Bank management quiz week 1-5 PDF

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Question 1 Which of the following is an adequate definition of a delegated monitor? An economic agent appointed to act on behalf of large groups of agents and principals in collecting information and/or investing funds. An economic agent appointed to act on behalf of large groups of principals in co...

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Question 1 Which of the following is an adequate definition of a delegated monitor? An economic agent appointed to act on behalf of large groups of agents and principals in collecting information and/or investing funds. An economic agent appointed to act on behalf of large groups of principals in collecting information and/or investing funds. An economic agent appointed to act on behalf of smaller agents in collecting information and/or investing funds. An economic agent appointed to act on behalf of smaller principals in collecting information and/or investing funds.

Question 2 Lehman Brothers defaulted during the global financial crisis. True False

Question 3 In most countries regulators require financial intermediaries to hold a minimum level of cash reserves against their deposits. There is no such regulation in Australia. True False

Question 4 Depository institutions (DIs) play an important role in the transmission of monetary policy from the central bank (RBA) to the rest of the economy primarily because: loans to corporations are part of the money supply bank loans are highly regulated depository institutions provide a large amount of credit to finance residential real estate DI deposits are a major portion of the money supply

Question 5 The following are protective mechanisms that have been developed by regulators to promote the safety and soundness of the banking system except: encouraging banks to rely more on deposits rather than debt or capital as a cushion against failure encouraging banks to limit lending to a single customer to no more than 10 per cent of capital the provision of deposit insurance the periodic monitoring of banks

Question 6 None of the commercial banks in the US defaulted during the global financial crisis. True False

Question 7 Which of the following are types of regulation that seek to enhance the net social welfare benefits of financial intermediaries' services? exit regulation issuer protection regulation credit allocation regulation All of the listed options are correct.

Question 8 MCA loan covenant is: a legal clause in a borrowing contract that requires the lender to avoid certain actions a legal clause in a borrowing contract that requires the lender to take certain actions a legal clause in a borrowing contract that requires the borrower to take certain actions a legal clause in a borrowing contract that requires the borrower to either take certain actions or avoid certain actions

Question 9 Which of the following are reasons for the specialness of financial intermediaries? higher average information costs lower price risk and superior liquidity attributes for financial claims to household savers. higher average transaction costs All of the listed options are correct.

Question 10 Price risk refers to: the risk that the sale price of an asset will be lower than the purchase price of that asset. the risk that the purchase price of an asset will be lower than the sale price of that asset. the risk that the sale price of an asset will be higher than the purchase price of that asset. None of the listed options are correct.

Question 11 Agency costs are costs relating to the risk that the owners and managers of firms that receive savers' funds will take action with those funds contrary to the best interests of the saver. True False

Question 12 Which of the following statements is true? FI losses are borne by equity holders last; hence they are junior claimants to an FI's assets. FI losses are borne by equity holders last; hence they are senior claimants to an FI's assets. FI losses are borne by equity holders first; hence they are junior claimants to an FI's assets. FI losses are borne by equity holders first; hence they are senior claimants to an FI's assets.

Question 13 When a DI makes a shift from an 'originate-to-hold' banking model to an 'originate-to-distribute' banking model, the change is likely to result in: increased operating costs increased interest rate and liquidity risk decreased monitoring costs decreased fee income

Question 14 Which of the following refers to the possibility that a firm's owners or managers will take actions contrary to the promises contained in the covenants of the securities the firm issues to raise fund liquidity risk price risk credit risk agency costs

Question 15 The part of the money supply directly produced by the government or central bank is called: inside money outside money direct money indirect money

Question 16 In the traditional 'originate-to-hold' banking model, where a DI takes short-term deposits and uses them to make loans, the bank usually holds these loans until maturity. This exposes the bank to increased: operating costs interest rate and liquidity risk monitoring costs All of the listed options are correct.

Question 17 By acting as a delegated monitor, financial intermediaries reduce the degree of information imperfection and asymmetry between the ultimate suppliers and users of funds. True False

Question 18 Which of the following are areas of institution-specific specialness? money supply transmission payment services intergenerational transfers All of the listed options are correct.

Question 1 If the difference between an FI's contingent liabilities and contingent assets is positive then there is an additional obligation, or claim, on the FI's net worth. True False

Question 2 Credit risk puts both the principal loaned and expected interest payments at risk. As a result, FI s issue financial claims that have a risk return profile with: high probability of fixed upside return high probability of large downside risk low probability of large downside risk both high probability of fixed upside return and low probability of large downside risk

Question 3 An FI that invests $100 million into corporate bonds is exposed to the following risks: credit and interest rate risk liquidity and technology risk solvency and technology risk off-balance-sheet and interest rate risk

Question 4 Matching the foreign currency book does not protect the FI from: sovereign country risk interest rate risk liquidity risk foreign exchange risk

Question 5 An FI that only operates domestically is never exposed to foreign exchange rate risk. True False

Question 6 An Australian FI that invests 50 million in three-year maturity loans and partially funds these loans with 30 million one-year deposits is exposed to the following risks. A depreciation of the euro against the Australian dollar plus credit risk plus refinancing risk, such as increasing interest rates in the Eurozone. An appreciation of the euro against the Australian dollar plus credit risk plus refinancing risk, such as increasing interest rates in the Eurozone. A depreciation of the euro against the Australian dollar plus credit risk plus reinvestment risk, such as decreasing interest rates in the Eurozone. A depreciation of the euro against the Australian dollar reinvestment risk, such as increasing interest rates in the Eurozone.

Question 7 Why are depository institutions and life insurance companies more exposed to credit risk than, for instance, money market managed funds and general insurance companies? Because the average maturities of their assets are longer than those of money market managed funds/general insurance companies. Because the average maturities of their assets are shorter than those of money market managed funds/general insurance companies. They are not exposed to more risk. Because they are not specialised in credit risk management.

Question 8 A small local bank failed because of a housing market collapse following the departure of the area's largest employer. What type of risk applies to the failure of the institution? firm-specific risk technological risk operational risk insolvency risk

Question 9 An FI that finances a German euro loan with US dollar deposits is exposed to: technology risk interest rate risk credit risk foreign exchange risk

Question 10 The potential exercise of unanticipated contingencies can result in: technology risk interest rate RIs. credit risk off-balance-sheet risk

Question 11 Which of the following are typical operational risk sources? employee fraud back-office failures general technological glitches All of the listed options are correct

Question 12 A mortgage loan officer is found to have provided false documentation that resulted in a lower interest rate on a loan approved for one of her friends. The loan was subsequently added to a loan pool, securitised and sold. Which of the following risks applies to the false documentation by the employee? market risk credit risk operational risk technological risk

Question 13 The collapse of the US bank IndyMac Bank was an example of: market risk operational risk insolvency risk insolvency and liquidity risk

Question 14 Which of the following is a suitable description of the term 'economies of scope'? the use of several inputs to produce one common output the ability to generate cost savings by producing more than one output with the same inputs the ability to lower average operating costs by expanding its output of financial services the ability to lower average operating costs by lowering its output of financial services

Question 15 Unanticipated diseconomies of scale and scope are a result of: technology risk interest rate risk foreign exchange risk credit risk

Question 16 Which of the following situations pose a refinancing risk for an FI? An FI issues $10 million of liabilities of one-year maturity to finance the purchase of $10 million of assets with a two-year maturity. An FI issues $10 million of liabilities of two-year maturity to finance the purchase of $10 million of assets with a two-year maturity. An FI issues $10 million of liabilities of three-year maturity to finance the purchase of $10 million of assets with a two-year maturity. An FI matches the maturity of its assets and liabilities.

Question 17 The potential exercise of unanticipated contingencies can result in: technology risk interest rate RIs. credit risk off-balance-sheet risk

Question 18 Matching the foreign currency book protects the FI from: sovereign country risk interest rate risk liquidity risk foreign exchange risk

Question 19 A high-quality loan book for Australian banks during the global financial crisis (GFC) meant that: their non-performing loans as a percentage of their total domestic loan portfolio fell during the GFC their non-performing loans as a percentage of their total domestic loan portfolio increased above 2 per cent during the GFC Australian banks' profitability fell and Australian FIs were severely impacted by the GFC Australian banks' profitability was maintained and Australian FIs were not severely impacted by the GFC

Question 20 The major source of risk exposure resulting from issuance of standby letters of credit is: interest rate risk credit risk foreign exchange risk off-balance-sheet risk

Question 1 An FI with a positive repricing gap expects interest rates to decrease. True False

Question 2 If an FI's repricing gap is less than zero, then: it is deficient in its required reserves it is deficient in its capital ratio requirement its liability costs are more sensitive to changing market interest rates than are its asset yields its liability costs are less sensitive to changing market interest rates than are its asset yields

Question 3 Consider the following repricing buckets and gaps: Repricing bucket

Assets

Liabilities

Gaps

1 day

$50 000

$120 000

-$70 000

1 day to 3 months

$100 000

$70 000

$30 000

3 to 6 months

$100 000

$100 000

$0

6 to 12 months

$250 000

$80 000

$170 000

1 to 5 years

$75 000

$130 000

-$55 000

Over 5 years

$25 000

$100 000

-$75 000

What is the annualised change in the bank's future net interest income if the average rate change for assets and liabilities that can be repriced within one year is an increase of 100 basis points?

-$17 000 -$13 000 $13 000 $17 000 Question 4 Which of the following statements is true? An FI with a negative repricing gap expects interest rates to remain stable. An FI with a negative repricing gap expects interest rates to rise. An FI with a negative repricing gap expects interest rates to remain fall. An FI with a negative repricing gap has not particular expectations regarding interest rate movements.

Question 5 Which of the following are rate-sensitive liabilities? Short-term consumer loans, cheque accounts and three-month Treasury Not es Three-month term deposits, three-month bankers' acceptances, six-month negotiable certificates of deposit and one-year term deposits Short-term consumer loans, six-month negotiable certificates of deposit and one-year term deposit Short-term consumer loans, six-month Treasury Notes and three-year Treasury Bonds

Question 6 Which of the following statements is false? A major reason for cheque accounts to be included in an FI's interest-sensitive liabilities is that the majority of these accounts are core deposits. Cheque accounts should be treated as interest-sensitive liabilities because if interest rates rise, deposits might be withdrawn and thus will need to be replaced by higher-yielding deposits. The final decision whether or not to include cheque accounts as rate-sensitive liabilities must be made after an analysis of the actual deposit history. None of the listed options are correct. Question 7 Consider the following information to answer the question: Assets

Amount

Rate

Liabilities

Rate sensitive

$35 000 000

10%

Fixed rate

$21 000 000

9%

Non-earning

$4 000 000

Amount

Rate

Rate sensitive

$40 000 000

8%

Fixed rate

$12 000 000

7%

Equity

$8 000 000

What will be the FI's net interest income at year-end if interest rates do not change? $1.89 million $3.20 million $5.39 million $1.35 million

Question 8 The term core deposits refers to those deposits that: act as long-term sources of funds for the FI reflect the true or core nature of the FI's operations support the core of the FI's operations None of the listed options are correct.

Question 9 Which of the following statements is true? A negative gap indicates that a rise in interest rates would lower the bank's net interest income. A positive gap indicates that a rise in interest rates would lower the bank's net interest income. A negative gap indicates that a rise in interest rates would increase the bank's net interest income. None of the listed options are correct.

Question 10 How do you interpret the position of an FI with a positive on-balance-sheet gap and a negative offbalance sheet gap? The FI uses its on-balance-sheet activities to hedge its off-balance-sheet activities. The FI uses its off-balance-sheet activities to hedge its on-balance-sheet activities. The FI believes that interest rates will increase and made a mistake in setting its gap for off-balancesheet activities. The FI believes that interest rates will increase and made a mistake in setting its gap for on-balancesheet activities.

Question 11 The repricing gap approach calculates the gaps in each maturity bucket by subtracting the: current assets from the current liabilities long-term liabilities from the fixed assets rate-sensitive assets from the total assets rate-sensitive liabilities from the rate-sensitive assets

Question 12 The repricing gap focuses on the interest income effect. True False

Question 13 The term 'rate-sensitive assets' refers to assets: whose interest rate will be repriced over some future period with a particularly high interest rate with a particularly low interest rate for which demand is highly dependent on the level of interest rates

Question 14 Which of the following statements is true? The size of the range over which bucket gaps are calculated does not matter as the repricing gap will always lead to exact results. The shorter the range over which bucket gaps are calculated, the greater the potential error. The shorter the range over which bucket gaps are calculated, the smaller the potential error. None of the listed options are correct.

Question 15 Which of the following statements is true? An FI with a positive repricing gap expects interest rates to remain stable. An FI with a positive repricing gap expects interest rates to rise. An FI with a positive repricing gap expects interest rates to remain fall. An FI with a positive repricing gap has not particular expectations regarding interest rate movements.

Question 16 An FI with a positive repricing gap expects interest rates to decrease. True False

Question 17 Repricing gap refers to the: difference between rate-sensitive assets and rate-sensitive liabilities sum of rate-sensitive assets and rate-sensitive liabilities difference between rate-sensitive liabilities and rate-sensitive assets difference between rate-insensitive assets and rate-insensitive liabilities

Question 18 If an FI's repricing gap is less than zero, then: it is deficient in its required reserves it is deficient in its capital ratio requirement its liability costs are more sensitive to changing market interest rates than are its asset yield its liability costs are less sensitive to changing market interest rates than are its asset yields

Question 19 The Reserve Bank of Australia (RBA) undertook actions in regards to their open market operation in the post global financial crisis environment to move financial markets towards greater stability. This was achieved by: increasing the maturity of repos to reduce money pressure in the money market over the longer term. increasing RBA holdings of non-government securities for use with repos due to the shortage of government securities. increasing the supply of deposits held by banks and other authorised deposit-taking institutions in their exchange settlement accounts held with the RBA. All of the listed options are correct.

Question 20 Which of the following are rate-sensitive liabilities? Short-term consumer loans, cheque accounts and three-month Treasury Notes Three-month term deposits, three-month bankers' acceptances, six-month negotiable certificates of deposit and one-year term deposits Short-term consumer loans, six-month negotiable certificates of deposit and one-year term depositShort-term consumer loans, six-month Treasury Notes and three-year Treasury Bonds

Question 21 Which of the following statements is true? As opposed to the duration model, the repricing gap model is a market-value based approach. As opposed to the maturity model, the repricing gap model is a market-value based approach. The capital loss effect is captured by the repricing model. None of the listed options are correct.

Question 22 Which of the following statements is true? An FI with a positive repricing gap expects interest rates to remain stable. An FI with a positive repricing gap expects interest rates to rise. An FI with a positive repricing gap expects interest rates to remain fall. An FI with a positive repricing gap has not particular expectations regarding interest rate movements.

Question 23 Which of the following statements is true? The cumulative repricing gap can also be expresse...