Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Banking Operations > Chapter 5 > Flashcards

Chapter 5 Flashcards

1
Q

Fed funds purchased is an example of _______________________ along with Eurodollar borrowings.

A

nondeposit borrowings

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

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.

A

secondary reserves

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

__________________________ is a noncash expense on the bank’s income statement which allows the bank to account for future bad loans.

A

Provision for loan losses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

__________________________ is the difference between total interest income and total interest expenses for a financial institution.

A

Net interest income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

__________________________ are the primary long-term liabilities of the bank.

A

Subordinated notes and debentures

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

A(n) __________________________ is where the financial institution agrees to guarantee repayment of a customer’s loan, which the customer has received from a third party.

A

standby credit agreement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

A(n) __________________________ is a short term collateralized loan. The collateral that is used generally consists of T-Bills.

A

repurchase agreement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

A(n) __________________________ is a deposit account which pays an interest rate competitive with money market mutual funds and which generally has limited check writing ability.

A

money market deposit account

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

_____________________ is the sum of all outstanding IOUs owed to the bank in the form of consumer, real estate, commercial, and agriculture loans as well as other types of credit extensions.

A

Gross loans

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

A financial institution often records the value of its assets and liabilities at ____________ which is the historical cost of the asset.

A

original cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

The principal types of __________________________ include fee income, income from fiduciary activities, and service charges on deposits.

A

noninterest income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

The __________________________ shows the amount of revenues received and expenses incurred over a specific time period.

A

Report of Income (income statement)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

The __________________________ lists the assets, liabilities and equity capital held by the bank on a given date.

A

Report of Condition (balance sheet)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

______________ is labeled “Accounting for Derivative Instruments and Hedging Activities.”

A

FASB 133

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

________________ labeled “Accounting for Derivative Instruments and Hedging Activities” and its recent amendments, __________, are designed to make derivatives more publicly visible on corporate financial statements.

A

FASB 133, FASB 138

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Temporarily buying and selling securities by a securities firm in a thinly traded market so as to influence the price is known as ________________.

A

“painting the tape”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

The activity of manipulating the financial statements to artificially enhance the banks financial strength is known as __________________.

A

“window dressing” or “creative accounting”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

________________ is an asset category which includes direct and indirect investment in real estate. These are properties obtained for compensations for nonperforming loans.

A

Other Real Estate Owned (OREO)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

__________ consists of interest income received on loans from customers that has not yet been earned by the bank under accrual accounting methods.

A

Unearned income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

__________ can be held by individuals and nonprofit institutions, bear interest and permit drafts to be written against the account to pay third parties.

A

NOW accounts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

In the worldwide banking system, __________ represent transferable time deposits in a variety of currencies and are often the principal source of short term borrowings by banks.

A

Eurocurrency borrowings

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

One part of __________ arises from fees charged for ATM and POS transactions.

A

noninterest income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Fees that arise from a financial firm’s trust activities, fees for managing a corporation’s interest and dividend payments, and fees for managing corporate or individual retirement plans are all included in the category of fees arising from __________.

A

fiduciary activities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Checking account maintenance fees and overdraft fees are included in the noninterest income account under _________.

A

service charges on deposit accounts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

On a bank’s income statement (Report of Income) deposit costs are financial inputs.

A

TRUE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Loans and leases are financial outputs on a financial institution’s balance sheet or Report of Condition.

A

TRUE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Nondeposit borrowings are a financial input on a bank’s balance sheet or Report of Condition.

A

TRUE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

The cost of nondeposit borrowings is a financial input on a bank’s income statement or Report of Income.

A

TRUE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Securities income is a financial output listed on a financial institution’s Report of Condition.

A

FALSE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Net loans on a bank’s balance sheet are derived by deducting the allowance for loan losses and unearned discounts from gross loans.

A

TRUE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

When a loan is classified as nonperforming, any accrued interest recorded on the books, but not actually received, must be deducted from the bank’s loan revenues.

A

TRUE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

In U.S. banking, securities gains are treated as an ordinary income.

A

TRUE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Most banks report securities gains as a component of their total noninterest income.

A

FALSE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

A bank displaying trading-account securities on its balance sheet is serving as a security dealer and plans to sell those securities before they reach maturity.

A

TRUE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Bad loans normally do not affect a bank’s current income.

A

TRUE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

The expensing of a worthless loan usually must occur in the year that troubled loans are judged to be worthless.

A

TRUE

37
Q

Recoveries on loans previously charged off are added to the Provision for Loan Losses (PLL) account on a bank’s income statement.

A

FALSE

38
Q

Loan-loss reserves set aside to cover a particular loan or loans expected to be a problem or loans that represent above-average risk are known as specific reserves.

A

TRUE

39
Q

U.S. banks (especially those with $500 million or more in total assets) are required to file financial statements, audited by an independent public accountant, with their principal federal regulatory agency and with the FDIC.

A

TRUE

40
Q

Off-balance-sheet items for a bank are fee generating transactions which are not recorded on their balance sheet.

A

TRUE

41
Q

The experience method of accounting for future loan loss reserves allows a bank to deduct from their income statement up to 0.6 percent of their eligible loans.

A

FALSE

42
Q

After the Tax Reform Act of 1986, large banks (>$500 million in assets) were required to use the reserve method of accounting for future loan loss reserves.

A

FALSE

43
Q

The number one source of revenue for a bank based on dollar volume is loan income.

A

TRUE

44
Q

In looking at comparative balance sheets, it can be seen that large banks rely more heavily on nondeposit borrowings while small banks rely more heavily on deposits.

A

TRUE

45
Q

The Pension Fund industry is now larger than the Mutual Fund industry.

A

FALSE

46
Q

Off-balance-sheet items for banks have declined in recent years.

A

FALSE

47
Q

Except for commercial banks, savings & loans and savings banks hold the most deposits.

A

TRUE

48
Q

“Painting the tape” refers to the practice whereby banks understate their nonperforming loans.

A

FALSE

49
Q

Financial statements issued by banks and by nonbank financial-service firms look increasingly similar today.

A

TRUE

50
Q 
Each of the following falls into the category of bank assets except:
A. loans.
B. investment securities.
C. demand deposits.
D. cash and due from banks. 
E. other assets.
A

demand deposits.

51
Q 
Banks generate their largest portion of income from:
A. loans.
B. short-term investments.
C. demand deposits.
D. trading account gains & fees. 
E. certificates of deposits.
A

loans.

52
Q

Each of the following typically falls into the category of loans except:
A. real estate.
B. consumer.
C. commercial and industrial (business).
D. agricultural.
E. municipal.

A

municipal.

53
Q

Which of the following adjustments are made to gross loans and leases to obtain net loans and leases?
A. Loan and lease loss allowance is added to gross loans.
B. Unearned income is subtracted from gross interest received.
C. Investment income is added to gross interest received.
D. Loan and lease loss allowance and unearned income is subtracted from gross loans.
E. Loan and lease loss allowance is subtracted from gross loans and investment income is added to gross interest received.

A

Loan and lease loss allowance and unearned income is subtracted from gross loans.

54
Q 
An example of a contra-asset account is:
A. loan and lease loss allowance.
B. trading account assets.
C. buildings and equipment.
D. revenue bonds.
E. provision for loan loss.
A

loan and lease loss allowance.

55
Q 
The noncash expense item on a bank's Report of Income designed to shelter a bank's current earnings from taxes and to help prepare for bad loans is called:
A. short-term debt interest.
B. noninterest expense.
C. provision for taxes.
D. provision for possible loan losses. 
E. None of the options are correct.
A

provision for possible loan losses.

56
Q 
A financial institution's bad-debt reserve, as reported on its balance sheet, is called:
A. unearned income or discount.
B. allowance for possible loan losses. 
C. intangible assets.
D. customer liability on acceptances. 
E. None of the options are correct.
A

allowance for possible loan losses.

57
Q 
When a bank serves as a security dealer for certain kinds of securities (mainly federal, state, and local government obligations) the value of these securities is usually recorded in what account on a bank's Report of Condition?
A. Investment securities
B. Taxable and tax-exempt assets 
C. Trading account assets
D. Secondary reserves
E. None of the options are correct.
A

Trading account assets

58
Q

___________ is calculated by deducting noninterest expense and provision for loan losses from noninterest income.
A. Net profit margin
B. Net interest income
C. Net income after provision for possible loan losses D. Income or loss before income taxes
E. Net noninterest income

A

Net noninterest income

59
Q 
The account that is built up by annual noncash expense deductions and is subtracted from Gross Loans on the Report of Condition is:
A. unearned income.
B. nonperforming loans.
C. allocated loan risk deductions.
D. allowance for possible loan losses. 
E. None of the options are correct.
A

allowance for possible loan losses.

60
Q 
Nonperforming loans are credits on which any scheduled loan repayments and interest payments are past due for more than:
A. 30 days.
B. 60 days.
C. 90 days.
D. 180 days.
E. None of the options are correct.
A

90 days.

61
Q

One-time-only transactions that often involve sale of financial assets or real property pledged as collateral behind a loan and upon which the bank has foreclosed, affect a bank’s account known as:
A. allowance for loan losses.
B. nonrecurring sales of assets.
C. asset gains or losses.
D. provision for loan and security losses.
E. None of the options are correct.

A

nonrecurring sales of assets.

62
Q 
The use of fixed assets, rather than financial assets, in order to increase the operating earnings is known as:
A. plant and equipment investment. 
B. financial leverage.
C. operating leverage.
D. nondeposit capital.
E. None of the options are correct.
A

operating leverage.

63
Q

Banks depend heavily upon borrowed funds supplied by customers with little owners’ capital
invested. This means that banks make heavy use of:
A. financial leverage.
B. capital restructuring.
C. operating leverage.
D. margin borrowing.
E. None of the options are correct.

A

financial leverage.

64
Q 
When a loan is considered uncollectible, the bank's accounting department will write (charge) it off the books by reducing the \_\_\_\_\_\_ and the \_\_\_\_\_\_ accounts. Which choice below correctly fills in the blanks in the preceding sentence?
A. PLL, gross loans
B. ALL, net loans
C. ALL, gross loans
D. PLL, net loans
E. None of the options are correct.
A

ALL, gross loans

65
Q 
The common banking practice of selling those investment securities that have appreciated in order to reap a capital gain and holding onto those securities whose prices have declined is known as:
A. gains trading.
B. performance banking.
C. loss control trading.
D. selective portfolio management. 
E. None of the options are correct.
A

gains trading.

66
Q 
Noninterest revenue sources for a bank are called:
A. commitment fees on loans. 
B. fee income.
C. supplemental income.
D. noninterest margin.
E. None of the options are correct.
A

fee income.

67
Q 
Large U.S. banks must use which of the methods listed below to determine their provision for loan loss expense?
A. Experience method
B. Reserve method
C. Specific charge-off method
D. Historical cost method
E. None of the options are correct.
A

Specific charge-off method

68
Q 
A bank's temporary lending of excess reserves to other banks is labeled on the balance sheet as:
A. fed funds purchased.
B. fed funds sold.
C. money market deposits.
D. securities purchased for resale. 
E. None of the options are correct.
A

fed funds sold.

69
Q

A bank sells shares of its common stock with a par value of $100 for $200 in the market. Which two accounts on the bank’s balance sheet are going to be affected?
A. Retained earnings and surplus accounts
B. Subordinated notes and debentures and commons stock outstanding accounts
C. Retained earnings and common stock outstanding accounts
D. Common stock outstanding and surplus accounts
E. Only the common stock outstanding account

A

Common stock outstanding and surplus accounts

70
Q

A bank which starts with ALL of $1.48 million at the beginning of the year, charges off worthless loans of $0.94 million during the year, recovers $0.12 million on loans previously charged off and charges current income for a $1.02 million provision for loan losses, will have an ALL at the end of the year of:
A. $0.66 million.
B. $3.32 million.
C. $1.68 million.
D. $1.28 million.
E. The same amount as at the beginning of the year.

A

$1.68 million.

71
Q 
A bank has total interest income of $67 million and total noninterest income of $14 million. This bank has total interest expenses of $35 million and total noninterest expenses (excluding PLL) of $28 million. Its provision for loan losses is $6 million and its taxes are $5. What is this bank's net interest income?
A. $7
B. -$14
C. $18
D. $32
E. None of the options are correct.
A

$32

72
Q 
A bank has total interest income of $67 million and total noninterest income of $14 million. This bank has total interest expenses of $35 million and total noninterest expenses (excluding PLL) of $28 million. Its provision for loan losses is $6 million and its taxes are $5. What is this bank's net noninterest income?
A. $7
B. -$20
C. $18
D. $32
E. None of the options are correct.
A

-$20

73
Q 
A bank has total interest income of $67 million and total noninterest income of $14 million. This bank has total interest expenses of $35 million and total noninterest expenses (excluding PLL) of $28 million. Its provision for loan losses is $6 million and its taxes are $5. What is this bank's net income?
A. $7
B. -$14
C. $18
D. $32
E. None of the options are correct.
A

$7

74
Q 
Which of the following financial statements shows the revenues and expenses of a bank over a set period of time?
A. The Statement of Stockholders Equity 
B. The Funds-Flow Statement
C. The Report of Financial Condition
D. The Report of Income
E. None of the options are correct.
A

The Report of Income

75
Q 
Which of the following accounts is also called the bank's primary reserves?
A. Cash and deposits due from banks 
B. Investment securities
C. Trading account securities
D. Fed funds sold
E. None of the options are correct.
A

Cash and deposits due from banks

76
Q 
Which of the following assets is the largest asset item on the bank's balance sheet?
A. Securities
B. Cash
C. Loans and leases
D. Bank premises
E. None of the options are correct.
A

Loans and leases

77
Q 
What financial-service industry category is second to the banking industry in total financial assets held?
A. Mutual funds
B. Thrifts
C. Investment banks
D. Insurance companies 
E. Pension funds
A

Mutual funds

78
Q 
FASB Rule 115 focuses primarily on:
A. deposit sources.
B. investments in marketable securities. 
C. derivatives trading.
D. loan-loss reserves.
E. hedging activities.
A

investments in marketable securities.

79
Q

Which of the following most accurately describes the principal type(s) of bank noninterest income?
A. Fees from fiduciary transactions
B. Fees from deposit transactions
C. Fees from securities transactions
D. Fees from additional noninterest income
E. All of the options are correct.

A

All of the options are correct.

80
Q

Fee income arising from fiduciary transactions include all of the following except:
A. fees for checking account maintenance.
B. fees for managing and protecting a customer’s property.
C. fees for recordkeeping for corporate security.
D. fees for dispersing interest and dividend payments for a corporation.
E. fees for managing corporate and individual retirement plans.

A

fees for checking account maintenance.

81
Q

81-103 on pdf

A

check now

82
Q 
The largest expense item often observed in the financial statement of the banks is:
A. personnel cost.
B. premises and equipment cost. 
C. interest on borrowed funds. 
D. provision for loan loss.
E. employee benefits.
A

interest on borrowed funds.

83
Q

The available-for-sale securities are shown on the:
A. Report of Condition at book value.
B. Report of Income at fair market value.
C. Report of Condition as a contra asset.
D. Report of Condition at fair market value.
E. Report of Income as an income.

A

Report of Condition at fair market value.

84
Q

The beginning balance in the allowance for loan loss account for Synopsis Bank is $500 million. The banking firm charges $2 million for provision for loan losses. Synopsis Bank will report:
A. $502 million as adjusted allowance for loan losses. B. $498 million as noninterest expense.
C. $2 million as allowance for loan losses.
D. $502 million as provision for loan loss expense.
E. $2 million as adjusted allowance for loan losses.

A

$502 million as adjusted allowance for loan losses.

85
Q 
A bank's Report of Condition shows gross loans and leases or $1,500 million. The loan loss allowance for the year is accumulated to $50 million and the bank reports an unearned income amounting to $2 million. The net loans and leases accounted by the banks would be:
A. $1,550 million 
B. $1,450 million 
C. $1,448 million 
D. $1,452 million 
E. $1,548 million
A

$1,448 million

86
Q

Which of the following asset items may include deposits placed with correspondent deposits?
A. Savings deposit
B. Trading account assets
C. NOW accounts
D. Allowance for loan losses
E. Cash and due from depository institutions

A

Cash and due from depository institutions

87
Q

If writing off a large loan reduces the balance in the allowance for loan losses account too much, the principal regulatory agency:
A. reduces the provision for loan loss expense.
B. transfers funds to the account from retained earnings.
C. reduces the number of loans being sanctioned.
D. increases the provision for loan loss deduction.
E. removes the reserve from the financial statement.

A

increases the provision for loan loss deduction.

88
Q 
Securities purchased to provide short-term profits from short-term price movements are reported as:
A. investment securities.
B. trading account assets.
C. reverse repurchase agreements. 
D. due from depository institutions. 
E. federal funds.
A

trading account assets.

Banking Operations (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions