Chap 10

Investments in securities provide diversification for a bank's assets because most loans come from the local areas served by a bank's offices.

• True

• False

Bank income from loans is fully taxable.

• True

• False

Investment securities are expected to "dress up" a bank's balance sheet, according to the textbook.

• True

• False

Investment securities are expected to help stabilize a financial institution's income.

• True

• False

A short-term IOU offered by major corporations that is of short maturity (most of these IOUs mature in 90 days or less) is known as a CMO.

• True

• False

Prepayment risk on securitized assets generally increases when interest rates rise.

• True

• False

Stripping a security eliminates prepayment risk.

• True

• False

According to the textbook the dominant security held in U.S. bank investment portfolios is state and local government bonds.

• True

• False

Interest income and capital gains from a bank's portfolio of investment securities is taxed in the United States as ordinary income.

• True

• False

Eurocurrency deposits that some banks purchase as investments generally carry higher market yields than domestic time deposits issued by comparable-size U.S. banks.

• True

• False