ch 16

1. The principal economic function of banks is to: A) Take deposits B) Make loans C) Sell financial services D) Encourage spending E) None of the above

B. make loans

2. Loans extended to finance the purchase of automobiles, mobile homes, home appliances, and vacations are classified as: A) Real estate loans B) Financial institutions C) Agricultural loans D) Commercial and industrial loans E) None of the above

E. none of the above

9. The loan category experiencing the largest losses (loan defaults) is usually: A) Credit card loans B) Real estate loans C) Agricultural loans D) Commercial and industrial loans E) None of the above

a credit card loans

31. The South Carolina National Bank makes a loan to the Heritage Credit Union. What type of loan did this bank make? A) Financial institution loan B) Commercial and industrial loan C) Loans to individuals D) Miscellaneous loans E) Lease financing receivables

a financial institution loan

20. Sean Carter has an excellent credit rating. Which of the 6 C's of lending would this piece of information belong to? A) Character B) Capacity C) Cash D) Collateral E) Conditions

a. character

36. The First State Bank is located in Guyman, Oklahoma which is in the middle of the wheat country of Oklahoma and as a result many of its loans are agriculture loans. What factor determining the growth and mixture of loans does this fact reflect? A) Characteristics of the market area B) Lender size C) The experience and expertise of management D) The written loan policy of the bank E) Bank regulations

a. characteristics of the market area

13. Loans granted to businesses to cover such expenses as purchasing inventories, paying taxes, and meeting payrolls are known as: A) Commercial and industrial loans B) Agricultural loans C) Real estate loans D) Loans to individuals E) None of the above.

a. commerical and industrial loans

45. Dan Cross is a junior loan officer with First State Bank of Durant. He has been busy visiting local businesses to see of any of them need credit. Which step in the lending process is Dan performing? A) Finding prospective customers B) Evaluating a customer's character and sincerity C) Making a site visit and evaluating a customer's credit history D) Evaluating a prospective customer's financial condition E) Assessing possible collateral and signing the loan agreement

a. finding prospective customers

3. According to the textbook the largest category (by dollar volume) of loans extended by U.S. banks is: A) Real estate loans B) Financial institutions C) Agricultural loans D) Commercial and industrial loans E) None of the above

a. real estate loans

24. A bank that primarily makes its loans to individuals, families and small businesses is: A) A retail bank B) A wholesale lender C) A money center bank D) A money market bank E) None of the above

a. retail bank

4. Banks that emphasize lending to commercial customers are labeled: A) Wholesale banks B) Retail banks C) Personal banks D) Nonbank banks E) Regional banks

a. wholesale banks

7. Real estate loans made by national banks in the U.S. cannot exceed: A) 15 percent of a national bank's total assets or 25 percent of its total capital. B) A national bank's total capital and surplus or 70 percent of time and savings deposits, whichever is greater. C) 20 percent of a national bank's capital and surplus or 80 percent of its savings deposits, whichever is smaller in amount. D) 25 percent of capital or 10 percent of the core deposits of a national bank, whichever gives the largest amount. E) None of the above.

b. a national banks total capital and surplus of 70% of time and savings deposits, whichever is greater

14. A lender that makes a loan to a minor would be violating which of the 6 C's of lending? A) Character B) Capacity C) Cash D) Control E) Collateral

b. capacity

21. First National Bank of Edmond asks a prospective customer for her driver's license. Which of the 6 C's of lending would this piece of information belong to? A) Character B) Capacity C) Cash D) Collateral E) Conditions

b. capacity

28. A lender reviews the partnership agreement of one of its small business customers. Which of the 6 C's of lending would this piece of information belong to? A) Character B) Capacity C) Cash D) Collateral E) Conditions

b. capacity

18. The lender's secondary source of repayment in case of default is: A) Capacity. B) Collateral. C) Character. D) Capital. E) Credit.

b. collateral

33. The Price Bank of Edmond makes a loan to Home Depot. What type of loan has this bank made? A) Financial institution loan B) Commercial and industrial loan C) Loan to an individual D) Miscellaneous loan E) Lease financing receivables

b. commerical and industrial loan

30. A method whereby the loan officer focuses on how the borrower cash flows may change over time is known as: A) Indirect cash flow B) Direct cash flow C) Pervasive cash flow D) Variable cash flow E) Total cash flow

b. direct cash flow

46. Shelby Mann is a loan officer with the First National Bank. She interviews a potential loan customer to find out exactly why the person needs the loan and whether they would be serious about repaying the loan. Which step in the lending process is Shelby performing? A) Finding prospective customers B) Evaluating a customer's character and sincerity C) Making a site visit and evaluating a customer's credit history D) Evaluating a prospective customer's financial condition E) Assessing possible collateral and signing the loan agreement

b. evaluating a customer's character and sincerity

37. The Second State Bank has less than $100 million in assets and as a result primarily makes real estate loans, other consumer loans and loans to very small businesses. What factor determining the growth and mixture of loans does this fact reflect? A) Characteristics of the market area B) Lender size C) The experience and expertise of management D) The written loan policy of the bank E) Bank regulations

b. lender size

23. The TRC Company is required by its bank to pay no dividend over $3 per share. What is this? A) An affirmative covenant B) A negative covenant C) A Special covenant D) A horizontal covenant E) None of the above

b. negative covenant

8. Loans to finance one-to-four family homes fall under which loan category? A) Commercial and industrial loans B) Real estate loans C) Loans to individuals D) Single-payment loans E) None of the above.

b. real estate loans

41. A loan that appears to examiners to contain significant weaknesses or that represent a dangerous concentration of credit in one borrower or industry are called: A) Criticized loans B) Scheduled loans C) Substandard loans D) Doubtful loans E) Loss loans

b. scheduled loans

43. The law that requires banks to make 'an affirmative effort' to meet the credit needs of individuals and businesses in their trade territories is called: A) The Sarbanes-Oxley Act B) The Community Reinvestment Act C) The Equal Credit Opportunity Act D) The Truth in Lending Act E) None of the above

b. the community reinvestment act

50. The Tate Manufacturing Company has $150 million in sales revenue with $90 million in cost of goods sold. It has selling and administrative expenses of $10, pays annual taxes in the amount of $10 and has depreciation and other non cash expenses of $30 million. What are this firm's annual projected cash flows? A) $150 B) $60 C) $70 D) $40 E) None of the above

c. $70

6. In the United States national banks cannot extend an unsecured loan to a single borrower that exceeds of a national bank's capital and surplus. The correct figure that fills in the blank in the preceding sentence is: A) 25 percent B) 10 percent C) 15 percent D) 20 percent E) None of the above

c. 15 percent

17. A loan to a local business to purchase a new machine would be categorized as: A) A consumer loan B) An agriculture loan C) A commercial and industrial loan D) A real estate loan E) None of the above

c. a commercial and industrial loans

19. A lender that makes a loan to an individual whose only income is commission based and who hasn't made a sale in six weeks may be violating which of the 6 C's of lending? A) Character B) Capacity C) Cash D) Control E) Collateral

c. cash

32. A loan for Colin Beverly to purchase a new Mazda Miata would fit into which of the following categories of bank loans? A) Financial institution loan B) Commercial and industrial loan C) Loan to an Individual D) Miscellaneous loan E) Lease financing receivables

c. loan to an individual

25. The process of resolving a troubled loan so the lender can recover its funds is called the: A) Loan Review B) Written Loan Policy C) Loan Workout D) Loan Commitment Agreement E) None of the above

c. loan workout

11. Loans providing credit to finance the purchase of automobiles, mobile homes, appliances, and other retail goods to repair and modernize homes are classified under the category: A) Financial institution loans B) Commercial industrial C) Loans to individuals D) Miscellaneous loans E) None of the above

c. loans to invidividuals

47. Jessica Simpson, a loan officer with First National Bank, visits the Tate Manufacturing Company and talks to other lenders to see their experience with Tate Manufacturing. What step in the lending process is Jessica performing? A) Finding prospective customers B) Evaluating a customer's character and sincerity C) Making a site visit and evaluating a customer's credit history D) Evaluating a prospective customer's financial condition E) Assessing possible collateral and signing the loan agreement

c. making a site visit and evaluating a customers credit history

29. Which act requires that bank loans to insiders be priced at market? A) Community Reinvestment Act of 1977 B) Equal Credit Opportunity Act of 1974 C) Sarbanes-Oxley Act of 2002 D) Bank Lending Act of 2003 E) U.S. Patriot Act

c. sarbanes-oxley act of 2002

44. The law that prevents individuals from being denied credit because of race, sex, religious affiliation, age or receipt of public assistance is called: A) The Sarbanes-Oxley Act B) The Community Reinvestment Act C) The Equal Credit Opportunity Act D) The Truth in Lending Act E) None of the above

c. the equal credit opportunity act

38. Geoff Willis and Mary Williams the president and CEO of the First National Bank of Edmond both come from a background of retail banking. As a result they have decided to focus their lending activities on consumer loans and loans to small business. What factor determining the growth and mixture of loans does this fact reflect? A) Characteristics of the market area B) Lender size C) The experience and expertise of management D) The written loan policy of the bank E) Bank regulations

c. the experience and expertise of management

12. Loans extended to farm and ranch operations to assist in planting and harvesting crops and to support the feeding and care of livestock are known as: A) Real estate loans B) Commercial and industrial loans C) Land loans D) Agricultural loans E) None of the above.

d. agricultural loans

26. Which of the following is a sign of a potential loan problem? A) Timely receipt of financial statements from the company with a loan B) Increases in the stock price of the company that has a loan C) Increases in earnings for each of the last three years of a company D) Changes in the methods used to account for inventory, depreciation and other items E) All of the above are signs of problems with the loan

d. changes in the methods used to account for inventory, depreciation and other items

22. The loan officer of Second National Bank of Laramie decides to review the insurance coverage of one of its business customers. Which of the 6 C's of lending would this piece of information belong to? A) Character B) Capacity C) Cash D) Collateral E) Conditions

d. collateral

5. The vast majority of FDIC-insured institutions are classified as: A) Credit card banks B) Agricultural banks C) Consumer lenders D) Commercial lenders E) Mortgage lenders

d. commerical lenders

15. A lender that makes a loan that violates its written loan policy would be violating which of the 6 C's of lending? A) Character B) Capacity C) Cash D) Control E) Collateral

d. control

48. Terry May, a loan officer with First National Bank, calculates liquidity and debt ratios for the Lava Lamp Company and also examines their cash flow statement. What step in the lending process is Terry performing? A) Finding prospective customers B) Evaluating a customer's character and sincerity C) Making a site visit and evaluating a customer's credit history D) Evaluating a prospective customer's financial condition E) Assessing possible collateral and signing the loan agreement

d. evaluating a prospective customer's financial condition

35. The Third National Bank of Wichita makes a loan so that Tim Bridges can buy 1000 shares of Coca Cola stock. Which category of loans would this loan fit in best? A) Financial institution loan B) Commercial and industrial loan C) Loan to an individual D) Miscellaneous loan E) Lease financing receivables

d. miscellaneous loan

39. First State Bank's loan policy manual states 'that the goal of the bank is to make high quality loans for home mortgages, the purchase of automobiles and small business accounts receivables'. What factor determining the growth and mixture of loans does this fact reflect? A) Characteristics of the market area B) Lender Size C) The experience and expertise of management D) The written loan policy of the bank E) Bank regulations

d. the written loan policy of the bank

16. Which of the following is a factor in determining the mix of loans that a bank has? A) The location of the bank B) The size of the bank C) The written loan policy of the bank D) The experience and expertise of the management E) All of the above are factors in determining the mix of loans

e. all of the above are factors in determining the mix of loans

27. Which of the following should be part of the written loan policy? A) Lending authority of each loan officer and loan committee B) Lines of responsibility for finding and reporting information within the loan department C) A statement of quality standards for all loans D) A statement for the preferred upper limit for total loans outstanding E) All of the above should be part of the written loan policy

e. all of the above sound be part of the written loan policy

49. Jerry LeGere, a loan officer with First National Bank, checks to see if the house pledged to back up a home mortgage has a clear title and proper insurance. What step in the lending process is Jerry performing? A) Finding prospective customers B) Evaluating a customer's character and sincerity C) Making a site visit and evaluating a customer's credit history D) Evaluating a prospective customer's financial condition E) Assessing possible collateral and signing the loan agreement

e. assessing possible collateral and signing the loan agreement

40. The Second National Bank has capital and surplus of $100 million. The bank has decided that the most that it can loan to the Krumlova Manufacturing Company is $15 million. What factor determining the growth and mixture of loans does this most likely reflect for this bank? A) Characteristics of the market area B) Lender size C) The experience and expertise of management D) The written loan policy of the bank E) Bank regulations

e. bank regulations

34. The First State Bank of Duncan buys railroad cars and rents them to the Santa Fe Railroad Company. What type of loan has this bank made? A) Financial institution loan B) Commercial and industrial loan C) Loan to an individual D) Miscellaneous loan E) Lease financing receivables

e. lease financing receivables

42. A loan that examiners regard as uncollectible and unsuitable to be called a bank asset is called a: A) Criticized loan B) Scheduled loan C) Substandard loan D) Doubtful loan E) Loss loan

e. loss loan

10. The most costly type of loan to make (measured by the cost per dollar of loan) for a bank is usually: A) Real estate loans B) Agricultural loans C) Commercial and industrial loans D) Loans to financial institutions E) None of the above.

e. none of the above