FIN 480 UPDATED CORE EXAM MANUAL QUESTIONS
AND SOLUTIONS GUARANTEE A+
✔✔Credit risk is a bigger problem for - ✔✔A. larger banks because they have more
loans
B. larger banks because they tend to be geographically concentrated
**C. smaller banks because they tend to have less diversified markets
D. smaller banks because they have lower amounts of capital
✔✔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
✔✔Insurance companies perform all of the following functions performed by financial
intermediaries except: - ✔✔A. transferring risk.
B. pooling the resources of small savers.
C. making large investments.
**D. supplying liquidity.
✔✔In general, finance companies differ from banks - ✔✔A. In their composition of
assets
**B. In their composition of liabilities
C. In Their Composition of equity.
D. Both A and B
✔✔A bank run can occur when - ✔✔A. A bank is insolvent
B. A bank has liquidity risk
**C. A bank doesn't have enough cash on hand
D. A Bank's Leverage Increases
E. Both C and D are correct
✔✔A "lender of last resort" is - ✔✔A. A bank that people with bad credit can borrow
from
B. A large bank that lends to other banks
**C. The Federal Reserve in the U.S.
D. Another Name For Being Able To Borrow From Your Parents
✔✔Deposit insurance is believed to have - ✔✔A. Increased leverage
B. Decreased leverage
C. Increased risk taking.
D. Decreased risk taking.
**E. Both A and C
F. Both B and C
, ✔✔A bank has two types of assets, risk-free cash and risky loans. The regulator
assigns a risk weight of either 0 or 1 to assets. Suppose this bank has $100 of cash and
$200 of loans and tier 1 capital = $10. What is its capital adequacy ratio? - ✔✔A. 3.33%
**B. 5%
C. 10%
D. 12%
E. None of the Above
✔✔The Federal Reserve is - ✔✔A. The lender of last resort
B. A source of deposit insurance
C. A central bank
**D. Both A and C
E. All of the above
✔✔Price stability implies - ✔✔**A. Low levels of inflation
B. High levels of inflation.
C. Stock prices that don't change much
D. High Interest Rates
✔✔In general, if a central bank tries to increase economic growth, - ✔✔A. Inflation will
increase
B. Inflation will decrease.
C. Prices will decrease
D. Unemployment will decrease
**E. A and D are correct
✔✔If you withdraw money from your savings account, then ... - ✔✔A. The liabilities of
your bank decrease
B. Your assets decrease
C. The Fed's liabilities increase
D. Both A and C are correct
✔✔If you borrow money from your bank, then ... - ✔✔A. The assets of your bank
decrease
B. Your assets increase
C. The liabilities of your bank increase
D. Both A and C are correct
✔✔The federal funds rate is - ✔✔A. The maximum interest rate that banks are allowed
to charge
B. The rate that banks charge each other for overnight loans
C. The interest rate the FOMC tries to influence with monetary policy
**D. Both B and C are correct
AND SOLUTIONS GUARANTEE A+
✔✔Credit risk is a bigger problem for - ✔✔A. larger banks because they have more
loans
B. larger banks because they tend to be geographically concentrated
**C. smaller banks because they tend to have less diversified markets
D. smaller banks because they have lower amounts of capital
✔✔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
✔✔Insurance companies perform all of the following functions performed by financial
intermediaries except: - ✔✔A. transferring risk.
B. pooling the resources of small savers.
C. making large investments.
**D. supplying liquidity.
✔✔In general, finance companies differ from banks - ✔✔A. In their composition of
assets
**B. In their composition of liabilities
C. In Their Composition of equity.
D. Both A and B
✔✔A bank run can occur when - ✔✔A. A bank is insolvent
B. A bank has liquidity risk
**C. A bank doesn't have enough cash on hand
D. A Bank's Leverage Increases
E. Both C and D are correct
✔✔A "lender of last resort" is - ✔✔A. A bank that people with bad credit can borrow
from
B. A large bank that lends to other banks
**C. The Federal Reserve in the U.S.
D. Another Name For Being Able To Borrow From Your Parents
✔✔Deposit insurance is believed to have - ✔✔A. Increased leverage
B. Decreased leverage
C. Increased risk taking.
D. Decreased risk taking.
**E. Both A and C
F. Both B and C
, ✔✔A bank has two types of assets, risk-free cash and risky loans. The regulator
assigns a risk weight of either 0 or 1 to assets. Suppose this bank has $100 of cash and
$200 of loans and tier 1 capital = $10. What is its capital adequacy ratio? - ✔✔A. 3.33%
**B. 5%
C. 10%
D. 12%
E. None of the Above
✔✔The Federal Reserve is - ✔✔A. The lender of last resort
B. A source of deposit insurance
C. A central bank
**D. Both A and C
E. All of the above
✔✔Price stability implies - ✔✔**A. Low levels of inflation
B. High levels of inflation.
C. Stock prices that don't change much
D. High Interest Rates
✔✔In general, if a central bank tries to increase economic growth, - ✔✔A. Inflation will
increase
B. Inflation will decrease.
C. Prices will decrease
D. Unemployment will decrease
**E. A and D are correct
✔✔If you withdraw money from your savings account, then ... - ✔✔A. The liabilities of
your bank decrease
B. Your assets decrease
C. The Fed's liabilities increase
D. Both A and C are correct
✔✔If you borrow money from your bank, then ... - ✔✔A. The assets of your bank
decrease
B. Your assets increase
C. The liabilities of your bank increase
D. Both A and C are correct
✔✔The federal funds rate is - ✔✔A. The maximum interest rate that banks are allowed
to charge
B. The rate that banks charge each other for overnight loans
C. The interest rate the FOMC tries to influence with monetary policy
**D. Both B and C are correct
