Chapter 11: Final Multiple Choice

Nationally chartered banks receive chartering and merger approval from the A) Federal Deposit Insurance Corporation B) Office of Comptroller of the Currency C) Federal Reserve System D) Office of Thrift Supervision E) Any of the above may grant a charter and approve a merger

B

A contingent promise by a bank to pay a bill when it comes due if the bill's originator fails to pay is an example of a A) Swap agreement B) Standby letters of credit C) Forward contract D) Loan commitment E) Commitment to buy foreign exchange

B

. A decrease in unit costs after a merger due to joint use of inputs in producing multiple products is an example of: A) Cost economies of scope B) Revenue economies of scope C) Cost economies of scale D) Revenue economies of scale E) X efficiencies

A

A bank had average revenues of $140 million and average costs of $110 million. Another bank that offered similar services had average revenues of $90 million and average costs of $70 million. After a merger between the two, the new institution had average revenues of $130 million and average costs of $160 million. This is an example of A) Cost economies of scale B) Cost economies of scope C) Revenue economies of scale D) Revenue economies of scope E) Diseconomies of scale

A

Commercial banks are the ____________ financial intermediary in the United States as measured by asset size. A) largest B) second largest C) third largest D) fourth largest E) fifth largest

A

Economies of scale imply that the average cost curve is _____ with respect to bank size. A) Downward sloping B) Upward sloping C) Flat D) Vertical

A

In terms of profitability, a well run bank usually has an ROA of A) 0.5-3% B) 3-5% C) 5-10% D) 10-15% E) 15-20%

A

The provision of banking services to other banks, such as check clearing, foreign exchange trading, etc. are examples of A) Correspondent banking B) Trust services C) Off balance sheet assets D) Economies of scope E) Credit derivatives

A

. A contingent item that may eventually be placed on the right hand side of the balance sheet or expensed on the income statement is a/an A) Loan commitment B) Off balance sheet liability C) Off balance sheet asset D) Net charge off E) Loan sold without recourse

B

Bank assets tend to have __________ maturities and _________ liquidity than/as bank liabilities. A) longer; greater B) longer; lower C) shorter; greater D) shorter; lower E) equal; equal

B

. A decline in the average cost of producing bank services as the size of the bank expands is called A) Cost economies of scope B) Revenue economies of scope C) Cost economies of scale D) Revenue economies of scale E) X efficiencies

C

. A technology based cash management account feature that allows almost all payments that will be made in a given day to be known in the morning is called a A) Funds concentration account B) Electronic lockbox C) Controlled disbursement account D) Treasury management account E) Electronic data interchange

C

. The time interval between the deposit of a check and when the funds become available for depositor use is called A) Lockbox delay B) Process fix C) Float D) EFT wait E) POS delay

C

In comparison to small banks, larger banks typically have A) More equity capital B) More core deposits C) More off balance sheet activities D) Larger net interest margins E) All of the above

C

Reasons behind the drop in bank profitability in the second half of this decade include I. Flattening of the yield curve II. Increase in competitive pressures on asset pricing III. Increases in foreclosures in the mortgage market IV. Increases in net interest margin A) I only B) II and III only C) I, II and III only D) II, III and IV only E) III and IV only

C

State chartered banks _____ be members of the Federal Reserve System and nationally chartered banks _____ be members of the Federal Reserve System: A) Must, may B) Must, must C) May, must D) May, may

C

Which of the following could result in a negative NIM? A) An upward sloping yield curve B) A flat yield curve C) An inverted yield curve D) Increasing default risk premiums E) Positive net interest spread

C

Which of the following is the primary regulator of bank holding company activities? A) Federal Bank Holding Company Board B) FDIC C) Federal Reserve D) State regulatory agency in the chartering states E) U.S. Treasury

C

A bank had average revenues of $130 million and average costs of $100 million. An insurer had average revenues of $75 million and average costs of $60 million. After a merger between the two, the new institution had average revenues of $220 million and average costs of $160 million. This is an example of A) Cost economies of scale B) Cost economies of scope C) Revenue economies of scale D) Revenue economies of scope E) Diseconomies of scale

D

A centralized collection service for corporate payments designed to reduce the delay in check clearing is called a/an ______________________. A) Funds concentration account B) Account reconciliation service C) Controlled disbursement account D) Lockbox service E) Electronic data interchange service

D

About ______ of federally insured banks are nationally chartered and about ____ of federally insured banks are members of the Federal Reserve. A) 77%; 65% B) 65%; 77% C) 35%; 23% D) 23%; 35% E) 40%; 60%

D

After Bank A merged with Bank B, costs per unit actually rose rather than falling as predicted. This is an example of A) Cost economies of scale B) Cost economies of scope C) X efficiencies D) Diseconomies of scale E) Regulatory burden

D

An ILC is a type of A) Finance company B) Thrift institution C) Credit card bank D) Non-bank bank E) Foreign owned loan corporation

D

Equity capital at commercial banks in 2007 comprised about _____ of liabilities and equity: A) 25% B) 20% C) 55% D) 10% E) 5%

D

Loans past due 90 days or more and loans that are not accruing interest because of problems of the borrower are called A) loan losses B) net charge-offs C) provisional loans D) noncurrent loans E) contra loans

D

The largest single category of loans on the typical bank's balance sheet in 2007 was: A) U.S. government securities B) Commercial and industrial loans C) Consumer loans D) Real estate loans E) Inter-bank loans

D

. Advantages of going global for U.S. banks include all but which one of the following? A) Diversification of earnings B) Greater opportunities to exploit economies of scale C) Greater sources of funds D) Conducting business in less regulated environments E) Low fixed costs involved in international expansion

E

. Most of the changes in size, structure and composition of the banking industry in recent years are due to A) Bank failures B) Increasing regulations C) New charters granted D) Declines in the number of branch offices E) Mergers and acquisitions

E

Banking may be subdivided into at least three categories of banks. Match up the definitions with the appropriate name. I. A bank that specializes in retail or consumer banking in a local market II. A bank that engages in a complete array of wholesale commercial banking activities and usually also provides retail banking services III. A bank that is located in a financial center and relies on non-deposit or borrowed sources of funds for a significant portion of its liabilities. A) Money center bank; Community bank; Super-regional bank B) Community bank; Money center bank; Super-regional bank C) Super-regional bank; Money center bank; Community bank D) Money center bank; Super-regional bank; Community bank; E) Community bank; Super-regional bank; Money center bank

E

Banks differ from other types of depository institutions in that: I. Banks have more diversified asset portfolios II. Banks obtain funds from more different types sources III. The average size bank is larger than other depository institutions A) I only B) I and II only C) I and III only D) II and III only E) I, II and III

E

Revenue increases or cost reductions resulting from mergers that are not due to scale or scope economies are called A) Cost economies of scope B) Revenue economies of scope C) Cost economies of scale D) Revenue economies of scale E) X efficiencies

E

Technological innovations in banking services are changing bank cost structures by increasing fixed costs and decreasing variable costs per unit. The effects of these changes include I. Increased cost economies of scale and scope II. Increased dominance of large banks in the industry III. Increased risk of excess capacity and technological breakdowns A) I only B) I and II only C) I and III only D) II and III only E) I, II and III

E