Commercial Banks

One part of ROE is _____________________ or net income over pre-tax net operating income which measures the financial firm’s use of security gains and losses and other tax management tools to minimize tax exposure.

A bank's ROA equals its ROE times the ratio of total assets divided by total equity capital.

• True

• False

The ratio of non-performing assets to total loans and leases is a measure of credit risk in banking.

• True

• False

_________________ is the risk that the value of the financial institution's asset portfolio (particularly government or other marketable securities) will decline in value.

A bank's ROE equals its ROA times its:

• Net profit margin

• Total assets divided by total equity capital

• Total operating revenues divided by total assets

• Ratio of net after-tax income to total operating revenues

The ratio that equals total interest income divided by total earning assets less total interest expense divided by total interest-bearing liabilities is known as the:

• Earnings base

• Earnings spread

• Net income margin

• Net return prior to special transactions

What do loans and security investments represent for a bank?

• Earning assets

• Classified assets

• Discretionary accounts

• Market-valued assets

Which of the following would be the best example of a ratio used to examine the cost of one of the bank's liabilities?

• Demand deposits/ total assets

• Interest on time deposits/ total time deposits

• Interest on real estate loans/ total real estate loans

• Interest sensitive assets/ interest sensitive liabilities

A bank expects to pay a dividend next year of $3.45 and also expects dividends to grow at a rate of 7% from now on. If the appropriate discount rate is 15%, what should this bank's stock price be in the market?

• $24.61

• $46.14

• $43.13

• $49.29

The Garic State Bank of New Orleans was under water for three weeks after Hurricane Katrina hit the state. The lobby is full of mud and other debris. Many of the valuables stored in the bank’s safety deposit boxes have been ruined. John Garic, the President and CEO of the bank, has been working night and day to reopen the bank. What type of risk has John been dealing with?

• Credit risk

• Liquidity risk

• Market risk

• Operational risk