1 53 A bank''''s GAP is defined as a the dollar amount of rate sensitive assets divided by the dollar amount of rate sensitive liabilities b the dollar amount of earning assets divided by the dollar amou[.]
Trang 11. 53 A bank's GAP is defined as:
a the dollar amount of rate-sensitive assets
divided by the dollar amount of
rate-sensitive liabilities
b the dollar amount of earning assets divided by
the dollar amount of total
liabilities
c the dollar amount of rate-sensitive assets minus
the dollar amount of ratesensitive
liabilities
d the dollar amount of rate-sensitive liabilities
minus the dollar amount of
rate-sensitive assets
e the dollar amount of earning assets times the
average liability interest rate
Answer:
c
Cost and Profit Analysis, the least expensive
source of funds for a typical bank is:
a certificates of deposit
b negotiable order of withdrawal accounts
c savings accounts
d demand deposit accounts
e federal funds purchased
Answer:
d
accounts except:
a negotiable orders of withdrawal
b automatic transfer from savings
c demand deposit accounts
d small time deposits
e all of the above are considered transaction
accounts
Answer:
d
rate-sensitive if:
a it matures during the examined time period
b it represents a partial principal payment
c the outstanding principal on a loan can be
re-priced when the base rate changes
d All of the above
e a and c only
Answer:
d
on demand deposit accounts is $2,500, net
of float Each account costs the bank $175 per year in processing costs The bank collects an average of $5 per month on each account in service charges Assume reserve requirements are 10%
If the bank can invest the deposit balance (after adjusting for reserve requirements) at 7%, what is the break-even deposit balance?
a $3,777
b $3,500
c $2,500
d $1,825
e $1,479
Answer: d Net Cost = (Non-Interest Expense -Non-Interest Income)/[Avg Balance * (1-RR)]
7% = ($175
-$60)/[Avg Balance * (1-.10)] 7% =
$115/(Avg Balance * 9) 9Average Balance =
$115/.07 Average Balance = ($115/.07)/.9 =
$1,825.40
on demand deposit accounts is $2,500, net
of float Each account costs the bank $175 per year in processing costs The bank collects an average of $5 per month on each account in service charges Assume reserve requirements are 10%
What is the net cost of an average demand deposit?
a 4.5%
b 4.8%
c 5.1%
d 6.8%
e 7.0%
Answer: c Net Cost = (Non-Interest Expense -Non-Interest Income)/[Avg Balance * (1-RR)]
Annual Non-Interest Income = 12 *
$5 = $60 Net Cost = ($175
-$60)/[$2,500
* (1-.10)] = 5.1%
410 Exam 2
Trang 27.A bank has $100 million in earning assets,
a net interest margin of 5%, and a 1-year
cumulative GAP of $10 million Interest
rates are expected to increase by 2% If
the bank does not want net interest
income to fall by more than 25% during
the next year, how large can the
cumulative GAP be to achieve the
allowable change in net interest income
a $2 million
b $12 million
c $15 million
d $50 million
e $62.5 million
Answer: e Target Gap/Earning Assets = (Allowable % change in NIM) (Expected NIM)/(Expected
% change in interest rates) Target Gap/$100 = (25%*5%/2%) Target Gap/$100 = 0.625 Target Gap =
$62.5
5-year par value bonds that pay a 5% annual
coupon The bank must pay 7% of the
face value in floatation costs What is the
bank's effective cost of borrowing?
a 5.0%
b 5.2%
c 5.7%
d 6.2%
e 7.5%
Answer: b Financial calculator solution FV= 10,000,000 PMT =
10,000,000 * 5% = 500,000
N = 5
PV = -10,000,000 * (1-.007) = -9,930,000
I = ? = 5.2%
a greater than the periodic GAP
b less than the periodic GAP
c positive
d negative
e the sum of the interim periodic GAPs
Answer: e
a the dollar amount of rate-sensitive assets divided by the dollar amount of rate-sensitive liabilities
b the dollar amount of earning assets divided by the dollar amount of total liabilities
c the dollar amount of rate-sensitive assets minus the dollar amount of rate-sensitive liabilities
d the dollar amount of rate-sensitive liabilities minus the dollar amount of rate-sensitive assets
e the dollar amount of earning assets times the average liability interest rate
Answer: c
a is defined as the dollar amount of rate-sensitive assets divided by the dollar amount of rate-sensitive liabilities
b is defined as the dollar amount of earning assets divided by the dollar amount of total liabilities
c compares sensitive assets with rate-sensitive liabilities across all time buckets
d compares sensitive assets with rate-sensitive liabilities across a single time bucket
compares the dollar amount of earning assets times the average liability interest rate
Answer: d
demand deposits for all of the following reasons except:
a required reserves on money market deposit accounts are lower
b money market deposit accounts are less interest rate sensitive than demand deposit accounts
c demand deposit accounts have fewer checks written each month
d average demand deposit balances are higher than money market deposit account balances
e money market deposits accounts are not limited to the $100,000 deposit insurance limit like demand deposit accounts
Answer: b
Trang 313. A bank's stock is currently trading at $50
and currently pays a divided of $6 per year
The average forecast is that next year's
dividend will be $6.42 Assuming a 34%
percent corporate tax bracket, what is the
pre-tax expected return on equity?
a 12.8%
b 19.8%
c 30.1%
d 28.8%
e 58.2%
Answer: b
ke = D1/P + g
g = D1/D0 - 1
= 6.42/6.00
-1 = 07
ke =
$6.42/$50.00 + 07 = 1984
= 19.8%
liability sensitive
Answer: True
years If rates fall from 7% to 6%,
the bonds price will:
a increase by approximately 1%
b decrease by approximately 1%
c increase by approximately 10%
d decrease by approximately 10%
e Not enough information is given to
answer the question
Answer: c Modified Duration = Macaulay's duration/(1+i)
= 10.7/1.07 = 10
% Change in Price = -Modified duration Change in interest rates = 10 1%
= 10%
which of the following forms?
a Demand deposit
b NOW account
c Jumbo CDs
d Savings account
e Small time deposit
Answer: c
following except:
a location
b availability
c volatile liabilities
d service charges
e Core deposits are affected by all of the
above
Answer: c
periodic and cumulative GAP
between earnings sensitivity analysis and
income statement GAP analysis
interest income
a applies he the concept of duration to the bank's entire balance sheet
b applies he the concept of duration to the bank's entire income statement
c applies he the concept of duration to the bank's retained earnings
d indicates the difference in the GAP in the time
it takes to collect on loan payments versus the time to attract deposits
e estimates when embedded options will be exercised
Answer: a
22.Earnings-at-risk:
a considers only interest rate "shocks."
b is only an effective measure for 90 day intervals or less
c examines the change in asset composition, given a change in bank liabilities
d examines the variation in net interest income associated with various changes in interest rates
e None of the above
Answer: d
a is defined as yield on rate-sensitive liabilities divided by the yield on rate-sensitive assets
b measures how the yield on an asset is assumed
to change given a 1% change in some base rate
c measures the change in net interest income for a given change in some base rate
d All of the above
e a and c
Answer: b
GAP analysis by:
a looking at a wide range of interest rate environments
b using perfect interest rate forecasts
c calculating a change in net interest income given a change in interest rates
d Earnings sensitivity analysis differs from static GAP analysis in all of the above ways
e Earnings sensitivity analysis and static GAP analysis do not differ They are different names for the exact same analysis
Answer: a
Trang 425.Earnings sensitivity analysis does not consider:
a changes in interest rates
b changes in the volume of rate-sensitive assets
due to a change in interest rates
c changes in the volume of fixed-rate liabilities
due to a change in interest rates
d mortgage prepayments
e Earnings sensitivity analysis considers all of
the above
Answer:
e
26.Effective duration:
a estimates when embedded options will be
used
b directly indicates how much the price of a
security will change given a change in interest
rates
c is always greater than maturity
d is a weighted average of the time until cash
flows are received
e All of the above
Answer:
a
a secured bank loans from the discount window
b unsecured short-term loans that are settled in
immediately available funds
c secured inter-bank loans of reserves
d secured core deposits
e secured overnight loans
Answer:
b
a is always greater than one for bank's with a
negative periodic GAP
b is equal to the volume of rate-sensitive
liabilities times the volume of rate-sensitive
assets
c is equal to the volume of rate-sensitive
liabilities divided by the volume of rate-sensitive
assets
d is equal to the volume of rate-sensitive assets
divided by the volume of rate-sensitive liabilities
e is always less than one for bank's with a
positive cumulative GAP
Answer:
d
negative gap
True
CDs lead to the introduction of:
a zero coupon CDs
b variable rate CDs
c callable CDs
d stock market indexed CDs
e immediately available funds CDs
Answer:
c
the coming year, it should:
a increase its GAP
b issue long-term subordinated debt today
c increase the rates paid on long-term deposits
d issue more variable rate loans
e become more liability sensitive
Answer: e
interest rates will cause interest income to , interest expense to , and net interest
income to
a increase, increase, increase
b increase, decrease, increase
c increase, increase, decrease
d decrease, decrease, decrease
e decrease, increase, increase
Answer: d
rate-sensitive liabilities equals
$400 million, what is the expected change in net interest income if rates
increase by 1%?
a Net interest income will increase by $1 million
b Net interest income will fall by $1 million
c Net interest income will increase by $10 million
d Net interest income will fall by $10 million
e Net interest income will be unchanged
Answer: a ($500 million
-$400 million) * 1% =
$1,000,000
rate-sensitive liabilities equals $400 million, what is the expected change in net interest income if rates increase by 1%?
a Net interest income will increase by $1 million
b Net interest income will fall by $1 million
c Net interest income will increase by $10 million
d Net interest income will fall by $10 million
e None of the above
Answer: a ($500 million
-$400 million) * 1% =
$1,000,000
35. If the yield curve is inverted, a portfolio manager can take advantage of this by:
a pricing more deposits on a fixed-rate basis
b buying more long-term securities
c making variable-rate, callable loans
d increasing the number of rate-sensitive assets
e All of the above
Answer: b
Trang 536.If you deposit $1,000 into a certificate of
deposit that quotes you a 5.5% APY, how much
will you have at the end of 1 year?
a $1,050.00
b $1,055.00
c $1,550.00
d $1,005.50
e None of the above
Answer:
b
FV = PV
* (1+i)n
$1,000 * 1.0551 =
$1,055.00
37.In 1961, Citicorp introduced the first:
a NOW account
b marketable certificate of deposit
c MMDA
d subordinated debenture
e zero coupon bond
Answer:
b
a changes in interest rates
b changes in the volume of rate-sensitive
assets due to a change in interest rates
c changes in the volume of fix-rate liabilities
due to a change in interest rates
d mortgage prepayments
e Income statement GAP considers all of the
above
Answer:
a
margin is:
a a good faith deposit
b a loan against the repurchase agreement
c a risk-free guarantee
d the difference between the market value of
the collateral and the amount of the loan
e all of the above
Answer:
d
of bank liabilities because:
a reserve requirements increase the effective
cost
b there may be substantial processing costs
c service charges may offset a portion of
non-interest expense
d all of the above
e a and c
Answer:
d
41. Interest rate risk:
a varies inversely with a bank's GAP
b can be measured by the volatility of a bank's
net interest income given changes in the level
of interest rates
c can be eliminated by matching fixed rate
assets with variable rate liabilities
d rarely has an impact on bank earnings
e All of the above
Answer:
b
reduce the volatility of net interest income by:
a adjusting the dollar amount of rate-sensitive assets
b adjusting the dollar amount of fixed-rate liabilities
c using interest rate swaps
d Bank can reduce volatility of net interest income by doing all of the above
e a and c only
Answer: e
the following except:
a interest expense on borrowed funds
b check handling costs
c personnel costs
d fee income
e loan rates
Answer: e
a is a weighted average of the time until cash flows are received
b is always greater than maturity
c is never equal to maturity
d directly indicates how much the price of a security will change given a change in interest rates
e estimates when embedded options will be used
Answer: a
a estimates when embedded options will be used
b directly indicates how much the price of a security will change given a change in interest rates
c is always greater than maturity
d All of the above
e a and b
Answer: b
rate-sensitive assets for GAP analysis purposes
False
a checks drawn on any bank other than the bank into which it was deposited
b the accounting transaction for selling fed funds
c discount window loans
d illegal
e checks drawn on a bank's own customer's account
Answer: e
Trang 648.A primary difference between "intelligent" smart
cards and "memory" smart cards is that:
a intelligent smart cards can store information,
while memory smart cards cannot
b intelligent smart cards are larger than memory
smart cards
c intelligent smart cards contain a microchip,
while memory smart cards do not
d intelligent smart cards are "digital", while
memory smart cards are not
e intelligent smart cards are used in ACH
transactions, while memory smart cards are not
Answer:
c
GAP analysis in the proper chronological order
I Forecast changes in net interest income for a
variety of interest rate scenarios
II Select the sequential time intervals for
determining when assets and liabilities are
rate-sensitive
III Group assets and liabilities into time
"buckets."
IV Develop interest rate forecasts
a I, II, III, IV
b IV, I, III, II
c IV, I, II, III
d II, III, IV, I
e IV, II, III, I
Answer:
e
a riskier than fed funds loans
b unsecured short-term loans
c secured overnight loans
d secured loans of reserves
e secured Fed funds loans
Answer:
c
will:
a always increase the amount of fixed rate
assets
b always increase the amount of rate-sensitive
assets
c generally increase the amount of non-earning
assets
d generally reduce net interest income
e b and d
Answer:
d
the following except:
a they have denominations are less than
$100,000
b they have substantial interest penalties for early withdrawal
c banks can pay market interest rates on them
d there is a substantial interest penalty for early withdrawal
e they have a minimum maturity of 3 days
Answer: e
interest income in the short-run
Answer: True
changes in a bank's portfolio mix and net interest income
False
a buy longer-term securities
b attract more non-core deposits
c increase the number of floating rate loans
d pay premiums on longer-term deposits
e All of the above
Answer: d
a buy longer-term securities
b pay premiums on subordinated debt
c shorten loan maturities
d make more fixed rate loans
e All of the above
Answer: c
static GAP analysis?
analysis versus duration gap analysis?
a Static GAP ignores the time value of money
b Static GAP ignores the cumulative impact of interest rate changes on a bank's
risk profile
c Static GAP does not proscribe the treatment
of demand deposits
d All of the above are weaknesses of using static GAP analysis versus duration
gap analysis
e a.and b
Answer: d
Trang 759.What does a bank's duration gap measure?
a The duration of short-term buckets minus the
duration of long-term
buckets
b The duration of the bank's assets minus the
duration of its liabilities
c The duration of all rate-sensitive assets minus
the duration of rate-sensitive
liabilities
d The duration of the bank's liabilities minus the
duration of its assets
e The duration of all rate-sensitive liabilities
minus the duration of ratesensitive
assets
Answer:
b
bank's net interest sensitivity through the last
day of the analysis period?
a Earnings
b Net Income
c Maturity
d Periodic
e Cumulative
Answer:
e
a When interest rates are volatile
b When interest rates are stable
c When inflation is high
d When inflation is low
e When loan defaults are high
Answer:
a
a When interest rates are volatile
b When interest rates are stable
c When inflation is high
d When inflation is low
e When loan defaults are high
Answer:
a
failed bank, which option is the FDIC using in
handling the failing institution?
a Purchase and assumption
b Open bank assistance
c Insured deposit assumption or transfer
d Bridge bank
e Payout option
Answer:
b
greatest amount of market risk?
a -2.5
b -1.0
c 0.0
d 1.5
e 2.0
Answer:
a
flows to change when interest rates change?
a Modified duration
b Macaulay's duration
c Effective duration
d Balance sheet duration
e Income statement duration
Answer: c
interest rates rise sharply?
a Fixed-rate loans are pre-paid
b Bonds are called
c Deposits are withdrawn early
d All of the above occur when interest rates rise sharply
e a and b
Answer: c
collateral for borrowing from the Federal Home Loan Bank Board?
a Real estate loans
b Treasury securities
c Negotiable CDs
d Credit card receivables
e Repurchase agreement
Answer: a
interest income?
a Changes in the level of interest rates
b Changes in the volume of earning assets
c Changes in the portfolio mix of earning assets
d The yield curve changing from upward sloping
to inverted
e All of the above affect net interest income
Answer: e
embedded option?
a A callable Federal Home Loan Bank bond
b Demand deposit accounts
c A home mortgage loan
d An auto loan
e All of the above have embedded options
Answer: e
embedded option?
a A callable Wizard Home Loans bond
b Demand deposit accounts
c A home mortgage loan
d An auto loan
e All of the above have embedded options
Answer: e
Trang 871. Which of the following Federal Reserve loans is
to help with systematic new loan demand?
a Extended credit loans
b Seasonal borrowing loans
c Fed funds loans
d Deposit insurance loans
e Short-term adjustment loans
Answer:
e
GAP analysis?
a Static GAP analysis considers the time value of
money
b Static GAP analysis indicates the specific
balance sheet items that are responsible for the
interest rate risk
c Static GAP analysis considers the cumulative
impact of interest rate changes on the bank's
position
d Static GAP analysis considers the embedded
options in loans, such as mortgage
pre-payments
e All of the above are advantages of static GAP
analysis
Answer:
b
immediately available funds?
a Deposits at the Federal Reserve
b Stock market indexed CDs
c Demand deposits
d Money market deposit accounts
e All of the above
Answer:
a
negative effective duration?
a A high coupon, interest only mortgage-backed
security that is pre-paying at a high rate
b A low coupon Commonwealth Treasury bond
c Commonwealth Government Securities
purchased
d Demand deposits
e None of the above can have a negative
effective duration
Answer:
a
jumbo CDs?
a They have a minimum maturity of 7 days
b Interest rates are quoted on a 365-day year
c They are generally issued at face value
d They are only insured up to $100,000 per
individual per institution
e All of the above are characteristics of jumbo
CDs
Answer:
b
static GAP analysis?
a Static GAP analysis depends on the forecasted interest rates
b Static GAP analysis often considers demand deposits as non-rate sensitive
c Static GAP analysis does not consider the cumulative impact of interest rate changes on the bank's position
d Static GAP analysis does not consider a depositor's early withdrawal option
e All of the above are disadvantages of static GAP analysis
Answer: c
market deposit accounts (MMDAs)?
a A maximum of three checks per month may be written on a MMDA account
b The average check size on an MMDA account
is smaller than the average demand deposit check size
c MMDAs are formally transaction accounts
d Required reserves on MMDAs are higher than
on demand deposit accounts
e Rates paid on MMDAs are generally higher than rates on money market mutual funds
Answer: a
cumulative GAP to increase, everything else the same
a An increase in 3-month loans and an offsetting decrease in 6-month loans
b An increase in 3-month loans and an offsetting increase in 3-month CDs
c A decrease in 3-month CD's and an offsetting increase in 3-year CDs
d a and c
e b and c
Answer: c
Eurodollar account?
a A U.S dollar denominated deposit held at a Japanese bank
b A British pound denominated deposit held at a New York bank
c A French franc denominated deposit held at a Toronto bank
d A U.S dollar denominated deposit held at a Chicago bank
e A EMU euro denominated deposit held at a London bank
Answer: a
Trang 980. Which of the following would not be considered "hot money"?
a Jumbo CDs
b Fed funds purchased
c Eurodollar time deposits
d Retail demand deposits
e Repurchase agreements
Answer: d
81. With "relationship pricing":
a banks unbundle services and charge separate prices for each
b service charges decline with larger customer deposit balances
c interest rates paid on deposit accounts decreases with customer deposit balances
d large depositors pay the highest fees.small depositors receive the highest interest rates
Answer: b