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The bank-lending channel of monetary policy transmission works through:

the effects of changing interest rates and exchange rates on investment and net exports.

the effects of changing interest rates on stock and property prices.

the ability and willingness of banks to lend.

All of the above

None of the above

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Irving Heathcote
Irving HeathcoteLv2
28 Sep 2019

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Money & Banking Self-Assesment

1. Bank holding companies allows bankers to circumvent
A. Regulation Q
B. Interstate banking restrictions
C. Reserve requirements
D. None of the above

2. The Great Inflation affected the banking industry through the following channels
A. Lower nominal interest rates
B. Decline in deposits
C. Decreased competition among banks
D. All of the above

3. ARMs
A. Force borrowers to assume interest rate risk
B. Became more prevalent during The Great Inflation
C. Both of the above
D. Neither of the above

4. A bank can increase its level of reserves by
A. Selling securities
B. Increasing borrowings
C. Calling loans
D. All of the above

5. Which of the following is NOT a method banks use to control credit risk?
A. Credit rationing
B. Restrictive covenants
C. Specialization
D. They are all methods for controlling credit risk

6. Which of the following balance sheet entries is not sensitive to changes in market interest rates?
A. Bonds
B. Reserves
C. Mortgages
D. Borrowings

7. _______risk and _____risk for bank loans are essentially the same
A. Credit, interest rate
B. Default, credit
C. Interest rate, default
D. None of the above

8. Efficiency wages are ____ the level firms would have to pay to fill all their open positions.
A. Higher than
B. Lower than
C. Equal to
D. None of the above

9. Specialized lending helps lenders solve the problems of
A. Adverse selection
B. Moral hazard
C. Transactions costs
D. All of the above

10. Which of the following is a technique lenders use to alleviate assymetric information problems?
A. Specialized lending
B. Diversified lending
C. Requiring collateral
D. All of the above

1. Which of the following statements about Multinational financial management is FALSE:

a. The effects of changing currency values must be included in financial analyses.

b. Legal and economic differences must be considered in financial decisions.

c. Political risk must be included from multinational corporate financial analyses.

d. It is illegal and discriminatory to consider cultural differences when considering firm goals and employee management.

2. ______________ occurs if a firm has assets or liabilities in foreign countries.

a) Translation Exposure

b) Transaction Exposure

c) Economic Exposure

d) Political Exposure

3. _______________ says that the ratio of forward exchange rates to spot exchange rates must also equal the ratio of nominal risk free rates.

a) Fisher Effect

b) Interest Rate Parity

c) Purchasing Power Parity

d) Inflation Parity

4. Which statement is FALSE?

a The United States has a large current account deficit in its balance of payments

b A Eurodollar is a US dollar deposited in a bank outside of the US

c American Depository Receipts represent ownership of stock of foreign companies

d An Interest Rate Swap is when banks lend to each other

5. In the currency markets, 1 U.S. dollar = 0.6 British pound and 1 U.S. dollar equals 1.1 euros. Wolverine Cola produces cherry cola in England at a cost of 0.55 British pound per unit. The product is sold in France for 1.25 euros. In terms of U.S. dollars, how much profit is Wolverine realizing on each unit sold?

a. $0.78 b. $0.46 c. $0.35 d. $0.11

8. Which of the following would require a higher return under a risk-adjusted return on capital (RAROC) approach to capital allocation?

a)traditional commercial lending activities

b)government securities

c) home mortgages

d) 2 and 3.

9. Trend analysis often involves

a) comparison of past firm performance to current industry performance

b)averaging past years' performance to remove the effects of accounting changes

c) graphically portraying performance measures over time

d) all of the above

e) 1 and 3

10. Transaction risk is the risk of a loss _______ and translation risk is the risk of a loss _______

a) in the value of a firm’s equity with assets denominated in one currency and liabilities in another; with changes in exchange rates for foreign transactions

b) with changes in exchange rates for foreign transactions; in the value of a firm’s equity with assets denominated in one currency and liabilities in another

c) in the value of a firm’s assets with equity denominated in one currency and liabilities in another; with changes in exchange rates for foreign transactions

d) none of the above

11. The special-purpose vehicle (SPV)

a) allows sales accounting treatment of under generally accepted accounting principles (GAAP)

b) usually reduces the credit rating of the structured securitization

c) monitors reports by the loan servicer on the pool performance

d) all of the above

12. The major financing source for a bank comes from

a) loans

b) deposits

c) equity

d) none of the above

13. The provision for loan losses would likely be

a) increased during economic downturns

b) decreased during economic downturns

c) increased during an economic expansion

d) none of the above

e) 2 and 3

14. The Internet

a) may allow banks to cross-sell products, reduce transaction costs, and improve market presence, service, and quality provided to customers

b) may make customers more loyal to the bank by increasing the convenience and access to a broad variety of services, thereby reducing the probability of customers’ switching institutions

c) has increased costs for financial institutions due to lack of economies of scale

d) 1 and 2

15. Pillar 2 of Basel II

a) includes capital charges for credit risk on a case-by-case basis

b) is mutually enforced by Pillars 1 and 3

c) provides for supervisory review of banks internal assessments of capital allocation and adequacy

d) all of the above

e) 2 and 3

16. Types of loan sales include

a) the novation, which transfers all rights and obligations of the selling bank to the buyer

b) the assignment, which gives the buyer the right to take action against the borrower if payments are not made

c) the participation, in which the bank continues to service the loan

d) all of the above

17. The difference between the book value of capital and the market value of capital for the same institution is influenced by

a) changes in interest rates

b) changes in reserve requirements

c) changes in historic asset costs

d) none of the above

e) all of the above

18. Financial institutions are required to maintain liquid assets for the purpose(s) of

a) meeting repayment obligations to customers holding maturing liabilities

b) meeting repayment obligations to customers holding maturing liabilities. meeting regulatory requirements for reserves

c) meeting the dividend payment requirements of outstanding common stock

d) all of the above

e) 1 and 2

19. The process of securitization typically involves

a) removing loans from a bank's balance sheet and selling them to investors

b) bank origination of loans.

c) an insurance company surety bond or a bank letter of credit

d) all of the above

20. Generally, as the maturity of an asset or liability rises it has a higher risk premium due to greater maturity risk and greater

a) default risk

b) default risk

c) liquidity risk

d) all of the above

e) 2 and 3

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