FIN 350 Week 8 Quiz – Strayer
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Quiz
7 Chapter 16 and 17
Chapter
16—Foreign Exchange Derivative Markets
1. At
any given point in time, the price at which banks will buy a currency is ____
the price at which they sell it.
|
a.
|
higher than
|
|
b.
|
lower than
|
|
c.
|
the same as
|
|
d.
|
none of the above
|
2. Which
of the following is most likely to provide currency forward contracts to their
customers?
|
a.
|
commercial banks
|
|
b.
|
international mutual funds
|
|
c.
|
brokerage firms
|
|
d.
|
insurance companies
|
3. The
____ allowed for the devaluation of the dollar in 1971.
|
a.
|
Bretton Woods Agreement
|
|
b.
|
Louvre Accord
|
|
c.
|
Smithsonian Agreement
|
|
d.
|
none of the above
|
4. The
Bretton Woods Era was the era
|
a.
|
of free-floating exchange rates.
|
|
b.
|
of floating rates without boundaries, but subject
to government intervention.
|
|
c.
|
in which governments maintained exchange rates
within 1 percent of a specified rate.
|
|
d.
|
in which exchange rates were maintained within 10
percent of a specified rate.
|
5. A
system whereby exchange rates are market determined without boundaries but
subject to government intervention is called
|
a.
|
a dirty float.
|
|
b.
|
a free float.
|
|
c.
|
the gold standard.
|
|
d.
|
the Bretton Woods era.
|
6. A
system whereby one currency is maintained within specified boundaries of
another currency or unit of account is a
|
a.
|
pegged system.
|
|
b.
|
free float.
|
|
c.
|
dirty float.
|
|
d.
|
managed float.
|
7. A
country that pegs its currency is still able to maintain complete control over
its local interest rates.
a.
True
b.
False
8. If
the demand for British pounds ____, the pound will ____, other things being
equal.
|
a.
|
increases; appreciate
|
|
b.
|
decreases; appreciate
|
|
c.
|
increases; depreciate
|
|
d.
|
B and C
|
9. A(n)
____ in the supply of euros for sale will cause the euro to ____.
|
a.
|
increase; appreciate
|
|
b.
|
increase; depreciate
|
|
c.
|
decrease; depreciate
|
|
d.
|
none of the above
|
10. Beginning
with an equilibrium situation, if European inflation suddenly ____ than U.S.
inflation, this forced ____ pressure on the value of the euro.
|
a.
|
becomes much higher; upward
|
|
b.
|
becomes much higher; downward
|
|
c.
|
becomes much less; upward
|
|
d.
|
becomes much less; downward
|
|
e.
|
B and C
|
11. Purchasing
Power Parity suggests that the exchange rate will on average change by a percentage
that reflects the ____ differential between two countries.
|
a.
|
income
|
|
b.
|
interest rate
|
|
c.
|
inflation
|
|
d.
|
tax
|
12. In
reality, exchange rates do not always change as suggested by purchasing power
parity.
a.
True
b.
False
13. If
U.S. interest rates suddenly become much higher than European interest rates
(and if it does not cause concern about higher inflation there), the U.S.
demand for euros would ____, and the supply of euros to be exchanged for
dollars would ____, other factors held constant.
|
a.
|
increase; increase
|
|
b.
|
increase; decrease
|
|
c.
|
decrease; increase
|
|
d.
|
decrease; decrease
|
14. Assume
interest rate parity exists. If the spot rate on the British pound is $2 and
the 1-year British interest rate is 7 percent, and the 1-year U.S. interest
rate is 11 percent, what is the pound's forward discount or premium?
|
a.
|
3.74 percent premium
|
|
b.
|
3.74 percent discount
|
|
c.
|
3.60 percent premium
|
|
d.
|
3.60 percent discount
|
15. When
a government influences factors, such as inflation, interest rates, or income,
in order to affect currency's value, this is an example of
|
a.
|
direct intervention.
|
|
b.
|
indirect intervention.
|
|
c.
|
a freely floating system.
|
|
d.
|
a pegged system.
|
16. Which
of the following statements is incorrect?
|
a.
|
Central banks often consider adjusting a
currency's value to influence economic conditions.
|
|
b.
|
If the U.S. central bank wishes to stimulate the
economy, it could weaken the dollar.
|
|
c.
|
A weaker dollar could cause U.S. inflation by
reducing foreign competition.
|
|
d.
|
Direct intervention occurs when the central bank
influences the factors that determine the dollar's value.
|
17. Direct
intervention is always extremely effective.
a.
True
b.
False
18. If
the U.S. government imposed trade restrictions on U.S. imports, this would ____
the U.S. demand for foreign currencies, and would place ____ pressure on the
values of foreign currencies (with respect to the dollar).
|
a.
|
increase; upward
|
|
b.
|
increase, downward
|
|
c.
|
limit; upward
|
|
d.
|
limit; downward
|
19. If
a commercial bank expects the euro to appreciate against the dollar, it may
take a ____ position in euros and a ____ position in dollars.
|
a.
|
short; short
|
|
b.
|
long; short
|
|
c.
|
short; long
|
|
d.
|
long; long
|
20. Generally,
a ____ home currency can ____ domestic economic growth.
|
a.
|
weak; dampen
|
|
b.
|
strong; stimulate
|
|
c.
|
strong; dampen
|
|
d.
|
A and B
|
21. A
____ home currency can ____ domestic inflation.
|
a.
|
strong; increase
|
|
b.
|
weak; decrease
|
|
c.
|
strong; decrease
|
|
d.
|
A and B
|
22. If
the forward rate of a foreign currency ____ the existing spot rate, the forward
rate will exhibit a ____.
|
a.
|
exceeds; discount
|
|
b.
|
is below; premium
|
|
c.
|
is below; discount
|
|
d.
|
A and B
|
23. ____
forecasting involves the use of historical exchange rate data to predict future
values.
|
a.
|
Technical
|
|
b.
|
Fundamental
|
|
c.
|
Market-based
|
|
d.
|
Mixed
|
24. ____
forecasting is usually based on either the spot rate or the forward rate.
|
a.
|
Technical
|
|
b.
|
Fundamental
|
|
c.
|
Market-based
|
|
d.
|
Mixed
|
25. Fundamental
forecasting has been found to be consistently superior to the other forecasting
techniques.
a.
True
b.
False
26. Which
of the following is not a method of forecasting exchange rate volatility?
|
a.
|
using the volatility of historical exchange rate
movements
|
|
b.
|
using a time series of volatility patterns in
previous periods
|
|
c.
|
using the volatility of future exchange rate
movements
|
|
d.
|
using the exchange rate's implied standard
deviation
|
27. Assume
the following information.
|
•
|
Interest rate on borrowed euros is 5 percent
annualized
|
|
•
|
Interest rate on dollars loaned out is 6 percent
annualized
|
|
•
|
Spot rate for €0.83 per dollar (one € = $1.20)
|
|
•
|
Expected spot rate in five days is €0.85 per
dollar
|
|
•
|
Alonso Bank can borrow €10 million
|
What
is the euro profit to Alonso Bank over the five-day period from shorting euros
and going long on dollars?
|
a.
|
€200,311.11
|
|
b.
|
€207,111.11
|
|
c.
|
€201,555.56
|
|
d.
|
none of the above
|
28. Which
of the following statements is incorrect?
|
a.
|
Forward contracts are contracts typically
negotiated with a commercial bank that allow the purchase or sale of a
specified amount of a particular foreign currency at a specified exchange
rate on a specified future date.
|
|
b.
|
The forward market is located in New York City.
|
|
c.
|
Many of the commercial banks that offer foreign
exchange on a spot basis also offer forward transactions for the widely
traded currencies.
|
|
d.
|
Forward contracts can hedge a corporation's risk
that a currency's value may appreciate over time.
|
29. If
the spot rate of the British pound is $2, and the 180-day forward rate is
$2.05, what is the annualized premium or discount?
|
a.
|
2.5 percent discount
|
|
b.
|
2.5 percent premium
|
|
c.
|
10 percent premium
|
|
d.
|
5 percent discount
|
|
e.
|
5 percent premium
|
30. Currency
futures contracts differ from forward contracts in that they
|
a.
|
are an obligation.
|
|
b.
|
are not an obligation.
|
|
c.
|
are standardized.
|
|
d.
|
can specify any amount and maturity date.
|
31. If
the spot rate ____ the exercise price, a currency ____ option would not be
exercised.
|
a.
|
remains below; call
|
|
b.
|
remains below; put
|
|
c.
|
remains below; put
|
|
d.
|
A and B
|
32. The
pegged exchange rate system is no longer used by any countries.
a.
True
b.
False
33. If
a firm planning to hedge receivables is certain of the future direction a spot
rate will move, and requires a tailor-made hedge in terms of amount and
maturity date, it should use a
|
a.
|
call options contract traded on an exchange.
|
|
b.
|
futures contract traded on an exchange.
|
|
c.
|
forward contract.
|
|
d.
|
put options contract traded on an exchange.
|
34. Assume
that a British pound put option has a premium of $.03 per unit, and an exercise
price of $1.60. The present spot rate is $1.61. The expected future spot rate
on the expiration date is $1.52. The option will be exercised on this date if
at all. What is the expected per unit net gain (or loss) resulting from
purchasing the put option?
|
a.
|
$.01 loss
|
|
b.
|
$.09 loss
|
|
c.
|
$.09 gain
|
|
d.
|
$.05 gain
|
35. The
speculative risk of purchasing a ____ is that the foreign currency value ____
over time.
|
a.
|
put option; increases
|
|
b.
|
put option; decreases
|
|
c.
|
call option; increases
|
|
d.
|
futures contract; increases
|
36. Bank
A asks $.555 for Swiss francs and Banks B and C are willing to pay $.557 for
francs. An institution could capitalize on these differences by engaging in
|
a.
|
covered interest arbitrage.
|
|
b.
|
triangular arbitrage.
|
|
c.
|
locational arbitrage.
|
|
d.
|
witching hour arbitrage.
|
37. According
to interest rate parity, if the interest rate in a foreign country is ____ than
in the home country, the forward rate of the foreign country will have a ____.
|
a.
|
higher; discount
|
|
b.
|
lower; premium
|
|
c.
|
higher; premium
|
|
d.
|
A and B
|
38. ____
serve as financial intermediaries in the foreign exchange market by buying or
selling currencies to accommodate customers.
|
a.
|
Pension funds
|
|
b.
|
International mutual funds
|
|
c.
|
Insurance companies
|
|
d.
|
Commercial banks
|
|
e.
|
None of the above
|
39. In
the Wall Street Journal, you observe that the British pound (£) is
quoted for $1.65. The Australian dollar (A$) is quoted for $0.60. What is the
value of the Australian dollar in British pounds?
|
a.
|
A$2.75
|
|
b.
|
A$0.36
|
|
c.
|
£2.75
|
|
d.
|
£0.36
|
|
e.
|
none of the above
|
40. If
European inflation suddenly becomes much higher than U.S. inflation, the U.S.
demand for European goods will ____. In addition, the supply of euros to be
sold for dollars will ____; both forces will place ____ pressure on the value
of the euro.
|
a.
|
increase; decline; upward
|
|
b.
|
increase; decline; downward
|
|
c.
|
decrease; increase; upward
|
|
d.
|
decrease; increase; downward
|
|
e.
|
none of the above
|
41. If
British interest rates suddenly increase substantially relative to U.S.
interest rates, the demand by U.S. investors for British pounds ____, the
supply of British pounds to be sold in exchange for dollars ____, and the
British pound will ____.
|
a.
|
increases; decreases; appreciate
|
|
b.
|
increases; decreases; depreciate
|
|
c.
|
decreases; increases; appreciate
|
|
d.
|
decreases; increases; depreciate
|
|
e.
|
none of the above
|
42. Assume
the following information.
|
•
|
Interest rate on borrowed euros is 5 percent
annualized.
|
|
•
|
Interest rate on dollars loaned out is 6 percent
annualized.
|
|
•
|
Spot rate is 1.10 euros per dollar (one euro =
$0.909).
|
|
•
|
Expected spot rate in five days is 1.15 euros per dollar.
|
|
•
|
Fabrizio Bank can borrow 10 million euros.
|
If
Fabrizio Bank attempts to capitalize on the above information, its profit over
the five-day period is
|
a.
|
2,653,597.22 euros.
|
|
b.
|
455,266.81 euros.
|
|
c.
|
452,426.04 euros.
|
|
d.
|
none of the above
|
43. A
country that pegs its exchange rate to another exchange rate does not have
complete control over its interest rates.
a.
True
b.
False
44. The
euro is presently pegged to the British pound in order to stabilize
international payments between European countries.
a.
True
b.
False
45. Financial
institutions rarely use the forward market.
a.
True
b.
False
46. If
the quoted cross rate between two foreign currencies is not aligned with the
two corresponding exchange rates, investors can profit from triangular
arbitrage.
a.
True
b.
False
47. The
indirect exchange rate specifies the value of the currency in U.S. dollars.
a.
True
b.
False
48. The
forward rate premium is dictated by the national income differential of the two
currencies.
a.
True
b.
False
49. The
potential benefits from using foreign exchange derivatives are independent of
the expected exchange rate movements.
a.
True
b.
False
50. The
forward rate is the exchange rate for immediate delivery.
a.
True
b.
False
51. The
Smithsonian Agreement allowed for a devaluation of the dollar and for a
widening of the boundaries within which currencies were allowed to fluctuate.
a.
True
b.
False
52. A
country that pegs its currency does not have complete control over its local
interest rates, as its interest rates must be aligned with the interest rates
of the currency to which it is tied.
a.
True
b.
False
53. Exchange
rates usually change precisely as suggested by the purchasing power parity
(PPP) theory.
a.
True
b.
False
54. Central
bank intervention can be overwhelmed by market forces and may not always
succeed in reversing exchange rate movements.
a.
True
b.
False
55. When
countries experience substantial net outflows of funds, they commonly use
indirect intervention by raising interest rates to discourage excessive
outflows of funds and therefore limit any downward pressure on the value of
their currency.
a.
True
b.
False
56. The
forward rate premium reflects the percentage by which the spot rate exceeds the
forward rate on an annualized basis.
a.
True
b.
False
57. The
primary advantage of currency options over forward and futures contracts is
that they provide a right rather than an obligation to purchase or sell a
particular currency at a specified price within a given period.
a.
True
b.
False
58. A
speculator who expects a foreign currency to appreciate could purchase the
currency forward and, when received, sell it in the spot market.
a.
True
b.
False
59. The
following information refers to Fresno Bank and Champaign Bank.
|
|
Bid Rate on Euros
|
Ask Rate on Euros
|
|
Fresno Bank
|
$1.002
|
$1.009
|
|
Champaign Bank
|
$0.997
|
$1.000
|
Based
on this information, locational arbitrage would be profitable.
a.
True
b.
False
60. Purchasing
power parity suggests that the forward rate premium (or discount) should be
about equal to the differential in interest rates between the countries of concern.
a.
True
b.
False
61. ____
are not foreign exchange derivatives.
|
a.
|
Forward contracts
|
|
b.
|
Currency futures contracts
|
|
c.
|
Currency swaps
|
|
d.
|
Currency options
|
|
e.
|
All of the above are foreign exchange derivatives.
|
62. ____
serve as financial intermediaries in the foreign exchange market by buying or
selling currencies to accommodate customers.
|
a.
|
Commercial banks
|
|
b.
|
International mutual funds
|
|
c.
|
Insurance companies
|
|
d.
|
Pension funds
|
|
e.
|
All of the above
|
63. In
the Wall Street Journal, you observe that the British pound (£) is
quoted for $1.67. The Australian dollar (A$) is quoted for $0.62. What is the
value of the Australian dollar in British pounds?
|
a.
|
A$2.69
|
|
b.
|
£0.37
|
|
c.
|
£2.69
|
|
d.
|
A$0.37
|
|
e.
|
none of the above
|
64. In
a(n) ____ exchange rate system, the foreign exchange market is totally free
from government intervention.
|
a.
|
pegged
|
|
b.
|
dirty floating
|
|
c.
|
freely floating
|
|
d.
|
Bretton Woods
|
|
e.
|
none of the above
|
65. The
supply and demand for a currency are influenced by all of the following, except
|
a.
|
differential interest rates.
|
|
b.
|
differential inflation rates.
|
|
c.
|
direct government intervention.
|
|
d.
|
indirect government intervention.
|
|
e.
|
The supply and demand for a currency are affected
by all of the above.
|
66. If
U.S. inflation suddenly becomes much higher than European inflation, the U.S.
demand for European goods will ____. In addition, the supply of euros to be
sold for dollars will ____; both forces will place ____ pressure on the value
of the euro.
|
a.
|
increase; decline; upward
|
|
b.
|
increase; decline; downward
|
|
c.
|
decrease; increase; upward
|
|
d.
|
decrease; increase; downward
|
|
e.
|
none of the above
|
67. Assume
an equilibrium state in which European inflation and U.S. inflation are both 4
percent. If U.S. inflation suddenly decreased to 2 percent, the euro will ____
against the dollar by approximately ____ percent, according to purchasing power
parity.
|
a.
|
appreciate; 2
|
|
b.
|
depreciate; 2
|
|
c.
|
appreciate; 4
|
|
d.
|
depreciate; 4
|
|
e.
|
none of the above
|
68. Which
of the following is the least feasible strategy for a speculator who expects
the Australian dollar to depreciate?
|
a.
|
sell Australian dollars forward and then purchase
them in the spot market just before fulfilling the forward obligation
|
|
b.
|
sell futures contracts on Australian dollar;
purchase Australian dollars in the spot market just before fulfilling the
futures obligation
|
|
c.
|
purchase put options on Australian dollars, at
some point before the expiration date, when the spot rate is less than the
exercise price, purchase Australian dollars in the spot market and then
exercise the put option
|
|
d.
|
purchase call options on Australian dollars; at
some point before the expiration date, exercise the call option and then sell
the Australian dollars received in the spot market
|
|
e.
|
All of the above are possible strategies for a
speculator who expects the Australian dollar to depreciate.
|
69. The
act of capitalizing on the discrepancy between the forward rate premium and the
interest rate differential is called
|
a.
|
triangular arbitrage.
|
|
b.
|
locational arbitrage.
|
|
c.
|
covered interest arbitrage.
|
|
d.
|
interest rate parity.
|
70. The
indirect exchange rate is always the reciprocal of the direct exchange rate.
a.
True
b.
False
71. The
exchange rate between two foreign (nondollar) currencies is known as a(n):
|
a.
|
indirect dollar rate.
|
|
b.
|
forward rate.
|
|
c.
|
cross-exchange rate.
|
|
d.
|
derived exchange rate.
|
72. The
devaluation of a country’s currency:
|
a.
|
makes foreign products more expensive for
consumers in that country.
|
|
b.
|
increases foreign demand for that country’s
exports.
|
|
c.
|
can lead to deflation in that country.
|
|
d.
|
A and B
|
73. Currency
futures contracts are standardized, whereas forward contracts are more flexible
and can specify whatever amount and maturity date are desired.
a.
True
b.
False
74. When
the Federal Reserve attempt to lower interest rates by increasing the U.S.
money supply, it puts upward pressure on the value of the dollar.
a.
True
b.
False
75. A
speculator who expects the euro to depreciate might:
|
a.
|
sell euros forward and then purchase them in the
spot market just before fulfilling the forward obligation.
|
|
b.
|
purchase euros forward and, when they are
received, sell them in the spot market.
|
|
c.
|
purchase futures contracts on euros and, when the
euros are received, sell them in the spot market.
|
|
d.
|
all of the above
|
Chapter
17—Commercial Bank Operations
1. Which
of the following statements is incorrect?
|
a.
|
Banks have expanded their business across services
over time.
|
|
b.
|
Acquisitions have been a convenient method for
banks to grow quickly and capitalize on economies of scale.
|
|
c.
|
The banking industry has become less concentrated
in recent years.
|
|
d.
|
All of the statements above are correct.
|
2. Commercial
banks have expanded in recent years not only by acquiring other banks but also
by acquiring other types of financial service firms.
a.
True
b.
False
3. Commercial
banks can be a lender or a borrower when using repurchase agreements and loans
in the federal funds market.
a.
True
b.
False
4. The
operations, management, and regulation of a financial conglomerate are the same
irrespective of the types of services offered.
a.
True
b.
False
5. ____
are offered to bank customers who desire to write checks against their account.
|
a.
|
Time deposit accounts
|
|
b.
|
CDs
|
|
c.
|
Demand deposit accounts
|
|
d.
|
Money market deposit accounts
|
6. Which
type of savings account transfers funds to a checking account when checks are
written?
|
a.
|
ATS
|
|
b.
|
passbook savings
|
|
c.
|
CDs
|
|
d.
|
MMDAs
|
7. A(n)
____ account provides checking services as well as interest.
|
a.
|
demand deposit
|
|
b.
|
negotiable order of withdrawal (NOW)
|
|
c.
|
passbook savings
|
|
d.
|
time deposit
|
8. Protective
covenants impose conditions in which the bank must provide additional loans to
a borrower to protect the borrower from going bankrupt.
a.
True
b.
False
9. A
____ is a time deposit offered by some large banks to corporations, with a
specific maturity date, minimum deposit of $100,000 or more, and a secondary
market.
|
a.
|
retail CD
|
|
b.
|
negotiable CD
|
|
c.
|
market CD
|
|
d.
|
protective CD
|
10. A
bank's sources of funds represent liabilities or equity of the bank.
a.
True
b.
False
11. Money
market deposit accounts differ from conventional time deposits in that they
|
a.
|
specify a maturity.
|
|
b.
|
offer limited check writing privileges.
|
|
c.
|
are less liquid.
|
|
d.
|
none of the above
|
12. The
intent of federal funds transactions is to
|
a.
|
correct short-term fund imbalances experienced by
banks.
|
|
b.
|
correct long-term fund imbalances experienced by
banks.
|
|
c.
|
serve as a permanent source of bank capital.
|
|
d.
|
serve as the primary depository source of funds.
|
13. For
any given bank, federal funds ____ represent a(n) ____.
|
a.
|
purchased; asset
|
|
b.
|
sold; liability
|
|
c.
|
purchased; liability
|
|
d.
|
A and B
|
14. The
federal funds rate is ____ the yield on a Treasury security with a similar term
remaining until maturity.
|
a.
|
substantially above
|
|
b.
|
substantially below
|
|
c.
|
close to
|
|
d.
|
none of the above; the rate is much higher than
the Treasury yield in some periods, and much lower than the Treasury yield in
other periods
|
15. Obtaining
funds through ____ is not a common source of funds for banks to satisfy a
temporary deficiency of funds?
|
a.
|
issuing bonds
|
|
b.
|
the federal funds market
|
|
c.
|
repurchase agreements
|
|
d.
|
borrowing from the Federal Reserve
|
16. Which
of the following is true?
|
a.
|
The primary credit lending rate is set by the
president of the United States.
|
|
b.
|
The federal funds rate is set by the president of
the United States.
|
|
c.
|
The primary credit lending rate is set by
commercial banks.
|
|
d.
|
The primary credit lending rate is now set at a
level above the federal funds rate.
|
|
e.
|
A and B
|
17. The
Federal Reserve provides loans to banks in order to
|
a.
|
resolve permanent shortages of funds experienced
by banks.
|
|
b.
|
resolve temporary shortages of funds experienced
by banks.
|
|
c.
|
finance the shortages of funds of finance
companies.
|
|
d.
|
none of the above
|
18. When
a bank in need of funds for a few days sells some of its government securities
to a corporation with a temporary excess of funds, then buys them back shortly
thereafter, this is a
|
a.
|
federal funds loan.
|
|
b.
|
discount window loan.
|
|
c.
|
repurchase agreement.
|
|
d.
|
commercial paper transaction.
|
19. When
banks need funding for just a few days, they would most likely
|
a.
|
issue bonds and then call them.
|
|
b.
|
issue stock and then repurchase it.
|
|
c.
|
borrow in the federal funds market.
|
|
d.
|
issue NCDs.
|
20. Because
U.S. dollars are widely used as an international medium of exchange, the
Eurodollar market is very active.
a.
True
b.
False
21. Subordinated
notes and debentures are examples of
|
a.
|
primary capital.
|
|
b.
|
secondary capital.
|
|
c.
|
depository sources of funds.
|
|
d.
|
repurchase agreements.
|
22. All
other things equal, when banks issue new stock, they
|
a.
|
increase reported earnings per share.
|
|
b.
|
decrease their ability to absorb operating losses.
|
|
c.
|
dilute the ownership of the bank.
|
|
d.
|
A and B
|
23. As
a source of funds, small banks rely more heavily on ____, and larger banks rely
more heavily on ____.
|
a.
|
time deposits and foreign deposits; savings
deposits and short-term borrowings
|
|
b.
|
savings deposits and short-term borrowings;
foreign deposits and time deposits
|
|
c.
|
savings and time deposits; foreign deposits and
short-term borrowings
|
|
d.
|
foreign deposits and short-term borrowings;
savings and time deposits
|
24. Cash
held ____ represents the major portion of a bank's required reserves.
|
a.
|
at other commercial banks
|
|
b.
|
in a bank's vault
|
|
c.
|
on deposit at the federal funds window
|
|
d.
|
on deposit with the Board of Governors
|
25. The
main use of bank funds is for
|
a.
|
loans.
|
|
b.
|
investment securities.
|
|
c.
|
fixed assets.
|
|
d.
|
repurchase agreements.
|
26. Bank
loans designed to support a firm's ongoing business operations are called
|
a.
|
term loans.
|
|
b.
|
working capital loans.
|
|
c.
|
direct lease loans.
|
|
d.
|
revolving credit loans.
|
27. ____
loans are primarily used to finance the purchase of fixed assets.
|
a.
|
Term
|
|
b.
|
Working capital
|
|
c.
|
Informal line of credit
|
|
d.
|
Revolving credit
|
28. Which
of the following is most appropriate for a business that may experience a
sudden need for funds but does not know precisely when?
|
a.
|
working capital loan
|
|
b.
|
direct lease loan
|
|
c.
|
term loan
|
|
d.
|
informal line of credit
|
29. A
____ loan may be especially appropriate when the bank wishes to avoid adding more
debt to its balance sheet.
|
a.
|
term
|
|
b.
|
bullet
|
|
c.
|
direct lease
|
|
d.
|
revolving credit
|
30. The
interest rate banks charge their most creditworthy customers is known as the
|
a.
|
federal funds rate.
|
|
b.
|
primary credit lending rate.
|
|
c.
|
prime rate.
|
|
d.
|
call money rate.
|
31. Transaction
deposits do not include
|
a.
|
demand deposits.
|
|
b.
|
NCDs.
|
|
c.
|
NOW accounts.
|
|
d.
|
all of the above are transactions deposits
|
32. Commercial
banks are not allowed to invest in
|
a.
|
Treasury securities.
|
|
b.
|
Freddie Mac securities.
|
|
c.
|
Fannie Mae securities.
|
|
d.
|
Banks can invest in all securities mentioned
above.
|
33. Money
market deposit accounts (MMDAs)
|
a.
|
require a maturity of 6 months or longer.
|
|
b.
|
allow a limited number of checks to be written
against the account.
|
|
c.
|
pay a higher interest rate than CDs.
|
|
d.
|
none of the above
|
34. Which
of the following accounts does not allow checks (at least a limited amount) to
be written?
|
a.
|
NOW accounts
|
|
b.
|
money market deposit accounts (MMDAs)
|
|
c.
|
retail CDs
|
|
d.
|
all of the above allow checks to be written
|
35. Banks
sometimes need funds and sometimes have excess funds available. Which of the
following is commonly a source of bank funds and a use of bank funds?
|
a.
|
MMDAs
|
|
b.
|
federal funds
|
|
c.
|
the discount window
|
|
d.
|
retail CDs
|
36. The
bank holding company structure allows more flexibility to borrow funds, issue
stock, repurchase the company's own stock, and acquire other firms.
a.
True
b.
False
37. Like
other market interest rates, the primary credit lending rate moves in reaction
to changes in demand or supply of funds or both.
a.
True
b.
False
38. The
yield on repurchase agreements is slightly higher than the federal funds rate
at any given point in time.
a.
True
b.
False
39. Bank
regulators are concerned that banks may maintain a higher level of capital than
they should and have therefore imposed capital requirements on them.
a.
True
b.
False
40. In
a revolving credit loan, the bank typically charges businesses a commitment fee
on any unused funds.
a.
True
b.
False
41. Bank
rates on credit card balances are usually not very different from the rate
charged on business loans.
a.
True
b.
False
42. While
U.S. banks have expanded into non-U.S. markets, few non-U.S. banks have entered
U.S. markets.
a.
True
b.
False
43. ____
is (are) not a major source of funds for commercial banks.
|
a.
|
Deposit accounts
|
|
b.
|
Borrowed funds
|
|
c.
|
Commercial loans
|
|
d.
|
Bank capital
|
|
e.
|
All of the above are commercial banks sources of
funds.
|
44. Which
of the following statements is incorrect with respect to the federal funds
market?
|
a.
|
It allows depository institutions to accommodate
the short-term liquidity needs of other financial institutions.
|
|
b.
|
Federal funds purchased represent an asset to the
borrowing bank and a liability to the lending bank that sells them.
|
|
c.
|
The federal funds market is typically most active
on Wednesday, because that is the final day of each particular settlement
period for which each bank must maintain a specified volume of reserves
required by the Fed.
|
|
d.
|
All of the above are true with respect to the
federal funds market.
|
45. The
federal funds rate is typically ____ the primary credit lending rate.
|
a.
|
greater than
|
|
b.
|
less than
|
|
c.
|
equal to
|
|
d.
|
none of the above
|
46. ____
are the largest bank source of funds as a percentage of total liabilities.
|
a.
|
Small-denomination time deposits
|
|
b.
|
Money market deposit accounts (MMDAs)
|
|
c.
|
Transaction deposits
|
|
d.
|
Borrowed funds
|
|
e.
|
Savings deposits (including MMDAs)
|
47. ____
do not specify a maturity and provide limited check-writing ability (they allow
only a limited number of transactions per month).
|
a.
|
Money market deposit accounts (MMDAs)
|
|
b.
|
Negotiable CDs (NCDs)
|
|
c.
|
Retail CDs
|
|
d.
|
Callable CDs
|
|
e.
|
Negotiable order of withdrawal (NOW) accounts
|
48. ____
loans are extended primarily to finance the purchase of fixed assets such as
machinery.
|
a.
|
Term
|
|
b.
|
Working capital
|
|
c.
|
Federal fund
|
|
d.
|
Direct lease
|
49. Which
of the following is not an off-balance sheet activity for commercial banks?
|
a.
|
consumer loans
|
|
b.
|
loan commitments
|
|
c.
|
standby letters of credit
|
|
d.
|
swap contracts
|
|
e.
|
All of the above are off-balance sheet activities.
|
50. A
____ is a type of loan commitment.
|
a.
|
standby letter of credit (SLC)
|
|
b.
|
note issuance facility (NIF)
|
|
c.
|
forward contract
|
|
d.
|
swap contract
|
|
e.
|
none of the above
|
51. When
a bank obtains funds through a ____, the provider of the funds receives
collateral.
|
a.
|
retail CD
|
|
b.
|
NOW account
|
|
c.
|
repurchase agreement
|
|
d.
|
money market deposit account
|
52. When
banks obtain funds in the federal funds market, the providers of the funds are
|
a.
|
other depository institutions.
|
|
b.
|
nonfinancial corporations.
|
|
c.
|
consumers.
|
|
d.
|
the Federal Reserve.
|
53. A
single loan in the federal funds market is usually for ____; when a bank sells
a single repurchase agreement, the maturity is usually ____.
|
a.
|
just a few days; one year or more
|
|
b.
|
several weeks; one year or more
|
|
c.
|
several weeks; just a few days
|
|
d.
|
just a few days; just a few days
|
54. The
interest rate charged on loans between depository institutions is commonly
referred to as the
|
a.
|
federal funds rate.
|
|
b.
|
discount rate.
|
|
c.
|
primary credit lending rate.
|
|
d.
|
none of the above
|
55. The
interest rate charged on loans from the Federal Reserve to banks is commonly
referred to as the
|
a.
|
federal funds rate.
|
|
b.
|
primary credit lending rate.
|
|
c.
|
repo rate.
|
|
d.
|
none of the above
|
56. The
primary credit lending rate is determined by
|
a.
|
the Federal Reserve.
|
|
b.
|
Congress.
|
|
c.
|
the Treasury.
|
|
d.
|
the President of the United States.
|
57. Bank
capital represents funds obtained through ____ and through ____.
|
a.
|
issuing stock; offering long-term CDs
|
|
b.
|
issuing repurchase agreements; issuing bonds
|
|
c.
|
issuing stock; retaining earnings
|
|
d.
|
offering long-term CDs; issuing bonds
|
58. Banks
sometimes prefer to minimize their amount of capital since
|
a.
|
interest payments must be paid by the bank on all
capital that is held.
|
|
b.
|
they try to avoid diluting ownership of the bank.
|
|
c.
|
A and B
|
|
d.
|
none of the above
|
59. When
a bank obtains funds through ____, households are not a common provider of the
funds.
|
a.
|
NOW accounts
|
|
b.
|
retail CDs
|
|
c.
|
passbook savings accounts
|
|
d.
|
NCDs
|
60. Which
of the following is not an off-balance sheet activity?
|
a.
|
highly leveraged transactions (HLTs)
|
|
b.
|
standby letters of credit
|
|
c.
|
forward contracts
|
|
d.
|
swap contracts
|
61. A
bank's uses of funds represent liabilities of a bank.
a.
True
b.
False
62. ____
are the largest bank source of funds (as a percentage of total liabilities).
|
a.
|
Small-denomination time deposits
|
|
b.
|
Large-denomination time deposits
|
|
c.
|
Transaction deposits
|
|
d.
|
Savings deposits (including MMDAs)
|
63. The
five largest banks in the United States account for about one-tenth of all
assets in U.S. banks.
a.
True
b.
False
STA: DISC.FMAI.MADU.15.03
64. From
a bank manager’s perspective, the differential in interest between a bank’s
loans and its deposits;
|
a.
|
must not exceed the federal funds rate.
|
|
b.
|
is called the primary credit lending rate.
|
|
c.
|
must be sufficient to cover the bank’s other
expenses and generate a reasonable profit for the bank’s owners.
|
|
d.
|
must be sufficient to cover the bank’s deposit
insurance premiums and its reserve requirements at the Federal Reserve.
|
65. In
a loan participation arrangement, normally all of the participating banks are
exposed to credit (default) risk.
a.
True
b.
False
66. Banks
will not accept intangible assets, such as patents and brand names, as
collateral for commercial loans.
a.
True
b.
False
67. Proprietary
trading is generally less risky than a bank’s lending operations.
a.
True
b.
False
68. When
a bank engages in proprietary trading, it:
|
a.
|
uses its own funds to make investments.
|
|
b.
|
is not subject to regulations.
|
|
c.
|
lends the funds in the federal funds market.
|
|
d.
|
normally uses the funds to build its capital.
|
69. In
a standby letter of credit, a bank agrees to:
|
a.
|
charge a fixed interest rate for a line of credit
for a specified period.
|
|
b.
|
back a customer’s obligation to a third party.
|
|
c.
|
provide a customer with funds up to a specified
maximum amount over a specified period.
|
|
d.
|
service credit card loans originated by another
bank.
|
70. A
forward contract on currency:
|
a.
|
is a way to hedge credit (default) risk.
|
|
b.
|
is used to to swap fixed interest payments in
euros for variable interest payments in dollars.
|
|
c.
|
is an agreement between a customer and a bank to
exchange one currency for another on a specified date at a specified exchange
rate.
|
|
d.
|
is an agreement between a customer and a bank to
exchange one currency for another on a specified date at whatever the exchange
rate is on that day.
|
71. Before
the credit crisis, _________ were heavily used to protect against the credit
(default) risk from investing in mortgage-backed securities.
|
a.
|
standby letters of credit
|
|
b.
|
interest rate swap contracts
|
|
c.
|
credit default swap contracts
|
|
d.
|
forward contracts on mortgages
|
72. Before
establishing foreign branches, a U.S. bank must obtain the approval of the:
|
a.
|
U.S. Treasury.
|
|
b.
|
U.S. Commerce Department.
|
|
c.
|
Federal Deposit Insurance Corporation.
|
|
d.
|
Federal Reserve.
|
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