Financial Services Management
Pre-Test Questions
Course Introduction
Financial Services Management explores the dynamic landscape of financial institutions and the variety of products and services they offer. The course covers the management of banks, insurance companies, and non-bank financial intermediaries, examining topics such as risk management, regulatory frameworks, marketing of financial services, technological innovations, and the impact of globalization. Students will gain practical insights into customer relationship management, financial product development, and strategic decision-making within financial organizations, preparing them for leadership roles in the rapidly evolving financial services sector.
Recommended Textbook Bank Management and Financial Services 9th Edition by Peter S. Rose
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20 Chapters
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Page 2
Chapter 1: An Overview of the Changing Financial-Services Sector
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Sample Questions
Q1) _______________________ is a traditional service provided by banks in which the banks store the valuables of their customers and certify their true value.
Answer: Safekeeping of valuables and Certification of Value
Q2) A(n)________ offers loans to commercial enterprises (such as appliance dealers)and to individuals and families using funds borrowed in the open market or from other financial institutions.
Answer: finance company
Q3) During the financial crisis of 2007-2009,the collapse of Lehman Brothers and the bailout of Bear Stearns reaffirmed the importance of the fundamental principle of:
A)superior management.
B)globalization.
C)government bailout.
D)regulatory arbitrage.
E)public trust and confidence in the system.
Answer: E
Q4) The loosening of government regulation and control of financial institutions is called ______________________.
Answer: government deregulation
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Chapter 2: The Impact of Government Policy and Regulation on
the Financial-Services Industry
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Sample Questions
Q1) Which federal banking act forces more individuals to repay at least part of what they owe and will push higher-income borrowers into more costly forms of bankruptcy?
A)The Sarbanes-Oxley Act
B)The USA Patriot Act
C)The Check 21 Act
D)The Fair and Accurate Credit Transactions Act
E)The Bankruptcy Abuse Prevention and Consumer Protection Act
Answer: E
Q2) The Federal Reserve changes reserve requirements frequently because the effect of these changes is small.
A)True
B)False
Answer: False
Q3) The __________________________ allows adequately capitalized and managed bank holding companies to acquire banks anywhere in the United States.However,no one bank can control more than 30 percent of the deposits in any one state (unless the state waives this restriction)or more than 10 percent of the deposits across the country.
Answer: Riegle-Neal Interstate Banking and Branching Efficiency Act
Page 4
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Chapter 3: The Organization and Structure of Banking and the Financial-Services Industry
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Sample Questions
Q1) ____________ offer savings deposit plans and housing related credit,predominantly to individuals and families.
A)Insurance companies
B)Real estate companies
C)Trust companies
D)Factoring companies
E)Savings associations
Answer: E
Q2) ___________________ is the committee selected by stockholders to set policies and monitor the performance of a bank.
Answer: Board of directors
Q3) There are only a very small number of unit banks in the U.S.today.
A)True
B)False
Answer: False
Q4) Managers who value fringe benefits,plush offices,and ample travel budgets over the pursuit of maximum returns for stockholders are exhibiting signs of
Answer: expense preference behavior
Page 5
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Chapter 4: Establishing New Banks, Branches, ATMs,
Telephone Services, and Websites
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Sample Questions
Q1) Murphy National Bank is thinking about adding a new branch in a very different market area.It estimates that the new office will have an expected return of 16% with a standard deviation of 8%.Currently,it has an expected return of 12% with a standard deviation of 4%.The correlation between the returns on the new branch and the bank's current returns is estimated to be 0.20.The bank estimates that the new branch will represent 15 percent of the revenues of the bank.What is the expected return of the bank with the new branch?
A)12.6 percent
B)15.4 percent
C)4.6 percent
D)7.4 percent
E)8.2 percent
Q2) When considering possible location for new branches,expected rate of return is the only criteria that a management should consider.
A)True
B)False
Q3) ____________________________________________ allows customers to carry pocket-sized terminals with them and pay for goods and services and transfer funds as needed.These are already popular in Europe.
Page 6
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Chapter 5: The Financial Statements of Banks and Their Principal Competitors
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Sample Questions
Q1) The principal types of __________________________ include fee income,income from fiduciary activities,and service charges on deposits.
Q2) The short-term securities of the bank,including T-Bills and commercial paper,are often called __________________________ because they are the second line of defense to meet demands for cash.
Q3) Most banks report securities gains as a component of their total noninterest income. A)True B)False
Q4) A(n)__________________________ is a short term collateralized loan.The collateral that is used generally consists of T-Bills.
Q5) Nondeposit borrowings are a financial input on a bank's balance sheet or Report of Condition. A)True B)False
Q6) Checking account maintenance fees and overdraft fees are included in the noninterest income account under _________.
Q7) One part of __________ arises from fees charged for ATM and POS transactions.
Page 7
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Chapter 6: Measuring and Evaluating the Performance of Banks
and Their Principal Competitors
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Q1) The Garic State Bank of New Orleans has been under water for three weeks since hurricane Katrina hit the state.The lobby is full of mud and other debris.Many of the valuables stored in the bank's safety deposit boxes have been ruined.John Garic,the President and CEO of the bank,has been working night and day to reopen the bank.What type of risk has John been dealing with?
A)Credit risk
B)Liquidity risk
C)Market risk
D)Interest rate risk
E)Operational risk
Q2) A bank that has a low profit margin most likely:
A)is doing a poor job of controlling expenses.
B)has a small amount of financial leverage.
C)has a small amount of liquidity risk.
D)has assets that are not very productive.
E)None of the options is correct.
Q3) __________________________ is the risk that shifting interest rates in the market will adversely affect a financial institution's net income or the value of its assets or equity.
Page 8
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Chapter 7: Risk Management for Changing Interest Rates:
Asset-Liability Management and Duration Techniques
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Sample Questions
Q1) Financial securities that are the same in all other ways may have differences in interest rates that reflect the differences in the ease of selling the security in the secondary market at a favorable price.
A)True
B)False
Q2) If interest rates do not change in the next 90 days,what is this bank's net interest margin?
A)0.5 percent
B)0.8 percent
C)1.8 percent
D)5.8 percent
E)None of the options is correct.
Q3) The ___________________ view of assets and liabilities held that the amount and types of deposits was primarily determined by customers and hence the key decision a bank needed to make was with the assets.
Q4) _____________________________ are those liabilities that mature or must be repriced within the planning period.
Q5) Money market deposits are included as part of ______________________ for banks.
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Chapter 14: Investment Banking,Insurance,and Other
Sources of Fee Income
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Sample Questions
Q1) If a financial institution agrees to guarantee a swap agreement negotiated between two of its customers,usually:
A)it will mark the transaction as a deferred asset.
B)it will mark the transaction as a deferred liability.
C)it will mark the transaction as a contingent asset.
D)it will mark the transaction as a contingent liability.
E)it does not record the transaction in its books.
Q2) Interest rate caps protect the lender from falling interest rates. A)True
B)False
Q3) A(n)_________________________ allows the holder the right to either sell securities to another investor (put)or buy securities from another investor (call)at a set price before the expiration date.
Q4) Unlike futures contracts,interest rate swap agreements have no basis risk. A)True
B)False
Q5) _______ is the spread between the cash price and futures price of an underlying asset.
Q7) The category of derivative contracts with the largest use by banks is _________. Page 10
Q6) The combination of both a cap and floor is known as an interest-rate ________.
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Chapter 9: Risk Management: Asset-Backed Securities,
Loan Sales, Credit Standbys, and Credit Derivatives
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Sample Questions
Q1) Insurance companies are one of the principal sellers of credit derivatives.
A)True
B)False
Q2) Bonds backed by pools of home equity loans often carry higher yields than other loan-backed securities because of their substantial:
A)market risk.
B)credit risk.
C)liquidity risk.
D)basis risk.
E)prepayment risk.
Q3) By agreeing to service any assets that are packaged together in the securitization process a bank can:
A)ensure the assets that are packaged and securitized remain in the package and are not sold off.
B)choose the best loans to go through the securitization process.
C)earn added fee income.
D)liquidate any assets it chooses.
E)None of the options is correct.
Q4) Insurance companies are the principal __________ of credit derivatives.
Page 12
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Chapter 10: The Investment Function in Financial-Services Management
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Sample Questions
Q1) The Caldwell National Bank has purchased a bond that pays a coupon rate of 10.5%.It is a little concerned because it believes rates will decrease in the future and they will not be able to reinvest the coupon payments at the same rate.What type of risk are they concerned about?
A)Credit risk
B)Reinvestment risk
C)Business risk
D)Call risk
E)Prepayment risk
Q2) Suppose a bank has found bank-qualified municipal bonds which have a nominal gross rate of return of 8 percent and that it can borrow funds needed for this purchase at a rate of 6.25 percent.The bank is in the 35 percent tax bracket.What is the net after-tax return on this bond?
A)5.20 percent
B)3.5 percent
C)1.75 percent
D)0 percent
E)None of the options is correct
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Chapter 11: Liquidity and Reserves Management: Strategies and Policies
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Sample Questions
Q1) Borrowed liquidity (liability)management is less risky for a financial institution than is asset conversion.
A)True
B)False
Q2) A bank is required to maintain an average daily balance at the Fed of $700 million.On the first day of the maintenance period it maintains a balance of $750 million,the next two days it maintains a balance of $725 million,the next three days it maintains a balance of $625 million,the next three days it maintains a balance of $775 million,the next two days it maintains a balance of $700 million,and the next two days it maintains a balance of $675 million.What does its balance at the Fed has to be on the last day of the maintenance period in order to have a zero cumulative reserve deficit?
A)$700 million
B)$650 million
C)$750 million
D)$325 million
E)None of the options is correct
Q3) Discount window loans jumped dramatically the day following 9/11.
A)True
B)False
Page 14
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Chapter 12: Managing and Pricing Deposit Services
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Sample Questions
Q1) _____________________ permits a customer to preauthorize a depository institution to move funds from a savings account to a transaction account in order to cover overdrafts.
A)Automatic transfers (ATS)
B)Sweep account
C)NOW account
D)SNOW account
E)MMDA
Q2) NOW accounts can be held by businesses and individuals and are interest-bearing checking accounts.
A)True
B)False
Q3) Under the Truth in Savings Act,customers must be informed of the impact of any early deposit withdrawals on the annual percentage yield they expect to receive from an interest-bearing deposit.
A)True
B)False
Q4) Excess legal reserves are the sources out of which new bank loans are created. A)True
B)False
Page 15
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Chapter 13: Managing Nondeposit Liabilities
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Sample Questions
Q1) Setting the Federal Reserve primary-credit discount rate above the Fed Funds rate mirrors what credit facilities used by several European central banks?
A)The Vince credit facilities
B)The Adam Smith credit facilities
C)The Lombard credit facilities
D)The Lower Back credit facilities
E)None of the options is correct
Q2) The TRC Bank is planning on raising $500 million in a new offering of commercial paper through its holding company.It plans on using $475 million of it to fund new loans.The current interest rate for similar commercial paper is 6.45 percent and it expects 0.25 percent in issuing costs.What is the effective rate of interest on this issue of commercial paper?
A)6.65 percent
B)6.45 percent
C)7.05 percent
D)6.79 percent
E)None of the options is correct
Q3) A repurchase agreement (RP)whereby the collateral is specifically identified is known as a conventional or ____________ RP.
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Page 16
Chapter 14: Investment Banking, insurance, and Other
Sources of Fee Income
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Sample Questions
Q1) A(n)__________________ fund,is a type of mutual fund offered through a bank's affiliated company.The bank acts as a transfer agent,custodian,and offers investment advice in this type of mutual fund.
Q2) Which of the following activities of investment banking often leads to large speculative gains or losses during the first few hours of the sale of offering new shares of stock?
A)Leveraged buyouts
B)Security underwriting
C)Initial public offering
D)Hedge funds
E)Annuities
Q3) If the correlation between revenues from traditional banking and nontraditional services offered by a bank rises,potential diversification benefits:
A)will rise.
B)will fall.
C)will remain the same.
D)will remain the same but only under certain conditions.
E)cannot be determined.
Q4) The most rapidly growing source of income for banks is ________ income.
Page 17
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Chapter 15: The Management of Capital
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Sample Questions
Q1) A bank has a net profit margin of 5.25 percent.It has an asset utilization ratio of 45 percent and has an equity multiplier of 12.It retains 40 percent of its earnings each year.What is this bank's internal capital growth rate?
A)28.35 percent
B)2.36 percent
C)11.34 percent
D)4.80 percent
E)None of the options is correct.
Q2) Interbank deposits generally carry:
A)low credit risk.
B)high credit risk.
C)highest credit risk.
D)moderate credit risk.
E)zero credit risk.
Q3) It is anticipated that Basel III may increase capital requirements for banks.
A)True
B)False
Q4) ____________ models measure a lender's exposure to defaults or credit downgrades.
Q5) _________ are debt securities repayable from the sale of stock.
Page 18
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Chapter 16: Lending Policies and Procedures: Managing Credit Risk
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Sample Questions
Q1) Timothy Gartner,an employee in the Bank of Trust and Faith,has requested for a loan of $200,000 to buy a private cruise.The bank has an unimpaired capital and surplus of $38 million and $75 million in total time and savings deposits.Average revenue for the bank in the last three years is $18.5 million and a net interest income of $5.2 million.What is the maximum amount of loan the bank can grant to Timothy?
A)$950,000
B)$200,000
C)$25,000
D)$100,000
E)The bank cannot make loans to its own employees
Q2) The letter "M" in the CAMELS rating system for banks in the U.S.refers to the "management quality" of a bank.
A)True
B)False
Q3) Smaller banks tend to emphasize on _________________ in the form of smaller denomination personal cash loans and home mortgage loans extended to individuals and families as well as smaller business loans.
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Page 19
Chapter 17: Lending to Business Firms and Pricing Business Loans
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Sample Questions
Q1) If a bank's agent visits a dealer using floor planning and finds any inventory items sold for which the bank providing finance has not received payment,the loan will be immediately foreclosed upon.
A)True
B)False
Q2) Short-term lending to support the construction of homes,apartments,office buildings,shopping centers,and other permanent structures is known as a (or an):
A)self-liquidating.
B)working capital loan.
C)interim construction loan.
D)asset-based loan.
E)None of the options is correct.
Q3) ____________________________________________ are the other potential claims against the borrower which do not show up on the borrower's balance sheet.One new form of this is due to environmental damage by the borrower.
Q4) The amount of business lending tends to rise during periods of expansion.
A)True B)False
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Chapter 18: Consumer Loans, Credit Cards, and Real Estate
Lending
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Q1) Lenders in the consumer loan field prefer to measure a borrowing customer's income by the amount of take-home pay.
A)True
B)False
Q2) A(n)______________________ loan is a short-term or a medium-term loan repayable in two or more consecutive payments,usually monthly or quarterly.
Q3) Shorter-term cash loans to consumers are normally secured,but longer-term consumer loans are usually unsecured.
A)True
B)False
Q4) The law that limits how far a creditor or credit collection agency can go in pressing a customer to pay a past due debt is the ______________________ Act.It does not allow a debt collector to "harass" a debtor.
Q5) While considering an individual's income levels,a bank generally prefers the borrower report ______________________ rather than gross salary.
Q6) A(n)______________________ is a credit-rating agency that keeps records of borrowers' loan payment histories.
Page 21
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Chapter 19: Acquisitions and Mergers in Financial-Services Management
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Sample Questions
Q1) There are three banks in East Panhandle.First National Bank which currently has 40 percent of the deposits in the area,Second State Bank which currently has 30 percent of the deposits,and New State Bank and Trust which also has 30 percent of the deposits.What is the Herfindahl-Hirschman Index for East Panhandle?
A)100
B)1,200
C)3,400
D)2,400
E)None of the options is correct
Q2) When a national bank wants to acquire another bank,it must apply to the __________________ for approval.
Q3) If a bank can show that the merger it proposes results in significant ______________________________,it may be able to overcome anticompetitive problems of the merger.This is the impact the merger has upon the convenience and service needs of the community.
Q4) A market served by just two banks,equal to each other in size,would have an HHI of 5,000.
A)True
B)False
Page 22
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Chapter 20: International Banking and the Future of Banking and Financial Services
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Q1) Which of the following types of bank possesses its own charter and capital stock and is legally incorporated under host-country rules?
A)A branch office
B)A joint venture
C)A representative office
D)A subsidiary
E)A shell branch
Q2) China has the highest overall savings rate in the world.
A)True
B)False
Q3) When an international bank acquires majority ownership of a separate,legally incorporated foreign bank under host-country rules,this foreign bank is called a(n)______________________ of the international bank.
Q4) Under the terms of the International Lending and Supervision Act,the size of loan rescheduling fees that U.S.banks charge their international borrowers,is restricted. A)True
B)False
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