Exams 1 - 3 + certain quizzes

Bonus: As of 2023 the required reserve ratio is:

0%

What is First Midwest Bank's burden ratio?

0.80 %

What is First Midwest Bank's Net Interest Margin in 2014?

1.87%

Unlike a C corporation, an S corporation does not run into the issue of double taxation but is limited to a maximum of __________ shareholders.

100

As of 2010, the federal deposit insurance coverage is _______ per depositor, per insured bank.

250,000

What is First Midwest Bank's return on equity in 2014?

3.94%

Interest income includes: A) interest earned on all of the bank's assets. B) fees earned on all of the bank's assets. C) fees earned on all of the bank's deposit accounts. D) all of the above. E) a. and b. only

A and B only: interest earned on all of the bank's assets and fees earned on all of the bank's assets.

Which of the following is not represented in the CAMELS ratings? A. Cash adequacy B. Asset quality C. Management quality D. Liquidity E. Sensitivity to market risk.

A. Cash adequacy

In response to the Great Recession, the _____________ Act was enacted in 2010 to improve accountability and transparency in the financial system by placing restrictions on the financial services industry. A. Dodd-Frank B. Sarbanes-Oxley C. Gramm-Leach-Bliley D. Riegle Neal

A. Dodd-Frank

Which of the following is not a purpose of bank regulation? A. Guarantee minimal profitability of the banking system. B. Provide monetary stability. C. Ensure safety and soundness of banks. D. Provide a competitive financial system. E. Protect consumers from abuses by banks.

A. Guarantee minimal profitability of the banking system.

The largest proportion of a bank's noninterest expenses tends to be expenses related to: A. Personnel B. Accounts payable C. Savings accounts D. Deposit service charges

A. Personnel

Banks generate their largest portion of income from: A. loans. B. short-term investment. C. demand deposits. D. long-term investments. E. certificates of deposit.

A. loans

Banks can increase their operating efficiencies by: A. reducing costs and maintaining the existing level of products and services. B. reducing costs and reducing the existing level of products and services. C. decreasing the level of output while maintaining the current level of expenses. D. increasing the level of output while increasing the level of expenses. E. decreasing workflow.

A. reducing costs and maintaining the existing level of products and services.

15. Under FASB 157, Level _______ assets valuation are based on observable market prices for the identical instrument. a. 1 b. 2 c. 3 d. 4 e. 5

Answer: a

2. If a security is a first-time placement for a firm, it is called a(n): a. initial public offering. b. first time equity offering. c. primary offering. d. secondary offering. e. seasoned offering.

Answer: a

6. Which of the following investment banking services would be classified as an advisory services? a. Managing investments for governments. b. Designing an initial public offering c. Acting as a broker that facilitates security trading d. Running a hedge fund e. Proprietary trading

Answer: a

1. Investment banks generally engage in all of the following types of business activities except: a. proprietary trading. b. goodwill recovery. c. market making. d. securities underwriting. e. advisory services

Answer: b

14. Goldman Group listed all of the following key risk faced by the firm in its 2007 annual report except: a. widening credit spreads.. b. an increase in the number of securities underwritings. c. declines in equity values. d. declines in the number of mergers and acquisitions. e. an increase in market volatility.

Answer: b

16. Under FASB 157, Level _______ assets valuation are based on observable market prices for similar assets or liabilities. a. 1 b. 2 c. 3 d. 4 e. 5

Answer: b

7. When an investment bank stands willing to buy securities from participants who want to sell and to sell securities to participants who want to buy, it is: a. underwriting. b. market making. c. principal investing. d. proprietary trading. e. organizing a market.

Answer: b

11. On Goldman Groups' 2012 balance sheet, ___________ consist of securities that Goldman Sachs has loaned under an agreement to repurchase at a later date. a. collateralized agreements b. financial instruments c. collateralized financings d. receivables e. payables

Answer: c

17. Under FASB 157, Level _______ assets valuation are based on management's best judgment of what the underlying asset is worth. a. 1 b. 2 c. 3 d. 4 e. 5

Answer: c

5. During the underwriting process, the investment bank receives payment for all of the following except: a. flotation costs. b. legal costs. c. Federal Reserve costs. d. accounting costs. e. marketing costs.

Answer: c

8. When an investment bank commits its own funds to take a risk position in an underlying security, it is known as: a. underwriting. b. market making. c. proprietary trading. d. organizing a market. e. brokering.

Answer: c

12. ______________ represent amounts owed to Goldman Group by brokers, the firm's customers, and counter-parties to derivative contracts. a. Collateralized agreements b. Financial instruments c. Collateralized financings d. Receivables e. Payables

Answer: d

3. If a firm already has stock outstanding that is publically traded, additional offerings are called: a. initial public offering. b. second time equity offering. c. primary offering. d. secondary offering. e. flavored offering.

Answer: d

9. A __________ is an investment fund that is limited to a small number of sophisticated investors. a. money market mutual fund b. private equity fund c. risk management fund d. hedge fund e. market development fund

Answer: d

10. On Goldman Groups' 2012 balance sheet, Financial Instruments Owned consists of: a. cash. b. collateralized agreements. c. derivative securities. d. a. and b. e. a. and c.

Answer: e

13.______________ represent amounts owed by Goldman Group to brokers, the firm's customers, and counter-parties to derivative contracts. a. Collateralized agreements b. Financial instruments c. Collateralized financings d. Receivables e. Payables

Answer: e

4. The underwriting process involves all of the following except: a. helping a firm design a security to meet all legal requirements. b. identifying potential buyers. c. pricing the security. d. selling the security to the market place. e. All of the above are part of the underwriting process.

Answer: e

Which of the following bank assets is most liquid out of - Long-term investments - Short-term investments - Loans - Demand Deposits - Unearned income

Answer: short-term investment

Which of the following is considered a measure of bank productivity? Return on assets Return on equity Assets per depositor Assets per employee All of the above are measures of bank productivity

Assets per employee

__________ refers to risk to earnings and equity from the bank's inability to meet its payments and obligations in a timely fashion. A. Credit Risk B. Liquidity Risk C. Market Risk D. Operational Risk

B. Liquidity risk

Investment banks generally engage in all of the following types of business activities except: a. proprietary trading. b. goodwill recovery. c. market making. d. securities underwriting. e. advisory services

B. goodwill recovery

Ideally, a bank wants a _________ Net Interest Margin and a __________ Efficiency ratio. A. high, high B. high, low C. low, high D. low, low

B. high, low

Which of the following is not a characteristic of a typical commercial bank? A. Most banks own few fixed assets. B. Most banks have a high degree of operating leverage. C. Most banks have few fixed costs. D. Many bank liabilities are payable on demand. E. Banks generally operate with less equity capital than non-financial firms.

B. most banks have a high degree of operating leverage

A bank's core deposits are: A. vault cash. B. stable deposits that are not typically withdrawn over short periods of time. C. the bank's deposits at the Federal Reserve. D the most interest rate-sensitive liabilities of a bank. E deposits held in foreign offices.

B. stable deposits that are not typically withdrawn over short periods of time

For the last fiscal period, Cicharment Bank reported non-interest income of $113 thousand, non-interest expenses of $306 thousand, and average total assets of $1,054 thousand. What is the bank's burden ratio? Submit your final answer as a percentage rounded to two decimal places (Ex. 0.00%).

Burden Ratio = (OE - OI) /aTA = (306,000 - 113,000) / 1,054,000 = 18.31%

Bank assets fall into each of the following categories except: A. loans. B. investment securities. C. demand deposits. D. noninterest cash and due from banks. E. other assets.

C Demand deposits

Today, the primary motivation behind forming a bank holding company is: A. to reduce competition. B. the ability to circumvent restrictions on branching. C. to broaden the scope of products the bank can offer. D. to increase deposit concentration. E. All of the above are motivating factors today for forming a bank holding company

C. to broaden the scope of products the bank can offer.

Which of the following is not one of the Fed's monetary policy tools?

Changes in the fed fund rate The tools are: open market regulations, changing discount rate, and changing required reserve ratio

The _______________ repealed the restrictions on banks affiliating with securities firms under the Glass-Steagall Act. A. Sarbanes-Oxley Act B. Bank Holding Company Act C. Competitive Equality Banking Act D. Gramm-Leach-Bliley Act E. Financial Institutions Reform, Recovery and Enforcement Act

D. Gramm-Leach-Bliley Act

Which of the following is the most flexible of the Fed's tools for implementing monetary policy? A. Changes in the fed funds rate B. Changes in the required reserve ratio C. Changes in the discount rate D. Open market operations E. Private placements

D. Open market operations

The goal of a bank manager should be: A. to maximize earnings. B. to minimize taxes. C. to minimize risk. D. to maximize shareholder wealth. E. to maximize net interest income.

D. to maximize shareholder wealth

A financial holding company cannot own which of the following? A. A bank. B. A bank holding company. C. A thrift. D. A thrift holding company. E. A financial holding company may own all of the above.

E An FHC may own all of these: bank, BHC, thrift, Thrift holding company

A change in net interest income would occur when: A. the composition of the assets of the bank change. B. the average asset yield changes. C. the volume of the assets of the bank change. D. the average interest expense changes. E. All of the above

E. All of the above

Which of the following is true regarding community banks? A. They typically operate in a limited geographic area B. Community banks often focus on lending to small businesses C. A bulk of their funding comes from deposits D. They tend to grow at a modest rate E. All of the above

E. All of the above

Over the last year, Karstile Bank reported non-interest income of $113,000, non-interest expenses of $285,000, and net interest income of $275,000. What is the bank's efficiency ratio?

EFF = OE / (NII + OI) EFF = 285,000 / (275,000 + 113,000) = 73.55%

What is 1st National's earnings base?

Earning base = Average Earning Assets / Average Total Assets Average Earning Assets, found earlier is the addition of loan, investments, and federal funds, which was $820. 820 / 1000 = 82%

What is 1st National's efficiency ratio?

Efficiency ratio = Operating Expenses / Total Income Where Operating Expenses is another way to say "Non-Interest Expense" Total Income = NII (net interest income) + Non-interest income Net Interest Income = Interest Income - Interest Expense If Non-Interest Income = 38 Interest Income = 150 Interest expense = 110 Non-Interest Expense = 11 Then Total Income = (150 - 110) + 11 = 51 and Efficiency Ratio = 38 / 51 = .745 = 74.5%

The __________ acts as the receiver of failed institutions.

FDIC

The primary federal regulator of state banks that are NOT members of the Fed is the:

FDIC

Bank regulations can guarantee that bankers will make sound management decisions.

False

Banks prefer to use noncore liabilities over core deposits to finance its assets. T/F

False

Due to FDIC insurance, banks tend to have a much lower debt-to-asset ratio when compared to non-financial corporations. T/F

False

During the past 20 years, the number of distinct U.S. banking organizations has increased. T/F

False

Financial holding company and bank holding company are different names for the same type of entity. T/F

False

Relative to larger banks, smaller banks rely more on non-interest income as a source of revenue. T/F

False

The __________ serves as the lender of last resort.

Federal Reserve

The __________ separated the financial services industry into commercial banking, investment banking, and insurance.

Glass-Steagall Act (Banking Act of 1933)

The _________ fully repealed the Glass-Seagall Act.

Gramm-Leach-Bliley Act

Which of the following is not a purpose of bank regulation?

Guarantee minimal profitability of the banking system

______________ is/are the primary revenue source for a majority of banks. Check-processing fees Investment income from deposit balances Loan interest Earnings credits Swaps

Loan Interest

__________ refers to the risk to a bank's earnings and equity due adverse movements in market rates or prices.

Market Risk

_______________ is not a measure of bank productivity? Assets per employee Average personnel expense Loans per employee Net income per employee Number of customers per employee

Number of customers per employee

Which of the following is the most flexible of the Fed's tools for implementing monetary policy?

Open Market Operations

For most banks, which of the following is the largest component of non-interest expense? Personnel expenses Rent Required reserves held at the Federal Reserve Electricity Depreciation on buildings and equipment

Personnel Expenses

What is 1st National's Return on Equity?

ROE = Net Income / Shareholder's Equity Here, Shareholder's Equity is simply listed as "Equity" ROE = 13 / 100 (because equity is 100) = 13%

What is the return on equity for a bank that has an equity multiplier of 4.64, an interest expense ratio of 6.66%, and a return on assets of 3.39%?

ROE = ROA * EM ROE = 3.39 * 4.64 = 15.73

What is the return on equity for a bank that has an equity multiplier of 5.61, an interest expense ratio of 5.96%, and a return on assets of 1.28%? Submit your final answer as a percentage rounded to two decimal places.

ROE = ROA* (Equity Multiplier) So, ROE = (5.61)*(.0128) = .0718 = 7.18%

__________ emphasizes fostering personal relationships between banker and customer. __________ emphasizes high-frequency transactions services with standardized features.

Relationship Banking Transactions Banking

Which of the following is not considered a non-interest expense? Wages and salaries Rent Required reserves held at the Federal Reserve Electricity Employee benefits

Required reserves held at the Federal Reserve

______________ refers to the process of pooling a group of assets with similar features and issuing securities that are collateralized by the assets.

Securitization

A __________ bank is a mid-sized financial institution that offers a wide array of products and services but does not operate on a global level.

Super-Regional

A bank holding company owns controlling interest in one or more commercial banks. T/F

True

Banks with the lowest efficiency ratios are presumed to be the most efficient. T/F

True

Compared to non-financial corporations, most banks hold relatively few fixed assets.

True

There tends to be a mismatch between the maturities of a bank's assets and the maturities of a bank's liabilities. T/F

True

True/False When constructing ratios, average balance sheet data should be used.

True

Mutual of Omaha Bank was acquired by __________ in 2020. a. CIT Group b. Liberty Mutual Group c. U.S. Bancorp d. PNC Financial Services Group

a. CIT Group

The __________ repealed large parts of the Glass-Steagall Act and allowed for greater integration between investment banks and commercial banks. a. Financial Services Modernization Act b. Dodd-Frank Act c. Sarbanes-Oxley Act d. Bank Holding Company Act

a. Financial Services Modernization Act

__________ converted to a financial holding company in response to the Great Recession a. Goldman Sachs b. Mutual of Omaha Bank c. BMW Bank of North America d. Lehman Brothers

a. Goldman Sachs

Which of the following investment banking services would be classified as an advisory services? a. Managing investments for governments. b. Designing an initial public offering c. Acting as a broker that facilitates security trading d. Running a hedge fund e. Proprietary trading

a. Managing investments for governments.

Securities that require unrealized gains or losses to be recorded as a change in Stockholder's Equity are called:

available-for-sale securities

Under FASB 157, Level _______ assets valuation are based on observable market prices for similar assets or liabilities. a. 1 b. 2 c. 3 d. 4 e. 5

b. 2 Level on assets are based on observable market prices for identical assets or liabilities

Goldman Group listed all of the following key risk faced by the firm in its 2007 annual report except: a. widening credit spreads.. b. an increase in the number of securities underwritings. c. declines in equity values. d. declines in the number of mergers and acquisitions. e. an increase in market volatility.

b. an increase in the number of securities underwritings. in fact, there was an decrease in the number of securities underwritings

Historically, most industrial loan companies have operated to: a. accept deposits. b. assist their parent company in some facet of the firm's core business. c. exclusively make commercial loans. d. increase the safety and soundness of the parent company. e. purchase municipal securities.

b. assist their parent company in some facet of the firm's core business.

When an investment bank stands willing to buy securities from participants who want to sell and to sell securities to participants who want to buy, it is: a. underwriting. b. market making. c. principal investing. d. proprietary trading. e. organizing a market.

b. market making.

What is 1st National's burden ratio?

burden ratio = (non-interest expense - non-interest income)/ average total assets x 100 non-interest expense - non-interest income= burden so formula is for burden ratio = burden / average total assets burden ratio = (38 - 21) / 1000 = .027 = 2.7%

Under FASB 157, Level _______ assets valuation are based on management's best judgment of what the underlying asset is worth. a. 1 b. 2 c. 3 d. 4 e. 5

c. 3

_______________________ refers to the potential variation in net income from loan nonpayment or deferred payments

credit risk

A __________ is an investment fund that is limited to a small number of sophisticated investors. a. money market mutual fund b. private equity fund c. risk management fund d. hedge fund e. market development fund

d. hedge fund

The underwriting process involves all of the following except: a. helping a firm design a security to meet all legal requirements. b. identifying potential buyers. c. pricing the security. d. selling the security to the market place. e. All of the above are part of the underwriting process.

e. All of the above are part of the underwriting process.

Net interest income is the difference between:

gross interest income and gross interest expense.

Banks generate their largest portion of income from:

loans

What is 1st National's Net Interest Margin? Refer to picture.

net interest margin (NIM) = (interest income - interest expense) / average earning assets The earning assets here are investments, Federal Funds, and loans Add these to get Average Earning Assets = 820 Interest income - interest expense = 150 - 110 = 40 40/820 = .0487 = 4.9%

Non-interest income does not include:

personnel expenses, and late fees on loans

Commercial banks mostly specialize in:

short-term business credit

A bank's core deposits are:

stable deposits that are not typically withdrawn over short periods of time.

Securities that require unrealized gains or losses to be recorded on the income statement are called:

trading account securities