FIN 480 UPDATED SCRIPTED EXAM QUESTIONS AND
SOLUTIONS GUARANTEE A+
✔✔The Glass-Steagall Act of 1933 - ✔✔Required commercial banks to sell off their
investment banking operations
✔✔D - ✔✔Which of the following would be a bank's assets?
A. Mortgage loans
B. Reserves
C. Demand deposits
D. Both A and B
E. A, B, and C are all bank assets
✔✔5.55% and 5% - ✔✔A bank has two types of assets, risk-free cash and risky loans.
The bank regulator assigns a risk weight of either 0 or 1 to assets. Suppose this bank
has $1000 of cash and $9000 of loans and tier 1 capital = $500. What is this bank's
capital adequacy ratio? What is the leverage ratio?
✔✔A - ✔✔Money eliminates the need for:
A. a search for a double coincidence of wants
B. government regulation
C. specialization of labor
D. financial intermediaries
✔✔C - ✔✔In the last 30 years, the number of banks with branches has
_______________, while the number of unit banks has ___________________.
A. Increased; increased
B. Decreased; decreased
C. Increased; decreased
D. Decreased; increased
✔✔A - ✔✔The majority of banks have a ________________________
A. State charter
B. Federal charter
C. Both a state and a federal charter
✔✔B - ✔✔The U.S. has many banks because:
A. small banks are more profitable than large banks
B. many states outlawed bank branching
, C. the Great Depression caused the failure of the large banks; leaving many small
banks
D. the Glass-Steagall Act forced the splitting up of large banks
✔✔B - ✔✔An investment with a large spread between possible payoffs will generally
have:
A. a low expected return
B. a high standard deviation
C. a low value at risk
D. both a low expected return and a low value at risk
✔✔asset; liability - ✔✔A mortgage loan appears as a ____________________ on a
bank's balance sheet and as a _________________________ on a person's balance
sheet.
✔✔B - ✔✔Our measure of a bank's profitability is "net interest income". This is based
on the idea that
A. A bank pays higher interest rates to deposits than it receives from loans
B. A bank receives higher interest rates on its assets relative to what it pays for its
liabilities
C. A bank's liabilities earn interest income
✔✔D - ✔✔Which of the following statements is not true?
A. The largest source of funds for banks to lend comes from the owner's capital
B. Transaction deposits make up less than 10 percent of banks sources of funds
C. The largest sources of funds for banks are non-transactions accounts
D. Borrowings are a larger source of funds for banks than transaction deposits
✔✔A - ✔✔A rumor starts that says a bank has suffered significant losses and may not
be able to honor its promises to depositors. This causes most of the depositors to line
up in front of the bank the next morning wanting to withdraw their deposits. This is an
example of:
A. liquidity risk
B. operational risk
C. interest rate risk
D. credit risk
✔✔B - ✔✔Interest rate risk arises because:
A. A bank's assets tend to be more interest rate sensitive than its liabilities
B. A bank's liabilities tend to be more interest rate sensitive than its assets
C. A bank's capital tends to increase when interest rates rise
SOLUTIONS GUARANTEE A+
✔✔The Glass-Steagall Act of 1933 - ✔✔Required commercial banks to sell off their
investment banking operations
✔✔D - ✔✔Which of the following would be a bank's assets?
A. Mortgage loans
B. Reserves
C. Demand deposits
D. Both A and B
E. A, B, and C are all bank assets
✔✔5.55% and 5% - ✔✔A bank has two types of assets, risk-free cash and risky loans.
The bank regulator assigns a risk weight of either 0 or 1 to assets. Suppose this bank
has $1000 of cash and $9000 of loans and tier 1 capital = $500. What is this bank's
capital adequacy ratio? What is the leverage ratio?
✔✔A - ✔✔Money eliminates the need for:
A. a search for a double coincidence of wants
B. government regulation
C. specialization of labor
D. financial intermediaries
✔✔C - ✔✔In the last 30 years, the number of banks with branches has
_______________, while the number of unit banks has ___________________.
A. Increased; increased
B. Decreased; decreased
C. Increased; decreased
D. Decreased; increased
✔✔A - ✔✔The majority of banks have a ________________________
A. State charter
B. Federal charter
C. Both a state and a federal charter
✔✔B - ✔✔The U.S. has many banks because:
A. small banks are more profitable than large banks
B. many states outlawed bank branching
, C. the Great Depression caused the failure of the large banks; leaving many small
banks
D. the Glass-Steagall Act forced the splitting up of large banks
✔✔B - ✔✔An investment with a large spread between possible payoffs will generally
have:
A. a low expected return
B. a high standard deviation
C. a low value at risk
D. both a low expected return and a low value at risk
✔✔asset; liability - ✔✔A mortgage loan appears as a ____________________ on a
bank's balance sheet and as a _________________________ on a person's balance
sheet.
✔✔B - ✔✔Our measure of a bank's profitability is "net interest income". This is based
on the idea that
A. A bank pays higher interest rates to deposits than it receives from loans
B. A bank receives higher interest rates on its assets relative to what it pays for its
liabilities
C. A bank's liabilities earn interest income
✔✔D - ✔✔Which of the following statements is not true?
A. The largest source of funds for banks to lend comes from the owner's capital
B. Transaction deposits make up less than 10 percent of banks sources of funds
C. The largest sources of funds for banks are non-transactions accounts
D. Borrowings are a larger source of funds for banks than transaction deposits
✔✔A - ✔✔A rumor starts that says a bank has suffered significant losses and may not
be able to honor its promises to depositors. This causes most of the depositors to line
up in front of the bank the next morning wanting to withdraw their deposits. This is an
example of:
A. liquidity risk
B. operational risk
C. interest rate risk
D. credit risk
✔✔B - ✔✔Interest rate risk arises because:
A. A bank's assets tend to be more interest rate sensitive than its liabilities
B. A bank's liabilities tend to be more interest rate sensitive than its assets
C. A bank's capital tends to increase when interest rates rise
