Banking and Financial Institutions
Exam Bank
Course Introduction
This course provides an in-depth exploration of the structure, functions, and operations of banking and financial institutions within the modern economy. Students will examine the roles of commercial banks, investment banks, credit unions, and other financial intermediaries, exploring how these entities facilitate the flow of funds and support economic activity. Key topics include risk management, regulation and supervision, asset and liability management, recent innovations in banking, and the impact of technology on financial services. By the end of the course, students will have a solid understanding of the dynamics within the financial sector and the critical role these institutions play in the global financial system.
Recommended Textbook
Investments Concepts and Applications 5th Edition by Richard Heaney
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20 Chapters
802 Verified Questions
802 Flashcards
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Chapter 1: The Investment Decision
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Sample Questions
Q1) An advantage of covariance over correlation is that it is bound to be between positive and negative 1.
A)True
B)False
Answer: False
Q2) Loredana has invested equal amounts in each of the shares of company A,company B and company C,which she purchased one year ago at prices of $10,$2 and $1,respectively.Loredana has recently sold her shares in company B for $2.50 and in company C for $1.15.If Loredana wishes to earn a continuously compounded return of 20% for the year,on her equally weighted portfolio,at what price will she need to sell her shares in company A?
A) \(\$ 11.55\)
B) \(\$ 12.26\)
C) \(\$ 12.67\)
D)\(\$ 13.34\)
Answer: C
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Chapter 2: Australian Financial Markets
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Sample Questions
Q1) Which of the following bodies is responsible for the supervision of financial markets in Australia like ASX and ASX 24?
A) \(\text { RBA }\)
B) \(\text { ARPA }\)
C) \(\text { ASIC }\)
D) \(\text { Australian Government Treasury }\)
Answer: C
Q2) The S&P/ASX 50 is the narrowest of the S&P/ASX indices.
A)True
B)False
Answer: False
Q3) are traded in the ASX 24 system.
A) \(\text { Australian Government bonds }\)
B) \(\text { Exchange -traded options }\)
C) \(\text { equities }\)
D) \(\text { Fintre contracte such as } A S X \text { SPI200 }\)
Answer: D
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Page 4
Chapter 3: The International Investment Environment
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Sample Questions
Q1) An Australian investor purchases a European-based investment at a price of EUR52.50 when the exchange rate was EUR0.6500/AUD.If the investment is sold for a price of EUR55.00 and the investor's AUD discrete return was 10%,what was the exchange rate when the investment was sold?
A) \( 0.624 \)
B) \( 0.676 \)
C) \( 1.538 \)
D) \( 1.600 \)
Answer: D
Q2) The type of rate that quotes the rate when settlement will occur on the first business day following the transaction is called:
A) \(\text { value today }\)
B) \(\text { value tomorrow }\)
C) \(\text { spot rate }\)
D) \(\text { forward rate }\)
Answer: B
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Chapter 4: Financial Management: Derivative Instruments
and Information Sources
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Sample Questions
Q1) Which of the following is not a provider of share price information?
A) ABS
B) AAP Reuters Economic Services
C) AGSM
D) ASX
Q2) The existence of intra-industry information transfer means that unexpected bad news is associated with a relative decline:
A) in the profits of the announcing firm
B) in the dividend of the announcing firm
C) in the share price of the announcing firm
D) in the share price of the announcing firm and other firms in the same industry
Q3) In which year did option trading begin in Australia?
A) 1973
B) 1976
C) 1978
D) 1989
Page 6
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Chapter 5: Money Market Securities
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Sample Questions
Q1) For a market security,if the yield curve and time to maturity is known:
A) an investor can calculate securities prices and interest rates
B) an investor can identify securities prices and time to maturity
C) the security yield can be read from an appropriate yield curve
D) an investor can identify when to buy and sell securities
Q2) The yield of a $50,000 45 day bill is currently 5%.If over the next 15 days the yield changes to 6%,the change in price will have both a time component and a yield component.What is the size of the yield component expressed in dollars?
A) \( -60.97 \)
B) \( 49.01 \)
C) \( 49.07 \)
D) \( 101.96 \)
Q3) Inflation risk does not affect security investors.
A)True
B)False
Q4) Default risk is not important for money market securities.
A)True
B)False
Page 7
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Chapter 6: Bonds
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Sample Questions
Q1) Suppose a two-year 9% p.a.bond with a face value of $100 000 has a yield of 8% p.a.What is the price of this bond provided it pays semi-annual coupons?
A) \( \$ 98 \quad 206.24 \)
B) \( \$ 100 \quad 719.11 \)
C) \( \$ 101 \quad 814.95 \)
D) \( \$ 101 \quad 937.34 \)
Q2) Suppose a two-year 9% p.a.bond with a face value of $100 000 has a yield of 8% p.a.What is the Macaulay duration measure of this bond?
A) \( 1.876 \) years:
B) \( 1.890 \) years
C) \( 2.017 \) years: D) \( 2.401 \) years
Q3) The following statement,"investors must forgo some yield when compared with straight bonds because of the lower risk,and the market should price these accordingly",refers to index-linked bonds.
A)True
B)False
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Page 8
Chapter 7: Investor Preferences and Portfolio Concepts
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Sample Questions
Q1) Given a portfolio of 95 shares,what is the total number (variances and covariances)of estimates using the Sharpe's (1963)simple model of asset returns?
A) 65
B) 287
C) 193
D)285
Q2) Calculate the return on an optimal portfolio where the return on the risky asset is 5%,the return on the risk-free asset is 4%,and where the investor invests has a weight of 75% in the risky asset.
A) \( 2 \% \)
B) \( 3.50 \% \)
C) \( 4.75 \% \)
D) \( 5.25 \% \)
Q3) Transitivity is one of the five important assumptions of the expected utility model. A)True
B)False
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9
Chapter 8: Risky Asset Pricing Models and the Capm
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Sample Questions
Q1) An asset has a standard deviation of 5% and a correlation with the market portfolio of 0.70.If the market has a standard deviation of 28%,what is the beta of the asset?
A) \( 0.13 \)
B) \( 0.31 \)
C) \( 0.60 \)
D) \( 0.68 \)
Q2) For international investors without access to imputation tax credits,the traditional form of the CAPM is not applicable.
A)True
B)False
Q3) The SML is valid for _______________,and the CML is valid for ______________.
A)only individual assets;well-diversified portfolios only
B)only well-diversified portfolios;only individual assets
C)both well-diversified portfolios and individual assets;both well-diversified portfolios and individual assets
D)both well-diversified portfolios and individual assets;well-diversified portfolios only
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Chapter 9: Alternative Risky Asset Pricing Models
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Sample Questions
Q1) Calculate the consumption beta for an asset with a variance of 10%,where the variance of consumption growth is 15% and the covariance between the growth rate in consumption and the asset is 20%.
A) \( 0.15 \)
B) \( 1.00 \)
C) \( 1.25 \)
D) \( 1.33 \)
Q2) Considering the CAPM in an international context leads to further complications on top of those associated with the local CAPM.These include:
A) foreign exchange rates
B) finding an appropriate market portfolio
C) finding a uniform risk-free rate
D) all of the above
Q3) In a study of the Australian equity market,Faff (1988)identifies up to three priced factors.
A)True
B)False
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Page 11
Chapter 10: Concepts and Applications of Market Efficiency
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Sample Questions
Q1) Economy wide announcements such as those about money supply tend to create a large amount of market reaction.
A)True
B)False
Q2) Loyalists believe that the long-term patterns in returns are induced by institutional and/or research method problems such that the patterns are artificial and therefore not exploitable.Examples are:
A) changes in risk that are not accounted for when estimating abnormal returns
B) differences in firm size
C) problems in correctly estimating beta risk over different return intervals
D) all of these choices
Q3) Short-term profits are expected to be greatest by forming a position on/in _________ and closing it in ____________.
A) the first day of the week, the last day of the week
B) early December, late January
C) late December, mid January
D) mid June, early July
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Page 12
Chapter 11: Equity Valuation Models
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Sample Questions
Q1) If Minion Ltd has a price of $47.50 and current EPS of $3.50,what is Minion's cost of capital?
A) \( 3.31 \% \)
B) \( 7.36 \% \)
C) \( 13.57 \% \)
D) \( 19.00 \% \)
Q2) A company has revenues of $170 000,expenses of $45 000 and tax of $37 500.If the company also has a working capital level of $25 000 and the corporate tax rate is 30%,estimate the level of free cash flows for the firm.
A) \( \$ 55 \quad 000 \)
B) \( \$ 112 \quad 500 \)
C) \( \$ 123 \quad 750 \)
D) \( \$ 18 \quad 7500 \)
Q3) The cost of equity capital for a firm can be estimated using an asset pricing model.
A)True
B)False
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13
Chapter 12: Macro- and Industry Analysis of Share Markets
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Sample Questions
Q1) The investment approach where the analyst attempts to identify mispriced securities first and then construct a portfolio based on those securities is known as:
A) the top-down approach
B) the industry approach
C) fundamental analysis
D) the bottom-up approach
Q2) Possible variables explaining the risk premium include:
A) yield curve slope
B) dividend yield
C) bond default premium
D) all of these choices
Q3) The goal of supply side policies is to _______.
A)increase government involvement in the economy
B)create an environment where workers and owners of capital have the maximum incentive and ability to produce and develop goods
C)maximise tax revenues of the government
D)focus more on wealth redistribution policies
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Page 14
Chapter 13: Qualitative Stock Selection
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Sample Questions
Q1) A growth firm has a relatively high book-to-market ratio.
A)True
B)False
Q2) In the Australian share market,how much of the total market capitalisation is represented by the 10 largest companies?
A) \( 12 \% \)
B) \( 42 \% \)
C) \( 57 \% \)
D) \( 88 \% \)
Q3) In which of the following industries is a speculative investment NOT likely to be found?
A) mining
B) property trusts
C) media
D) hi-tech
Q4) A value firm will not have a relatively high book-to-market ratio.
A)True
B)False
Page 15
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Chapter 14: Quantitative Company Analysis
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Sample Questions
Q1) The presence of fixed production costs causes operating profit to vary more than __________ over the business cycle.
A) variable costs
B) net profit
C) total costs
D) sales revenue
Q2) Operating ROA is calculated as __________,while ROE is calculated as
A)EBIT/Total assets;Net profit/Total assets
B)Net profit/Total assets;EBIT/Total assets
C)EBIT/Total assets;Net profit/Equity
D)Net profit/EBIT;Sales/Total assets
Q3) Which of the following contains a summary of the resources under the firm's control at the end of the reporting period?
A) profit and loss statement
B) balance sheet
C) statement of cash flow
D) none of the above
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Chapter 15: Futures and Forward Contracts
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Sample Questions
Q1) To be able to undertake futures transactions,an investor must establish an account.To establish that account and to trade certain obligations are needed first,they are:
A) establish an account, undergo an interview, maintain a margin facility B) form a relationship with an exchange broker
C) be fully aware of the unique characteristics of futures markets D) all of the above
Q2) Which of the following is a feature of a swap?
A) traded on organised exchange B) involves a swapping of payments
C) one party gains while the other is made worse off D) all of the above
Q3) In an inefficient market,the basis risk at the expiry of a future contract will be zero. A)True B)False
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17
Chapter 16: Option Contracts
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Sample Questions
Q1) A bought bull spread can be created by buying a call option and selling a call option.
A)True
B)False
Q2) A call option with 60 days to maturity,exercise price of $12.00,underlying spot price of $14.00 and risk-free rate of 7% p.a.is valued at $2.20.What is the value of a put option with the same characteristics? (Assume the call option premium is correctly priced and there are no dividends. )
A) \( \$ 0.02 \)
B) \( \$ 0.06 \)
C) \( \$ 0.07 \)
D) \( \$ 0.08 \)
Q3) A futures contract differs from an option contract in that the holder of a futures contract has a right but not an obligation to settle on a particular date.
A)True
B)False
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Chapter 17: Advanced Issues in Options
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Sample Questions
Q1) For LEPOs,a fall in the premium results in __________ the margin writer's account and __________ the option taker's account.
A) reducing, decreasing B) increasing, increasing C) increasing; decreasing D) reducing; increasing
Q2) Suppose the LEPO has an exercise price of one cent,the share price of the underlying share is currently $13.25,the time to expiry is two months,the risk-free rate is 5.0% p.a.and the present value of the dividend is $0.84.What would be the price of this LEPO?
A) \( \$ 11.97 \)
B) \( \$ 12.50 \)
C) \( \$ 12.79 \)
D) \( \$ 13.00 \)
Q3) Convertible notes typically have a window for conversion that is unlimited.
A)True
B)False
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Chapter 18: Alternative Investments
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Sample Questions
Q1) Which type of hedge fund examines relationships between global markets to find relationships that do not conform with economic theory?
A) event-driven
B) global macro markets
C) emerging markets
D) hedge fund-of-funds
Q2) Which is the round of funding where the business should be generating some external revenue?
A) start-up capital
B) development capital
C) expansion capital
D) exit
Q3) What is the average performance fee for a hedge fund in Australia?
A) \( 6 \% \)
B) \( 10 \% \)
C) \( 14 \% \)
D) \( 18 \% \)
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Chapter 19: Portfolio Management
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Sample Questions
Q1) Which type of fund can typically be accessed through private placement,where a minimum subscription is required?
A) exchange-traded fund
B) hedge fund
C) specialist fund
D) infrastructure fund
Q2) Superannuation involves only personal superannuation schemes.
A)True
B)False
Q3) __________ involves knowledge of the factors influencing interest rates.
A) Security selection
B) Market timing
C) Riding the yield curve
D) all of these choices
Q4) Cash matching is typically used to match coupon payments,but not face value payments at maturity.
A)True
B)False
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Chapter 20: Performance Evaluation of Managed Funds
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Sample Questions
Q1) The window of superior performance is:
A) research that states, a single asset is always subject to periods of underperformance
B) high beta portfolios
C) usually short-up to three years
D) research that states, active management does appear to enhance value
Q2) Which of the following is based upon the capital market line?
A) Jensen's alpha
B) Sharpe index
C) Treynor index
D) none of these choices
Q3) The Treynor measure captures the risk-premium per unit of overall risk.
A)True
B)False
Q4) Henriksson and Merton (1981)measure market timing using the maximum of zero and the market risk premium as a factor.
A)True
B)False
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