FINA 3317 - Chapter 20 | Questions with 100% Verified Answers
| Latest Update 2026/2027
Question: A bank has total assets of $620 million and $68.2 million in equity. The managers of the bank realize
that $18.6 million of its $372 million loan portfolio will not be repaid. After the bank charges off these
unexpected bad loans, the bank's equity to asset ratio will be __________________.
Answer: 8.25 percent
Question: The risk that an unanticipated increase in liability withdrawals may cause an FI to have to sell assets
at fire sale prices is an example of:
Answer: liquidity risk.
Question: Interest rate risk is probably greatest at which of the following intermediaries?
Answer: Savings institutions
Question: Second Bank now offers web banking services. Last week a computer glitch posted all web deposit
transfers to the wrong accounts. This is an example of:
Answer: operational risk.
Question: MONDEX spent $50 million to develop the Smart Card, but tests of prototypes in New York and
Canadian cities revealed very little consumer interest. This is an example of:
Answer: technological risk.
Question: Rank order the net charge-off rates from high to low for the following loan types: I. C&I loans II.
Credit card loans III. Real estate loans
Answer: II, I, III
Question: Repurchase agreements (repos) are used extensively to finance security holdings. In 2007, many
investment banks and other financial institutions were unable to roll over their maturing repurchase
agreements during the subprime mortgage crisis. This inability to get new repo financing is an example of:
Answer: liquidity risk.
Question: A thrift makes long-term fixed-rate mortgages funded with short-term deposits and then interest
rates rise. Which of the following is true?
Answer: Profitability would decline
Question: In year one, a bank facing reinvestment risk earns 11 percent on its assets and pays 10 percent on
its liabilities. In year two, the bank had a negative profit spread of 100 basis points. Which of the following is
true? In year two,
Answer: rates fell 200 basis points.
Question: For most financial institutions, present value uncertainty is the risk that:
Answer: the market value of an asset (liability) will decline if interest rates increase.
Question: In October 2005, the Bankruptcy Reform Act was signed into law. This law primarily:
Answer: made it more difficult for many debtors to receive bankruptcy protection.
| Latest Update 2026/2027
Question: A bank has total assets of $620 million and $68.2 million in equity. The managers of the bank realize
that $18.6 million of its $372 million loan portfolio will not be repaid. After the bank charges off these
unexpected bad loans, the bank's equity to asset ratio will be __________________.
Answer: 8.25 percent
Question: The risk that an unanticipated increase in liability withdrawals may cause an FI to have to sell assets
at fire sale prices is an example of:
Answer: liquidity risk.
Question: Interest rate risk is probably greatest at which of the following intermediaries?
Answer: Savings institutions
Question: Second Bank now offers web banking services. Last week a computer glitch posted all web deposit
transfers to the wrong accounts. This is an example of:
Answer: operational risk.
Question: MONDEX spent $50 million to develop the Smart Card, but tests of prototypes in New York and
Canadian cities revealed very little consumer interest. This is an example of:
Answer: technological risk.
Question: Rank order the net charge-off rates from high to low for the following loan types: I. C&I loans II.
Credit card loans III. Real estate loans
Answer: II, I, III
Question: Repurchase agreements (repos) are used extensively to finance security holdings. In 2007, many
investment banks and other financial institutions were unable to roll over their maturing repurchase
agreements during the subprime mortgage crisis. This inability to get new repo financing is an example of:
Answer: liquidity risk.
Question: A thrift makes long-term fixed-rate mortgages funded with short-term deposits and then interest
rates rise. Which of the following is true?
Answer: Profitability would decline
Question: In year one, a bank facing reinvestment risk earns 11 percent on its assets and pays 10 percent on
its liabilities. In year two, the bank had a negative profit spread of 100 basis points. Which of the following is
true? In year two,
Answer: rates fell 200 basis points.
Question: For most financial institutions, present value uncertainty is the risk that:
Answer: the market value of an asset (liability) will decline if interest rates increase.
Question: In October 2005, the Bankruptcy Reform Act was signed into law. This law primarily:
Answer: made it more difficult for many debtors to receive bankruptcy protection.
