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 firmĆ¢ĀĀs 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 firmĆ¢ĀĀs equity with assets denominated in one currency and liabilities in another
c) in the value of a firmĆ¢ĀĀs 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 customersĆ¢ĀĀ 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
