal risk.
C. are not subject to reserve requirements.
D. are not subject to deposit insurance.
E. All of the options.
E. All of the options.
The difference between the market value of assets and liabilities is the definition of the
A. accounting value of capital.
B. regulatory value of capital.
C. economic value of capital.
D. book value of net worth.
E. adjusted book value of net worth.
C. economic value of capital.
Regulatory-defined capital and required leverage ratios are based in whole or in part on
A. market value accounting concepts.
B. book value accounting concepts.
C. the net worth concept.
D. the economic meaning of capital.
E. None of the options.
B. book value accounting concepts
Each of the following is a function of capital EXCEPT
A. funding the branch and other real investments to provide financial services.
B. protecting the insurance fund and the taxpayers.
