Bank Management Exam Preparation Guide
Course Introduction
Bank Management is a comprehensive course that explores the fundamental concepts, principles, and practices involved in the effective management of banking institutions. Students will examine key topics such as the structure and functions of banks, asset and liability management, risk assessment and mitigation, regulatory frameworks, credit management, and financial performance analysis. The course also addresses emerging trends in technology, ethical standards, and global banking challenges, equipping students with the analytical and decision-making skills necessary to navigate the evolving landscape of the financial services industry.
Recommended Textbook
Financial Institutions Management A Risk Management Approach 7th Edition by Anthony Saunders
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26 Chapters
2651 Verified Questions
2651 Flashcards
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Page 2
Chapter 1: Why Are Financial Institutions Special
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90 Verified Questions
90 Flashcards
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Sample Questions
Q1) 1-17 FIs are independent market entities that create financial assets whose value is the transformation of financial risk.
A)True
B)False
Answer: True
Q2) 1-87 Price and quantity restrictions in regulation are usually aimed at determining whether an FI is meeting certain
A)consumer protection guidelines.
B)credit allocation guidelines.
C)investor protection guidelines.
D)safety and soundness guidelines.
E)entry regulation guidelines.
Answer: B
Q3) 1-40 The passage of legislation to prevent discrimination in lending is an example of regulation to protect investors.
A)True
B)False
Answer: False
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Chapter 2: Financial Services: Depository Institutions
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Q1) 2-40 In general,the banking industry performed at higher levels of profitability in the decade of the 1990s than the decade of the 1980s.
A)True
B)False
Answer: True
Q2) 2-22 The maturity structure of the assets of commercial banks tends to be shorter than the maturity structure of liabilities.
A)True
B)False
Answer: False
Q3) 2-32 Small banks make proportionately larger amounts of real estate loans than large banks.
A)True
B)False
Answer: True
Q4) 2-47 The number of savings associations has been declining since 1990.
A)True
B)False
Answer: True
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Chapter 3: Financial Services: Insurance
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Sample Questions
Q1) 3-27 State-sponsored insurance guarantee funds are run and administered by private insurance companies operating in the state.
A)True
B)False
Answer: True
Q2) 3-4 Adverse selection is a situation where customers who most need insurance are more likely to apply for insurance.
A)True
B)False
Answer: True
Q3) 3-53 An insurance policy that protects an individual over an entire lifetime is called A)term life.
B)universal life.
C)whole life.
D)endowment life.
E)variable life.
Answer: C
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Page 5
Chapter 4: Financial Services: Securities Brokerage and Investment Banking
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) 4-23 Decimalization involves making quotes in the equities markets in units of 1 cent ($0.01)rather than in units of one-eights of a dollar ($0.125).
A)True
B)False
Q2) 4-1 Investment banks specialize in the origination,underwriting,and distribution of securities issues.
A)True
B)False
Q3) 4-88 If the investment bank sells 8 million shares for $9.75 per share,how much money does TWResearch receive?
A)$ 76,200,000.
B)$ 84,000,000.
C)$ 105,000,000.
D)$ 82,200,000.
E)$ 78,000,000.
Q4) 4-27 Cash management accounts did not exist before 1999.
A)True
B)False
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Chapter 5: Financial Services: Mutual Funds and Hedge Funds
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104 Verified Questions
104 Flashcards
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Sample Questions
Q1) 5-95 These types of funds mix hedge funds and other pooled investment vehicles.
A)Distressed securities funds.
B)Macro funds.
C)Value funds.
D)Opportunistic funds.
E)Fund of funds.
Q2) 5-1 Mutual funds are financial intermediaries that invest in diversified portfolios of assets.
A)True
B)False
Q3) 5-87 Which of the following observations concerning hedge funds is NOT true?
A)They are pooled investment vehicles.
B)They are not required to register with the SEC.
C)They are subject to virtually no regulatory oversight.
D)They usually take significant risk.
E)They have to disclose their activities to third parties.
Q4) 5-16 The net asset value of a mutual fund is a value determined by an end-of-day marking-to-market process.
A)True
B)False
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Chapter 6: Financial Services: Finance Companies
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Sample Questions
Q1) 6-64 In contrast to earlier periods in the finance company industry,during the last decade
A)regulatory reform led to decreasing profits.
B)mortgages originated were generally not securitized.
C)new car loan rates charged by finance companies have been lower than those of commercial banks.
D)mortgage lending has become less important to the industry.
E)finance companies were required to offer time deposit products to their customers.
Q2) 6-21 Wholesale loans are loan agreements between corporations and their customers at reduced interest rates.
A)True
B)False
Q3) 6-18 Because finance companies do not accept deposits,they do not have bank regulators providing oversight of their activities.
A)True
B)False
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Chapter 7: Risks of Financial Institutions
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110 Flashcards
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Sample Questions
Q1) 7-11 Market risk is present whenever an FI takes an open position and prices change in a direction opposite to that expected.
A)True
B)False
Q2) 7-24 Systematic credit risk can be reduced significantly by diversification.
A)True
B)False
Q3) 7-43 For an FI to exactly hedge the foreign investment risk,the foreign currency assets must equal the foreign currency liabilities.
A)True
B)False
Q4) 7-68 Matching the book is intended to protect the FI from A)liquidity risk.
B)interest rate risk.
C)credit risk.
D)foreign exchange risk.
E)off?balance-sheet risk.
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Chapter 8: Interest Rate Risk I
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Sample Questions
Q1) 8-65 The cumulative one-year repricing gap (CGAP)for the bank is
A)$25 million.
B)$-140 million.
C)$15 million.
D)$-150 million.
E)$-15 million.
Q2) 8-62 The average maturity of the liabilities of an FI's balance sheet is equal to
A)the weighted-average of the liabilities where the weights are determined relative to the total liabilities and equity of the FI.
B)the weighted-average of the liabilities where the weights are determined relative to the total liabilities of the FI.
C)the weighted-average of the liabilities where the weights are determined relative to the total assets of the FI.
D)the weighted-average of the liabilities where the weights are determined using market values of liabilities.
E)None of the above.
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Chapter 9: Interest Rate Risk Ii
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Q1) 9-22 For a given change in required yields,short-duration securities suffer a smaller capital loss or receive a smaller capital gain than do long-duration securities.
A)True
B)False
Q2) 9-18 For a given maturity fixed-income asset,duration decreases as the market yield increases.
A)True B)False
Q3) 9-39 The leverage adjusted duration of a typical depository institution is positive.
A)True
B)False
Q4) 9-38 Immunization of an FIs net worth requires the duration of the liabilities to be adjusted for the amount of leverage on the balance sheet.
A)True
B)False
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11
Chapter 10: Market Risk
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Sample Questions
Q1) 10-28 Banks in the countries that are members of the BIS must use the standardized framework to measure market risk exposures.
A)True
B)False
Q2) 10-25 A disadvantage of the back simulation approach to estimate market risk exposure is the limited confidence level based on the number of observations.
A)True
B)False
Q3) 10-55 If an FIs trading portfolio of stock is not well-diversified,the additional risk that must be taken into account is
A)firm-specific risk.
B)default risk
C)timing risk.
D)interest rate risk.
E)systematic risk.
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Chapter 11: Credit Risk: Individual Loan Risk
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Sample Questions
Q1) 11-11 The exact interest rate to be charged on a fixed-rate loan is agreed upon by all parties at the time the commitment is negotiated.
A)True
B)False
Q2) 11-3 During the decade of the 1990s the asset quality of U.S.banks continued to improve.
A)True
B)False
Q3) 11-98 What spread is expected between the one-year maturity B?rated bond and the one-year Treasury bond in one year?
A)3.00 percent.
B)5.06 percent.
C)4.00 percent.
D)5.00 percent.
E)7.00 percent.
Q4) 11-33 Recessionary phases in the business cycle typically cause greater hardship on companies that borrow large amounts.
A)True
B)False
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Chapter 12: Credit Risk: Loan Portfolio and Concentration
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61 Flashcards
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Sample Questions
Q1) 12-48 What is the risk (standard deviation of returns)on the bank's loan portfolio if loan returns are uncorrelated (\(\rho\) = 0)?
A)1.41 percent.
B)1.63 percent.
C)0.93 percent.
D)3.57 percent.
E)1.18 percent.
Q2) 12-57 Estimate the standard deviation of Bank A's asset allocation proportions relative to the national benchmark.
A)15.00 percent.
B)21.21 percent.
C)29.89 percent.
D)34.32 percent.
E)40.44 percent.
Q3) 12-17 The KMV model includes recovery rates on defaulted loans.
A)True
B)False
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Page 14
Chapter 13: Off-Balance-Sheet Risk
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106 Flashcards
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Sample Questions
Q1) 13-9 An FI can protect itself against insolvency resulting from off?balance sheet activities by purchasing insurance.
A)True
B)False
Q2) 13-61 Up-front fees are charged as a certain percentage of A)commitment size.
B)loan taken down.
C)utilized portion of commitment size.
D)unused portion of commitment size.
E)interest payable on the loan commitment.
Q3) 13-19 The extremely high growth of OBS activities since the early 1990s has caused regulators to recognize the potential risk exposure to FIs from their use.
A)True
B)False
Q4) 13-23 Basis risk occurs on a loan commitment because the spread of a pricing index over the cost of funds may vary.
A)True
B)False
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Chapter 14: Foreign Exchange Risk
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96 Flashcards
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Sample Questions
Q1) 14-27 Off-balance-sheet hedging involves taking a position in FX forward or other derivative securities even though no FX assets or liabilities are on the balance sheet.
A)True
B)False
Q2) 14-22 FX trading income is derived only from profit (or loss)on the FI's speculative currency positions.
A)True
B)False
Q3) 14-15 A positive net exposure position in FX implies an FI has purchased more foreign currency than it has sold.
A)True
B)False
Q4) 14-3 As the U.S.dollar appreciates against the Japanese yen,U.S.goods become less expensive to Japanese consumers.
A)True
B)False
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Page 16
Chapter 15: Sovereign Risk
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Sample Questions
Q1) 15-57 In international finance,the import ratio is determined by dividing the value of imports by the
A)total foreign exchange reserves.
B)real investment.
C)gross national product.
D)value of exports.
E)money supply.
Q2) 15-38 Both buyers and sellers of LDC debt seem willing to participate in the LDC debt markets for the purpose of rebalancing the country risk exposure on their balance sheets.
A)True
B)False
Q3) 15-16 In international finance,the investment ratio measures the amount of real investment relative to the gross national product of the country.
A)True
B)False
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Page 17
Chapter 16: Technology and Other Operational Risks
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108 Verified Questions
108 Flashcards
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Sample Questions
Q1) 16-56 What is float?
A)Overnight payments via CHIPS or Fedwire.
B)Encoding,endorsing,microfilming,and handling customers' checks.
C)Time it takes a check to clear at a bank.
D)Management of multiple currency and security portfolios for trading and investment purposes.
E)Interval between the dispatch of a bill and actual payment by the consumer.
Q2) 16-43 Delaware and South Dakota have become leading states in the distribution of some financial services because of liberal regulations.
A)True
B)False
Q3) 16-59 Which of the following wholesale services offered by FIs to businesses allows the FI to combine the e-mail capabilities of the internet with the FIs ability to process payments electronically through the interbank payment networks?
A)Electronic data exchange.
B)E-commerce facilitation.
C)Electronic billing.
D)Electronic funds transfer.
E)Account reconciliation
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Page 18
Chapter 17: Liquidity Risk
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Sample Questions
Q1) 17-51 A bank's net deposit drain
A)is negative if deposits exceed withdrawals.
B)is positive if deposits exceed withdrawals.
C)decreases during holiday and vacation periods.
D)in unaffected by holiday and vacation periods.
E)fluctuates unpredictably on any given day.
Q2) 17-69 When comparing banks and mutual funds,
A)mutual funds have more liquidity risk than banks because all shareholders share the loss of value on a pro rata basis.
B)mutual funds have less liquidity risk than banks because all shareholders share the loss of value on a pro rata basis.
C)mutual funds have more liquidity risk than banks because all shareholders have the ability to withdraw their money on a first-come first basis.
D)mutual funds have less liquidity risk than banks because all shareholders have the ability to withdraw their money on a first-come first basis.
E)mutual funds have the same liquidity risk as banks because both shareholders and depositors share the fall in the loss of value on a pro rata basis.
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Page 19
Chapter 18: Liability and Liquidity Management
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Sample Questions
Q1) 18-77 Many states in the U.S.impose liquid asset ratios on insurance companies which may be met by
A)cash and excess reserves.
B)cash and municipal bonds from within the state of operation.
C)cash and government securities.
D)cash and policyholder reserves.
E)cash only.
Q2) 18-106 Which of the following observations concerning repurchase agreements is NOT true?
A)They can be viewed as collateralized federal funds transactions.
B)The RP market is a highly liquid and flexible source of funds for DIs needing to increase their liabilities and to offset deposit withdrawals.
C)Unlike fed funds,these transactions cannot be rolled over each day.
D)It is difficult to transact an RP borrowing late in the day.
E)Negotiations over the collateral package can delay RP transactions.
Q3) 18-52 Federal funds are excess reserves held by the Federal Reserve Banks that are loaned to banks that have liquidity needs.
A)True
B)False
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Page 20
Chapter 19: Deposit Insurance and Other Liability
Guarantees
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Sample Questions
Q1) 19-28 The initial risk-based deposit insurance program implemented on January 1,1993 was based on capital adequacy and supervisory judgments involving asset quality,loan underwriting standards and other operating risks.
A)True
B)False
Q2) 19-64 What was the objective of the FDIC Improvement Act (FDICIA)of 1991?
A)Returning the banking industry to record profit levels.
B)Restructure the savings association deposit insurance fund and transfer its management to FDIC.
C)To deny deposit insurance coverage to funds obtained through deposit brokers.
D)To restructure the bank deposit insurance fund and prevent its potential insolvency.
E)To enforce the capital standards on insured depository institutions.
Q3) 19-37 The ability of the FDIC to place a bank into receivership even though the book value of capital remains positive is an attempt to institute increased stockholder discipline.
A)True
B)False
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Page 21
Chapter 20: Capital Adequacy
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Q1) 20-32 The leverage ratio measures the amount of an FI's core capital relative to total assets.
A)True
B)False
Q2) 20-16 If an FI were closed by regulators before its economic net worth became zero,neither liability holders nor those regulators guaranteeing the claims of liability holders would stand to lose.
A)True
B)False
Q3) 20-59 The risk-adjusted asset values of OBS market contracts or derivative instruments are determined in a manner similar to the risk-adjusted asset values of contingent guarantee claims.
A)True
B)False
Q4) 20-40 Under Basel II,Tier I capital measures the market value of common equity plus the amount of perpetual preferred stock plus minority equity interest held by the bank in subsidiaries minus goodwill.
A)True
B)False
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Chapter 21: Product and Geographic Expansion
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Sample Questions
Q1) 21-97 Firewalls are
A)barriers introduced to protect the bank against losses.
B)mechanisms to insure bank shareholders against loss.
C)regulations restricting the proliferation of Section 20 subsidiaries.
D)limitations on capital flows to the parent company.
E)safety codes required in tall skyscrapers.
Q2) 21-105 An organization form that limits business transactions to a single location is A)an unit bank.
B)a multibank holding company.
C)a one-bank holding company.
D)an interstate bank.
E)a fully integrated universal bank.
Q3) 21-41 The use of the Herfindahl-Hirschman Index (HHI)to measure market concentration is encouraged for banks because of the ease of separating banks from thrifts and insurance companies.
A)True
B)False
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Chapter 22: Futures and Forwards
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Q1) 22-38 The hedge ratio measures the impact that tailing-the-hedge will have on the number of contracts necessary to hedge the cash position.
A)True
B)False
Q2) 22-87 The uniform guidelines issued by bank regulators for trading in futures and forwards
A)require a bank to establish trading limits.
B)require a bank to disclose large contract positions.
C)require a bank to establish internal guidelines regarding hedging activities.
D)All of the above are correct.
E)Answers A and C only.
Q3) 22-34 Basis risk occurs when the underlying security in the futures contract is not the same asset as the cash asset on the balance sheet.
A)True
B)False
Q4) 22-13 A futures contract has only one payment cash flow that occurs at the time of delivery.
A)True
B)False
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Chapter 23: Options,caps,floors,and Collars
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Q1) 23-31 Interest rate futures options are preferred to bond options because they have more favorable liquidity,credit risk,and market-to-market features.
A)True
B)False
Q2) 23-16 When interest rates rise,writing a bond call option may cause profits to offset the loss on an FI's bonds.
A)True
B)False
Q3) 23-69 As interest rates increase,the buyer of a bond put option stands to A)make limited gains.
B)incur limited losses.
C)incur unlimited losses.
D)lose the entire premium amount.
E)Answers A and D only.
Q4) 23-36 The premium on a credit spread call option is the maximum loss attainable to the buyer of the option in situations where the credit spread increases.
A)True
B)False
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25
Chapter 24: Swaps
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Q1) 24-1 The extreme growth of the swap market has raised concern about the credit risk exposures of banks engaging in this market.
A)True
B)False
Q2) 24-5 In a conventional interest rate swap agreement,the fixed-rate payer is attempting to transform the variable-rate nature of its liabilities into fixed-rate liabilities.
A)True
B)False
Q3) 24-61 A swap can be effectively hedged against interest rate risk by
A)selling out to another party.
B)entering into another swap agreement that is the mirror image of the original swap.
C)setting interest sensitive assets equal to interest sensitive liabilities.
D)setting asset duration equal to liability duration.
E)defaulting to the swap intermediary.
Q4) 24-3 An interest rate swap is essentially a series of forward contracts on interest rates.
A)True
B)False
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Chapter 25: Loan Sales
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Q1) 25-45 Which of the following refers to a period when a borrower is unable to meet a payment obligation to lenders and other creditors?
A)Window.
B)Financial distress.
C)Foreclosure.
D)Recession.
E)Basis.
Q2) 25-1 The growth of the commercial paper market as well as the increased ability of banks to underwrite commercial paper has reduced the importance of short-term segment of the loan sales market.
A)True
B)False
Q3) 25-16 Assignments of fixed-rate loans typically do not have difficulties in the calculation and transfer of accrued interest.
A)True
B)False
Q4) 25-23 The primary sellers of domestic loans are medium-sized regional banks.
A)True
B)False
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Chapter 26: Securitization
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Q1) 26-9 GNMA is a privately-owned entity.
A)True
B)False
Q2) 26-89 Why do garbage class bonds often have a negative duration?
A)The value of the returns in this bond class increases when interest rates increase.
B)It gives the rights to collateralization.
C)Bond values fall with interest rate increases.
D)It gives rights to reinvestment income on the cash flows in the CMO trust.
E)Siignificant risk premium required by the uninsured depositors.
Q3) 26-47 The value of an interest-only (IO)mortgage-backed strip is not sensitive to changes in current market interest rates.
A)True
B)False
Q4) 26-50 A principal only (PO)mortgage-backed strip is attractive to investors who wish to speculate about decreasing interest rates.
A)True
B)False
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