UCE (Economic Finance) EXAMBANK
WITH FREQUENTLY TESTED QUESTIONS
AND VERIFIED ANSWERS.
Assuming First National Bank owns 100 percent of
Mortgages R Us, which of the following best describes the
mortgage company?
a) Statutory subsidiary
b) Operating subsidiary
c) Financial subsidiary
d) b and c
Verified Answer -b - Operating subsidiary. Operating
subsidiaries engage in activities that
are part of, or incidental to, the
business of banking. Financial
subsidiaries engage in activities that
are financial in nature. A financial
subsidiary does not engage solely in
activities that national banks may
engage in directly. See Related
Organizations Handbook, pg. 7
When reviewing the UBPR, which statement is true about banks that elect
Subchapter S status for income taxes?
,a) A flat 28% rate is applied to cash dividends
b) The UBPR adjusts after tax earnings and dividends used in the ratios
c) Dollar data displayed in the UBPR is adjusted for Subchapter S status
d) The UBPR does not adjust after tax earnings and dividends used in the
ratios
Verified Answer -b - See UBPR User's Guide, pg. III-4
OCC Bank sweeps all uninvested cash from discretionary accounts into a
proprietary money market account with a current yield of 1.50%. The rate
paid on this account is set by the board. Management feels that this
arrangement is acceptable as this is the rate that they pay to their
commercial customers as well. State law defers to 12 CFR 9. Is this
permissible?
A) Yes
B) No
Verified Answer -Answer: No (12 CFR 9.10(a)).
Which of the following maximum interest rates are available to service
members upon request?
a) 6%
b) 7%
c) 8%
d) 9%
Verified Answer -a - 6%. Per the Servicemember's Civil Relief Act, an
obligation that is incurred before entering military service shall not bear
interest at a rate in excess of 6 percent. See 50 USC Appendix, §527(a)(1)
,True/False:
A bank may take shares of its holding company stock as collateral on a
loan.
Verified Answer -True: While 12 USC 83 prohibits a bank from making any
loan on the shares of its own capital stock, there is no prohibition against
holding company stock. See 12 USC 83.
Loans to a bank's own executive officers, for other than housing and
educational purposes, are subject to which of the following limitations in
amount?
A. No limitation.
B. Higher of $25M or 2.5% of capital and surplus, but in no event greater
than $100M.
C. $1OM without prior board approval.
D. Higher of $500M or 15% of capital and unimpaired surplus.
E. Bank's legal lending limit.
Verified Answer -Answer - B. 12 CFR 215.5(c)(4) contains the specific
limitations as stated in the correct answer.
How much can the bank lend to one customer if the bank takes U.S.
Treasury Notes as collateral:
A. 15% of lending limit
B. 25% of lending limit
C. 100% of lending limit
D. not subject to lending limit
, E. subject to amount of market value of instrument
Verified Answer -E. subject to amount of market value of instrument; 12
CFR 32.3(c)(3)(I)
Which of the following is included in the risk assessment for operational
risk? Choose all that apply.
I. Employee turnover
II. Information technology
III. Compensation programs
IV. Internal control environment
Verified Answer -I, II, and IV - The quantity of operational risk and the
quantity of operational risk management are heavily influenced by the
quality and effectiveness of a bank's system of internal control.
Compensation programs are primarily considered when rating strategic
risk. See Community Bank Supervision Handbook, Appendix A
During a recent asset quality review, an examiner downgraded a loan
from special mention to doubtful. What should have been done with the
accrued interest on the credit?
a) A reversal of accrued interest proportionate to the amount designated as
doubtful
b) Nothing; the loan should continue to accrue interest
c) A reduction to interest income only
d) A reversal of all previously accrued but uncollected interest
Verified Answer -d - A reversal of all previously accrued but uncollected
interest: A risk rating of doubtful results in automatic nonaccrual status. In
accordance with GAAP, all previously accrued but uncollected interest
should be reversed. The appropriate journal entry for current-year interest
WITH FREQUENTLY TESTED QUESTIONS
AND VERIFIED ANSWERS.
Assuming First National Bank owns 100 percent of
Mortgages R Us, which of the following best describes the
mortgage company?
a) Statutory subsidiary
b) Operating subsidiary
c) Financial subsidiary
d) b and c
Verified Answer -b - Operating subsidiary. Operating
subsidiaries engage in activities that
are part of, or incidental to, the
business of banking. Financial
subsidiaries engage in activities that
are financial in nature. A financial
subsidiary does not engage solely in
activities that national banks may
engage in directly. See Related
Organizations Handbook, pg. 7
When reviewing the UBPR, which statement is true about banks that elect
Subchapter S status for income taxes?
,a) A flat 28% rate is applied to cash dividends
b) The UBPR adjusts after tax earnings and dividends used in the ratios
c) Dollar data displayed in the UBPR is adjusted for Subchapter S status
d) The UBPR does not adjust after tax earnings and dividends used in the
ratios
Verified Answer -b - See UBPR User's Guide, pg. III-4
OCC Bank sweeps all uninvested cash from discretionary accounts into a
proprietary money market account with a current yield of 1.50%. The rate
paid on this account is set by the board. Management feels that this
arrangement is acceptable as this is the rate that they pay to their
commercial customers as well. State law defers to 12 CFR 9. Is this
permissible?
A) Yes
B) No
Verified Answer -Answer: No (12 CFR 9.10(a)).
Which of the following maximum interest rates are available to service
members upon request?
a) 6%
b) 7%
c) 8%
d) 9%
Verified Answer -a - 6%. Per the Servicemember's Civil Relief Act, an
obligation that is incurred before entering military service shall not bear
interest at a rate in excess of 6 percent. See 50 USC Appendix, §527(a)(1)
,True/False:
A bank may take shares of its holding company stock as collateral on a
loan.
Verified Answer -True: While 12 USC 83 prohibits a bank from making any
loan on the shares of its own capital stock, there is no prohibition against
holding company stock. See 12 USC 83.
Loans to a bank's own executive officers, for other than housing and
educational purposes, are subject to which of the following limitations in
amount?
A. No limitation.
B. Higher of $25M or 2.5% of capital and surplus, but in no event greater
than $100M.
C. $1OM without prior board approval.
D. Higher of $500M or 15% of capital and unimpaired surplus.
E. Bank's legal lending limit.
Verified Answer -Answer - B. 12 CFR 215.5(c)(4) contains the specific
limitations as stated in the correct answer.
How much can the bank lend to one customer if the bank takes U.S.
Treasury Notes as collateral:
A. 15% of lending limit
B. 25% of lending limit
C. 100% of lending limit
D. not subject to lending limit
, E. subject to amount of market value of instrument
Verified Answer -E. subject to amount of market value of instrument; 12
CFR 32.3(c)(3)(I)
Which of the following is included in the risk assessment for operational
risk? Choose all that apply.
I. Employee turnover
II. Information technology
III. Compensation programs
IV. Internal control environment
Verified Answer -I, II, and IV - The quantity of operational risk and the
quantity of operational risk management are heavily influenced by the
quality and effectiveness of a bank's system of internal control.
Compensation programs are primarily considered when rating strategic
risk. See Community Bank Supervision Handbook, Appendix A
During a recent asset quality review, an examiner downgraded a loan
from special mention to doubtful. What should have been done with the
accrued interest on the credit?
a) A reversal of accrued interest proportionate to the amount designated as
doubtful
b) Nothing; the loan should continue to accrue interest
c) A reduction to interest income only
d) A reversal of all previously accrued but uncollected interest
Verified Answer -d - A reversal of all previously accrued but uncollected
interest: A risk rating of doubtful results in automatic nonaccrual status. In
accordance with GAAP, all previously accrued but uncollected interest
should be reversed. The appropriate journal entry for current-year interest
