Fin 453- Exam 3
With ______________ lending and borrowing, there is no need for a bank account or a credit check.
decentralized
What does DeFi stand for?
decentralized finance
While it is helpful to understand how Ethereum works to better visualize the ecosystem, you do not need to be an Ethereum expert to utilize the tools offered by ______.
DeFi
The companies also will have to comply with certain rules whenever its management submits proposals to shareholders that will be subject to a shareholder vote; this information must filed through what SEC system?
EDGAR system
SEC rules require companies to file annual reports on what?
Form 10-K
SEC rules require companies to file quarterly reports on what?
Form 10-Q
Who previously required entities to recognize credit losses when it was probable that a loss had already been incurred?
GAAP
What guide applies to the description of business portions of those bank holding company registration statements for which financial statements are required?
Guide 3
In 1946, the U.S. Supreme Court established precedent for the definition of an investment contract. This became know as the ________ _______.
Howey test
What is the definition of public address?
The address where coins or tokens are sent or received
What is the definition of hash?
The process of collapsing all the data in the previous block of transactions into a unique digital fingerprint
Entities still have the option to apply a qualitative assessment of reporting unit to determine if a quantitative impairment test is what?
required
What does Dapps stand for?
Decentralized Applications
_____________ ________ _______ are unique in the sense that they require neither the borrower nor the lender to identify themselves.
Decentralized loan platforms
How many prongs are there of the Howey test?
4
What is Ethereum?
a global, open-source platform for decentralized applications.
The decentralization of public blockchains doesn't fit which prongs of the Howey test?
2 and 4
How many primary tasks are in the FAS 5 general reserve calculation?
3
How many valuation methods are there for FAS 114 Loan Impairments?
3
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13: Financial Instruments—Credit Losses, which was codified as section ______ of the accounting standards codification.
326
The initial population of banks considered here includes regulated financial institutions traded on a Major Public Exchange (NYSE, NASDAQ, OTC), with total assets as of 12/31/2019 of less than $_____ Billion.
400
How many events can occur to make a company file Form 8-K?
9
What is the definition of block?
A batch of transactions added to a blockchain at certain intervals
What is the definition of transaction?
A change of state- either money changing hands or a change in data
What is the definition of node?
A computer and related software that relays transactions on a network of other computers
In banking terms, what does ACL stand for?
Allowance for Credit Losses
Under what, the result is over recognition of interest income during the holding periods before the call and in recognition of loss during the period when the call occurs?
current GAAP
What is the definition of private key?
Created with the public key to encrypt or send transactions; only known by the owner of the key
What are the primary tasks for the FAS 5 general reserve calculation?
Identifying an appropriate segmentation of homogenous loan pools, calculating appropriate historical loss rates, and determining appropriate qualitative or environmental adjustments
What is the definition of mining?
Process of supplying computing power to solve complex math problems in order to provide network security with an expectation of reward
In banking terms, what does PCD stand for?
Purchased Credit Deteriorated
What is the definition of consensus?
Reaching agreement that a block is valid
___________ __________ systems require users to have bank accounts to utilize their services, a luxury that many people do not have.
Traditional financial
What is the definition of public key?
Used to prove digital signature came from a private key
What is the definition of Proof of work(PoW)?
a consensus algorithm requiring miners to expend energy to solve complex math problems
What is the definition of Proof of stake(PoS)?
a consensus algorithm requiring nodes to stake crypto assets (similar to posting a bond)
What is the definition of blockchain?
a database consisting of blocks of transactions linked together with cryptographic hashes maintained by a distributed network of peers who all agree on the same version
What is the definition of Distributed ledger technology(DLT)?
a database that is synchronized among network peers, which all agree on the same version
What is the definition of cryptocurrency?
a digital asset cryptographically generated ad secured by a distributed ledger (securities tokens, nonfungible tokens)
What is the definition of privacy coins?
a digital asset whose transaction details, such as amounts and sending and receiving addresses, are obfuscated
What is the definition of crypto assets?
a digital asset with store of value and medium of exchange properties (bitcoin, ether, dash)
The new standard relates the misalignment of accounting and economics with transactions by requiring ___________ to the earliest call date.
amortization
What are the prongs of the Howey test?
a person invests money, in a common enterprise, with the expectation of profit, and solely from the efforts of a third party.
What is the definition of miner?
a person or an organization who engages in mining with specialized computers
What is the allowance for loan losses ("allowance")?
a valuation allowance for probable incurred credit losses
Fair Market Value of Collateral for FAS 114 Loan Impairments starts with what?
an assumption that the repayment of the loan will require the sale of the collateral
How is the loan pricing method done when being used to calculate the individual impairment of the FAS 114?
an institution derives the value from a loan's observable market price by soliciting other institutions to see what they would pay for the loan
DeFi offers exciting opportunities and has the potential to _______ a truly open, transparent, and immutable financial infrastructure.
create
During the financial crisis of 2008, both preparers and users of financial statements were frustrated that ______ ______ accounting was not more forward-looking.
credit loss
The new _______ ______ guidance will be effective for the Bancorp's year ending December 31, 2023.
credit loss
________ assets are a new type of asset that anyone in the world can receive, send, and earn by voluntarily participating in public blockchains.
crypto
What is the definition of digital assets?
anything that exists in binary or electronic format that the owner has the right to use (a photo, song, document)
The better you understand _______, the better you will understand how other cryptocurrencies and blockchains work.
bitcoin.
What do tokens do?
built on top of an existing blockchain
Under current GAAP, premiums and discounts are amortized and accreted over contractual life, not to ______ ______.
call date
Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be ___________.
charged-off
Substantially all loans are secured by specific items of _________ including residences, commercial real estate, land development, business assets and consumer assets.
collateral
Now, under ASC 326, entities must record estimates of ________ expected credit losses over the life of their financial assets.
current
On Ethereum, software developers can write smart contracts that control ________ _______ through a set of criteria and are accessible anywhere in the world.
digital value
Some stakeholders observed that significant premiums on assets exist, particularly on instruments issued by municipalities that are likely to be repaid _______ _______ maturity.
earlier than
A what is not required to utilize a discounted cash flow method to estimate expected credit losses?
entity
Many protocols and applications use _________ data sources and special admin keys to manage the system, conduct smart contract upgrades, or even perform emergency shutdowns.
external
DeFi may lead to a paradigm shift in the financial industry and potentially contribute toward a more robust, open, and transparent __________ ____________.
financial infrastructure
Borrowing from banks comes with other restrictions such as what?
having a good credit score and having sufficient collateral to convince the banks that one is credit-worthy and able to repay a loan
What does law of private keys mean?
if you control your private keys, you own your crypto assets, and if you do not control your private keys, you do not own your crypto assets
An ___________ ______ is recognized for any excess of carrying value over fair value of the goodwill or the indefinite-lived intangible asset.
impairment loss
On average, those institutions without an acquisition since 2017 resulted in an increase of 21% while those with an acquisition showed a(n) _________ of 49%
increase
Federally chartered banks and thrifts may participate in what?
independent node verification networks and the use of stablecoins for payment activities
The majority of banks have how much in assets?
less than 10 billion
Of the methods used to calculate the individual impairment of the FAS 114 loan which method is most rarely used?
loan pricing
_______ are an essential part of the DeFi ecosystem
loans
What is the definition of consensus algorithm?
mechanism by which a blockchain network reaches agreement on validity of transactions and the entire state of the blockchain
Additional interim periods may be reported to keep the information from being what?
misleading
Guide 3 has not been substantively updated for how long?
more than 30 years
DeFi Dapps enable users to combine their services to open _________ possibilities.
multiple
What is the definition of coins?
native currency of a blockchain
Are all blockchains the same?
no
Most DeFi financial services are deployed where?
on the ethereum platform
Crypto asset and blockchain development have geometrically evolved because of their largely ___________ nature.
open-source
Management estimates the allowance balance required using what?
past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors
All ___________ are not created equally, and acquisition activity and loan balance composition are important considerations.
portfolios
Finance professionals have to be able to do what with blockchains and crypto assets?
recognize and understand the differences
DeFi is not a single product or company but is instead a set of products and services that acts as a ____________ for institutions ranging from banking, insurance, bonds and money markets.
replacement
Working through the available portfolio data is key to determining if _________ ______ are supportable and if additional reserves, that impact retained earnings, are warranted.
reserve ratios
Some companies qualify as "smaller reporting company" or an "emerging growth company," and are eligible to rely on ________ __________ requirements for these reports.
scaled disclosure
By default, most coins or tokens will be considered ___________.
securities
A ________ ________ is a programmable contract that allows two counterparties to set conditions of a transaction without needing to trust another third party for the execution.
smart contract
What is the definition of a wallet?
software or hardware that generates and stores private keys and their associated public keys
In 2017, the SEC issued the DAO report, which stated what?
that coins and tokens are securities under the Howey test
Estimates associated with what are particularly susceptible to material change in the near term?
the allowance for loan losses, fair values of foreclosed real estate, loan servicing rights, investment securities, deferred tax assets, goodwill, and the status of contingencies
What is DeFi?
the movement that allows users to utilize financial services such as borrowing, lending, and trading without the need to rely on centralized entities
Crypto assets derive their name from what?
the use of cryptography to secure blockchains without a third party and without having to trust the participants
Present value of future cash flows for the FAS 114 loan impairments should be used when?
there is an expectation of cash payments from the borrower
Dozens of attributes differ from one blockchain to another, and there are _________ of blockchains and crypto assets.
thousands
Why will federally chartered banks and thrifts participate in the use of crypto assets?
to conduct payment activities and other bank-permissible functions
A smart contract bypasses the need to have a trusted third-party intermediary (lawyers, escrow agents, etc) to send the ______ _____ and made the process transparent to all involved parties.
trust fund
Smart contracts can have security issues that may allow for what?
unintended usage, and scalability issues limit the number of users.
The allowance for credit losses may be determined using _______ methods.
various
One can also earn a ________ on their assets and participate in the lending market by contributing to lending pools and earning interest on these assets.
yield
The FASB also removed the requirements that reporting units with ____ or negative carrying amounts perform a qualitative assessment, if they fail the qualitative tests, to perform step two.
zero