SET 7 - Fund Accounting course taught by Professor Zachary M. Gallagher. PDF

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Fund Accounting course taught by Professor Zachary M. Gallagher., Fund Accounting course taught by Professor Zachary M. Gallagher....

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SET 7 A(n) ____ in interest rates could reduce a commercial bank's expected cash flows because the interest paid on deposits may ____ than the interest earned on loans and investments. increase; increase to a greater degree

The risk premium on a commercial bank is ____ related to economic growth and ____ related to management skills. positively; negatively

Interest income generated from all assets is called gross interest income

Interest paid on deposits and borrowed funds is called gross interest expense

Net interest income is the difference between gross interest income and interest expenses and is measured as a percentage of assets

Fees charged by a bank on various services allow the bank to generate: noninterest income

If a bank has short-term deposits and provides long-term fixed rate loans, and interest rates decline over time, its net interest margin should be: rising over time

For a given level of return on assets, a bank with a higher level of capital will have a lower return on equity

Net income measured as a percentage of assets is

return on asset (ROA)

When only equity counts as capital, the leverage measure is assets divided by equity

When only equity counts as capital, the higher the capital ratio, the lower the leverage measure. lower the degree of financial leverage.

Gross interest income is affected by market interest rates. the composition of assets held by banks.

If a bank increases its provisions for loan losses, its interest income is ____, and its noninterest income is ____. not affected; not affected

Gross interest expense is affected by market interest rates

If a bank had long-term fixed-rate assets and short-term liabilities, and interest rates increased over time, its net interest margin should decrease

The sum of net interest income, non-interest income, and securities gains, minus provision for loan losses and non-interest expenses equals income before taxes

Which of the following banks would likely have the highest return on equity? high return on assets, low capital ratio

Banks A and B have the same net income. Bank A has a higher capital ratio and more assets than B. Bank A's return on assets is ____ than Bank B's. Bank A's return on equity is ____ than Bank B's. lower; lower

Banks G and H are the same size and have similar operations. Bank G holds the minimum level of capital and Bank H holds a higher level of capital. Bank G's return on equity is probably ____ volatile than that of Bank H. Bank G's beta is probably ____ than that of Bank H. more; higher

Bank K is conservatively managed. It benefits slightly when general economic conditions are very favorable and is hurt slightly when general economic conditions are very unfavorable. Its beta would likely be between 0 and 1

____ results from a bank's sale of securities. Securities gains and losses

Bank X obtains most of its funds from NCDs, while Bank Y obtains much of its funds from passbook savings and from demand deposit accounts. Given this information, the net interest margin of Bank X would likely be ____ than that of Bank Y, and noninterest expenses would likely be ____ than that of Bank Y. less; less

A bank's ROE ____ account for its financial leverage. A bank's ROA ____ account for its financial leverage. does; does not

A bank's ROA ____ account for taxes on earnings. A bank's ROE ____ account for taxes on earnings. does; does

A bank's ROA ____ account for loan losses. A bank's ROE ____ account for loan losses. does; does

A bank's net interest margin includes none of the above

Banks with relatively ____ ROAs often incur ____ noninterest expenses. low; very high

Bank T generally obtains a high percentage of its funds from wholesale CDs. Bank V which obtains most of its funds from retail CDs. Bank Z obtains its funds from checking accounts. The bank that will incur the highest interest expenses is ____. Bank T

Which of the following is not a factor that affects cash flows of a commercial bank? changes in economic growth changes in the risk-free interest rate changes in industry conditions changes in management abilities all of the above are factors that affect cash flows of a commercial bank

During the credit crisis, the level of ____ was much higher than in other periods. loan loss provision

During periods of ____ economic growth, loan demand tends to be ____, allowing banks to provide ____ loans. strong; higher; more

Changes in ____ are a factor affecting the value of a commercial bank over which the bank has some control. management abilities

If a bank is too ____ in attempting to avoid loan losses, its net interest margin will be ____. conservative; low

Banks offering ____ nontraditional services will incur ____ noninterest expenses and ____ noninterest income. more; higher; higher

Which of the following factors affecting a bank's gross interest income is not influenced by the bank's policy decisions? market interest rate movements

A bank's return on assets (ROA) could be lower than desired because of all of the following except: a. the bank has experienced heavy loan losses. the bank has reduced its noninterest expenses....