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Worksheetsrevision quiz
Total questions: 34
Worksheet time: 26mins
The two most pressing demands for liquidity from bank come from, first, customers withdrawing their deposits and, second, from:
a. credit requests from customers the bank wishes to keep.
b. checks being cashed at local stores and directly from the bank.
c. demands for wired funds from correspondent banks.
d. legal reserve requirements set by the Central Bank.
For a bank, there is always a trade-off problem between liquidity and:
a. risk exposure
b. revenue generation
c. profitability
d. efficiency
Financial institutions face significant liquidity problems because of:
a. imbalances between the maturities of their assets and liabilities.
b. their high proportion of liabilities subject to immediate withdrawal.
c. the sensitivity of their business to changes in interest rates.
d. imbalances between the maturities of their assets and liabilities and their high proportion of liabilities subject to immediate withdrawal
e. all of the answer options are correct
Which of the following is not a source of liquidity for financial institutions?
a. deposits
b. money market borrowings
c. sale of marketable securities
d. dividend payments to stockholders.
Uses of liquidity for banks include:
a. long term liabilities
b. Issuance of debentures by banks
c. sale of fixed assets
d. repayments of loans disbursed.
e. deposit withdrawals
When a bank’s sources of liquidity exceed its uses of liquidity, the bank will have a :
a. positive liquidity gap
b. negative liquidity gap
c. cyclical liquidity gap
d. seasonal liquidity gap
e. none of the options is correct.
A adequately capitalized bank must have a ratio of tier 1 capital to risk-weighted assets of at least:
a. 8 percent
b. 6 percent
c. 10 percent
d. 4.5 percent
The RBB Bank wants to protect itself from credit risk by making large loans to corporate customers, by making residential mortgages to family, by making agricultural loans to farmers, by making small business loans to business. What defence against risk is this bank making?
a. Quality management
b. Portfolio diversification
c. Geographic diversification
d. Increasing owners’ capital
The NanYang Bank Berhad wants to protect itself from risk. It decides to make loans in other Southeast Asian Countries such as Laos, Myanmar, Indonesia, Cambodia, Vietnam and Thailand. What defence against risk is this bank making?
a. Quality management
b. Portfolio diversification
c. Geographic diversification
d. Increasing owners’ capital
___ represent(s) funds set aside for contingencies, such as legal action against the institution or a sinking fund to retire stock or debt in the future.
a. undivided profits
b. surplus
c. common stock
d. equity reserves
A lender that makes a loan that violates its written loan policy would be violating which of the 6Cs of lending?
a. character
b. capacity
c. cash
d. control
e. collateral
A lender’s secondary source of repayment in case of a default is:
a. character
b. capacity
c. cash
d. control
e. collateral
A lender that makes a loan to an individual whose only income is commission based and who has not made a sale in six weeks may be violating which of the 6Cs of lending?
a. character
b. capacity
c. cash
d. control
e. collateral
A lender reviews the partnership agreement of one of this small business customers. Which of the 6Cs of lending would this piece of information belong to?
a. character
b. capacity
c. cash
d. control
e. collateral
Which of the following is an example of uses of funds?
a. A customer withdraws $1000 from his account.
b. a borrower repays $1,500 of a loan he has received
c. The bank issues a $1 million certificates of deposits
d. the banks sells $5 million of treasury bills.
Which of the following is an example of a source of funds?
a. a bank purchases short-term money market instruments
b. a customer withdraws RM1000 from his account
c. a borrower repays RM15000 of a loan he has received
d. a bank purchases Malaysian Government T-bills.
The role of capital is to:
A) Provide a cushion against failure risk.
B) Provide funds needed to organize, open, and operate a bank.
C) Promote public confidence
D) Support growth and the development of new services
E) All of the above.
The fundamental purposes of regulating bank capital include which of the following?
A) To limit the risk of bank failures.
B) To preserve public confidence in banks.
C) To limit losses to the federal government arising from insurance claims.
D) All of the above.
E) A and B only.
Possible breakdowns in quality control, inefficiencies in producing and delivering financial services, weather damage, aging or faulty computer systems and simple errors in judgment by bank management illustrate what form of risk faced by banks?
A) Credit risk
B) Liquidity risk
C) Interest-rate risk
D) Operational risk
E) None of the above
Which of the following would be an example of Tier 1 capital?
A) Subordinated debt capital instruments with an original maturity of at least 5 years
B) Allowance for loan and lease losses
C) Minority interest in the equity accounts of consolidated subsidiaries
D) Convertible bonds
Which of the following would be an example of Tier 2 capital?
A) Subordinated debt capital instruments with an original maturity of at least 5 years
B) Undivided profits
C) Minority interest in the equity accounts of consolidated subsidiaries
D) Qualifying noncumulative preferred stock
E) All of the above
Which of the following would be an example of crime risk?
A) A bank manager that embezzles $1,000,000 from the bank
B) A bank that loses $500,000 from trading in foreign currencies
C) A $1,000,000 loan to a business on which no interest and principal has been collected in 2 years
D) A bank manager predicts that interest rates will rise. However interest rates fall causing the bank 's net income to fall by $250,000
E) All of the above are examples of crime risk
Which of the following assets fits into the 0 percent risk weight category?
A) Cash
B) Deposits at the Central Bank
C) Treasury Bills
D) Malaysian Government Bonds
E) All of the above fit into the 0 percent risk weight category
Which of the following is in the 100 percent risk-weight category?
A) Cash
B) General obligation municipal bonds
C) Residential mortgage loans
D) Credit card loans
Which of the following would be an example of exchange risk?
A) A bank manager embezzles $1,000,000 from the bank
B) A bank that loses $500,000 from trading in foreign currencies
C) A $1,000,000 loan to a business on which no interest or principal has been collected in 2 years
D) A bank manager predicts interest rates will rise. However interest rates fall causing the bank’s net income to fall by $250,000
E) All of the above are examples of exchange risk
Which of the following would be an example of credit risk?
A) A bank manager embezzles $1,000,000 from the bank
B) A bank that loses $500,000 from trading in foreign currencies
C) A $1,000,000 loan to a business on which no interest or principal has been collected in 2 years
D) A bank manager predicts interest rates will rise. However interest rates fall causing the bank’s net income to fall by $250,000
E) All of the above are examples of credit risk
Which of the following would be an example of interest rate risk?
A) A bank manager embezzles $1,000,000 from the bank
B) A bank that loses $500,000 from trading in foreign currencies
C) A $1,000,000 loan to a business on which no interest or principal has been collected in 2 years
D) A bank manager predicts interest rates will rise. However interest rates fall causing the bank’s net income to fall by $250,000
E) All of the above are examples of interest rate risk
Which of the following would be an example of operational risk?
A) A bank teller manages to steal $250,000 over a period of several months
B) An out of date computer system causes the bank to lose $750,000
C) A bank is forced to sell $1,000,000 in loans at a loss in order to meet the needs of depositors
D) A $500,000 loan the bank has made has been deemed uncollectable
E) None of the above are examples of operational risk
Which of the following would be an example of liquidity risk?
A) A bank teller manages to steal $250,000 over a period of several months
B) An out of date computer system causes the bank to lose $750,000
C) A bank is forced to sell $1,000,000 in loans at a loss in order to meet the needs of depositors
D) A $500,000 loan the bank has made has been deemed uncollectable
E) None of the above are examples of liquidity risk
The Perdue Bank of Houston has just hired a new manager who has a reputation of anticipating potential problems and acting quickly to prevent those problems so that the bank stays healthy and profitable. What defence against risk is this bank making?
A) Portfolio diversification
B) Geographic diversification
C) Quality management
D) Increasing owners’ capital
E) All of the above
A bank has decided to retain more of their earnings, moving their retention ratio from 40% to 70%. What way of meeting their capital needs is the bank taking?
A) Changing their dividend policy
B) Issuing common stock
C) Issuing preferred stock
D) Issuing subordinated notes and debentures
E) Selling assets and leasing facilities
If a bank has more interest sensitive liabilities than interest sensitive assets, then it has a:
a. positive dollar gap
b. negative dollar gap
c. positive duration gap
d. negative duration gap
Duration gap analysis directly focuses on the:
a. rate of return on assets
b. market value of equity
c. net interest margin
d. risk of the bank
If the duration gap is zero, then the market value of equity is ____________ interest rates.
a. increased due to an increase
b. increased due to a decrease
c. decreased due to an increase
d. immunized from changes
