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FIN 4020: Financial Markets & Institutions > FIN 4020: Chapter 12 Smartbook > Flashcards

FIN 4020: Chapter 12 Smartbook Flashcards

1
Q

Financial information on commercial banks is reported in two documents: the ________ and the ________.

a) balance sheet; uniform bank performance report
b) report of condition; report of income
c) income statement; report of income
d) uniform bank performance report; statement of cash flows

A

report of condition; report of income

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2
Q

Unlike manufacturing companies, the majority of a commercial bank’s assets are ________ rather than ________.

a) financial assets; fixed assets
b) fixed assets; financial assets
c) fixed assets; tangible assets
d) intangible assets; tangible assets

A

financial assets; fixed assets

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3
Q

Deposits at other financial institutions are used to purchase services from those financial institutions who are serving as

a) correspondent banks.
b) service banks.
c) parent banks.
d) partners.

A

correspondent banks.

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4
Q

Investment securities (choose three)

a) always have long maturities.
b) can be traded in secondary markets.
c) are inexpensive.
d) have low default risk.
e) are highly liquid.

A

can be traded in secondary markets.

have low default risk.

are highly liquid.

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5
Q

Some of the common long-term investments carried on the bank’s balance sheet are (choose four)

a) U.S. agency securities.
b) commercial paper.
c) U.S. Treasury bonds.
d) mortgage-backed securities.
e) junk bonds.
f) municipals.

A

U.S. agency securities.

U.S. Treasury bonds.

mortgage-backed securities.

municipals.

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6
Q

Commercial banks must submit their financial statements to regulators and shareholders at the end of every ________.

a) fiscal year
b) calendar quarter
c) calendar year
d) fiscal quarter

A

calendar quarter

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7
Q

Unlike manufacturing companies, the majority of a commercial bank’s liabilities are ________ and ________.

Multiple choice question.

short-term deposits; short-term borrowings

long-term deposits; long-term borrowings

long-term deposits; short-term borrowings

short-term deposits; long-term borrowings

A

short-term deposits; short-term borrowings

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8
Q

The currency and coin on hand needed to meet customer withdrawals is called

Multiple choice question.

vault cash.

reserves.

liquidity.

cash items.

A

vault cash

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9
Q

Short-term investment securities generate ________ for the bank and provide ________.

Multiple choice question.

interest expense; liquidity

risk; income

risk; liquidity

interest income; liquidity

A

interest income; liquidity

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10
Q

Which of the following long-term securities are default free?

Multiple select question.

Freddie Mac securities

Municipal bonds

Ginnie Mae bonds

Fannie Mae securities

U.S. Treasury bonds

A

Ginnie Mae bonds

U.S. Treasury bonds

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11
Q

A bank’s report of income is its ________ and the report of condition is its ________.

Multiple choice question.

income statement; balance sheet

balance sheet; income statement

statement of cash flows; balance sheet

income statement; statement of cash flows

A

income statement; balance sheet

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12
Q

Multiple bank holding companies control ________ subsidiary commercial banks and report _______ financial statement(s) for the subsidiary banks.

Multiple choice question.

two or more; consolidated

one; simple

more than two; separate

two or more; separate

A

two or more; consolidated

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13
Q

Cash items in the process of collection are checks drawn on other institutions that have been deposited at the bank but not yet

Multiple choice question.

signed.

cleared.

returned.

approved.

A

cleared

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14
Q

A repurchase agreement is a _________ federal funds loan.

Multiple choice question.

guaranteed

long-term

collateralized

risky

A

collateralized

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15
Q

Long-term securities held on the bank’s balance sheet generate ________ and ________.

Multiple choice question.

interest income; dividends

interest income; fee income

interest income; capital gains or losses

fee income; capital gains or losses

A

interest income; capital gains or losses

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16
Q

Financial information on commercial banks is reported in two documents: the ________ and the ________.

Multiple choice question.

balance sheet; uniform bank performance report

report of condition; report of income

uniform bank performance report; statement of cash flows

income statement; report of income

A

report of condition; report of income

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17
Q

Commercial loans that are backed by a specific assets of the borrower are called

Multiple choice question.

junior debt.

debentures.

secured loans.

unsecured loans.

A

secured loans.

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18
Q

Unlike manufacturing companies, the majority of a commercial bank’s assets are ________ rather than ________.

Multiple choice question.

financial assets; fixed assets

fixed assets; tangible assets

intangible assets; tangible assets

fixed assets; financial assets

A

financial assets; fixed assets

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19
Q

Real estate loans are primarily ________ and some ________.

Multiple choice question.

mortgage loans; mortgage backed securities

mortgage loans; revolving home equity loans

revolving home equity loans; mortgage loans

mortgage loans; commercial loans

A

mortgage loans; revolving home equity loans

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20
Q

The sum of investment securities and net loans and leases are the bank’s

Multiple choice question.

investment assets.

total assets.

earning assets.

risk assets.

A

earning assets.

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21
Q

Federal funds loans are _______ and ________ loans made by a bank with excess reserves to one that needs the funds.

Multiple choice question.

long-term; uncollateralized

short-term; collateralized

long-term; collateralized

short-term; uncollateralized

A

short-term; uncollateralized

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22
Q

Some of the common long-term investments carried on the bank’s balance sheet are (choose four)

Multiple select question.

U.S. agency securities.

municipals.

U.S. Treasury bonds.

commercial paper.

junk bonds.

mortgage-backed securities.

A

U.S. agency securities.

municipals.

U.S. Treasury bonds.

mortgage-backed securities.

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23
Q

Loans that are used to finance a firm’s capital needs, equipment purchases and plant expansion are called

Multiple choice question.

commercial mortgage loans.

term loans.

syndicated loans.

commercial and industrial loans.

A

commercial and industrial loans.

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24
Q

Residential mortgages are very long term loans with an average maturity of approximately

Multiple choice question.

10 years.

25 years.

20 years.

30 years.

A

20 years

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25
Q

An accumulated reserve account on the bank’s balance sheet where the bank records loans that are in danger of default is the

Multiple choice question.

contra-loan account.

default allowance.

adjustment for bad loans.

allowance for loan and lease losses.

A

allowance for loan and lease losses.

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26
Q

Investment securities (choose three)

Multiple select question.

always have long maturities.

have low default risk.

are inexpensive.

can be traded in secondary markets.

are highly liquid.

A

have low default risk.

can be traded in secondary markets.

are highly liquid.

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27
Q

Long-term securities held on the bank’s balance sheet generate ________ and ________.

Multiple choice question.

fee income; capital gains or losses

interest income; fee income

interest income; capital gains or losses

interest income; dividends

A

interest income; capital gains or losses

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28
Q

Transaction accounts at banks held by individuals, corporations, partnerships and governments that pay no explicit interest are

Multiple choice question.

regular savings.

passbook savings.

NOW accounts.

demand deposits.

A

demand deposits.

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29
Q

Commercial and industrial loans can be short-term loans to fund ________ or long-term loans to fund ________.

Multiple choice question.

working capital; fixed assets

fixed assets; working capital

long-term securities; short-term securities

short-term securities; long-term securities

A

working capital; fixed assets

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30
Q

MMDA’s are checkable but subject to the following limitations (choose all that apply):

Multiple select question.

the number of automatic transfers per month is limited.

there is a maximum balance limitation.

the number of checks written per month and minimum check denomination is restricted.

a minimum balance is required.

investors cannot hold a NOW account and MMDA account with the same bank.

A

the number of automatic transfers per month is limited.

the number of checks written per month and minimum check denomination is restricted.

a minimum balance is required.

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31
Q

The interest on a loan paid to the bank by the borrower but not yet recorded as interest income on the bank’s income statement is recorded on the balance sheet as

Multiple choice question.

a liability.

unearned income.

accrued income.

accrued interest.

A

unearned income

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32
Q

Fixed-maturity time deposits with face values under $100,000 are

Multiple choice question.

wholesale CD’s.

commercial paper.

MMDA accounts.

retail CD’s.

A

retail CD’s.

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33
Q

NOW accounts require that the depositor maintain ______ or the account reverts to a demand deposit.

Multiple choice question.

fee payments

a savings account also

a minimum account balance

minimum monthly transactions

A

a minimum account balance

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34
Q

One important difference between federal funds loans and repurchase agreements is that federal funds loans can be _______ while repurchase agreements are difficult to transact ________.

Multiple choice question.

entered into anytime during the banking day; late in the day due to their collateral requirement

setup only before noon of the day of the trade; unless the collateral is acceptable to both parties

setup using the Federal Reserve Fedwire network; before noon in the U.S. due to the global nature of the market

difficult to setup late in the day; due to their collateral requirement

A

entered into anytime during the banking day; late in the day due to their collateral requirement

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35
Q

Loans that are used to finance a firm’s capital needs, equipment purchases and plant expansion are called

Multiple choice question.

commercial mortgage loans.

term loans.

commercial and industrial loans.

syndicated loans.

A

commercial and industrial loans.

36
Q

Banks facing temporary liquidity crunches can borrow from the ______ at the _______.

Multiple choice question.

U.S. Treasury; LIBOR rate

central bank’s discount window; federal funds rate

central bank’s discount window; discount rate

parent holding company; prime rate

A

central bank’s discount window; discount rate

37
Q

Banks are not required to hold cash reserves against MMDA’s, so they are generally able to _________ than on NOW accounts

Multiple choice question.

offer more benefits

charge lower fees

support higher balances

pay higher rates

A

pay higher rates

38
Q

The sum of investment securities and net loans and leases are the bank’s

Multiple choice question.

earning assets.

risk assets.

investment assets.

total assets.

A

earning assets.

39
Q

The major categories of bank time deposits are ________ and ________.

Multiple choice question.

retail certificates of deposit; NOW accounts

retail certificates of deposit; passbook savings

wholesale certificates of deposit; MMDA’s

retail certificates of deposit; wholesale certificates of deposit

A

retail certificates of deposit; wholesale certificates of deposit

40
Q

Four additional sources of purchased funds available to banks are (choose four)

Multiple select question.

banker’s acceptances.

commercial paper.

high-yield bonds.

junk bonds.

medium-term notes.

discount window loans.

A

banker’s acceptances.

commercial paper.

medium-term notes.

discount window loans.

41
Q

Although a bank subsidiary itself cannot issue commercial paper, its _______ can do so and provide the funds to the bank subsidiary.

Multiple choice question.

parent bank holding company

own bank subsidiary

peer bank subsidiary

correspondent bank

A

parent bank holding company

42
Q

Banks offer _________ in order to be competitive with the similar funds offered by groups such as Vanguard and Fidelity.

Multiple choice question.

retail certificates of deposit

passbook savings accounts

money market deposit accounts (MMDA)

negotiable certificates of deposit

A

money market deposit accounts (MMDA)

43
Q

Each period, the difference between loans lost and loans recovered is the bank’s

Multiple choice question.

net write-offs.

net loans.

net loan assets.

net losses.

A

net write-offs.

44
Q

Fixed-maturity time deposits with face values over $100,000 and which can be sold in a secondary market to other investors are

Multiple choice question.

wholesale CD’s.

retail CD’s.

commercial paper.

MMDA accounts.

A

wholesale CD’s.

45
Q

In addition to issuing deposits, banks also borrow in various markets for purchased funds, which are not subject to ________ or _______.

Multiple choice question.

reserve requirements; taxes

reserve requirements; FDIC insurance payments

excessive risk; excessive loss

taxes; FDIC insurance payments

A

reserve requirements; FDIC insurance payments

46
Q

Since the largest banks in the U.S. are owned by bank holding companies, these large banks have access to _______ as a funding source that smaller banks do not.

Multiple choice question.

medium-term notes

repurchase agreements

commercial paper

banker’s acceptances

A

commercial paper

47
Q

True or false: a bank’s core deposits are defined to be its demand deposits, NOW accounts, MMDA accounts, other savings accounts and retail CD’s.

True false question.
True
False

A

True

48
Q

Off-balance-sheet items are less visible to financial statement readers because they often appear in ________ on the financial statements.

Multiple choice question.

liability accounts

footnotes

equity accounts

asset accounts

A

footnotes

49
Q

A(n) ________ is a contractual commitment by a financial institution to loan to a customer a certain amount at given interest rate terms for a specified period of time.

Multiple choice question.

debenture

amortized loan

loan commitment

term loan

A

loan commitment

50
Q

True or false: A bank’s purchased funds are its brokered deposits, wholesale CD’s, deposits at foreign offices, repurchase agreements and subordinated notes and debentures.

True false question.
True
False

A

True

51
Q

The largest group of trusts managed by banks’ trust departments are

Multiple choice question.

pension funds.

individual trusts.

mutual funds.

brokerage accounts.

A

individual trusts.

52
Q

Off-balance-sheet items are ________ and ________ that may affect the future status of a financial institutions balance sheet.

Multiple choice question.

contingent assets; contingent liabilities

derivatives; securities

assets; contingent liabilities

Reason: contingent assets; contingent liabilities

loans; securities

Reason: contingent assets; contingent liabilities

A

contingent assets; contingent liabilities

53
Q

The largest market available for purchased funds is the

Multiple choice question.

repurchase agreement market.

banker’s acceptance market.

federal funds market.

commercial paper market.

A

federal funds market.

54
Q

In return for making the loan commitment, the bank may charge a(n) ______ fee and a(n) _______ for use of the funds.

Multiple select question.

commitment

payment

origination

up-front

A

commitment

up-front

55
Q

True or false: Because interest income is recorded on an accrued basis, loans on which interest payments are up to 90 days past due can still be recorded as generating income for a bank.

A

True

56
Q

The second largest group of trusts managed by banks’ trust departments are

Multiple choice question.

brokerage accounts.

Reason: pension funds.

pension funds.

individual trusts.

Reason: pension funds.

mutual funds.

Reason: pension funds.

A

pension funds.

57
Q

Interest expense on the bank’s income statement include interest paid on ________ and on ________.

Multiple choice question.

C&I loans; real estate loans

interest-bearing deposits; purchased funds

transaction accounts; CD’s

short-term debt securities; long-term debt securities

A

interest-bearing deposits; purchased funds

58
Q

When the customer finally draws funds on the loan commitment, the bank shows a(n) ________ on its balance sheet, though the bank must stand ready to loan ______ at any time.

Multiple choice question.

asset; at least half of the principal

Reason: loan asset; the full amount

liability; the full amount

Reason: loan asset; the full amount

liability; at least half of the principal

Reason: loan asset; the full amount

loan asset; the full amount

A

loan asset; the full amount

59
Q

Interest income is taxable to the bank, with the exception of interest on ________ and tax-exempt income from ________.

Multiple choice question.

federal funds loans; direct lease financing

municipal securities; federal funds loans

municipal securities; direct lease financing

U.S. Treasury securities; direct lease financing

A

municipal securities; direct lease financing

60
Q

The ________ department of a commercial bank holds and manages assets for individuals or corporations.

Multiple choice question.

brokerage

Reason: trust

escrow

Reason: trust

trust

title

Reason: trust

A

trust

61
Q

Multiple Choice Question
The ________ is a noncash, tax deductible expense which represents the current period’s allocation to the ________ listed on the balance sheet.

Multiple choice question.

provision for loan losses; loans and leases account

allowance for loan losses; provision for loan losses

interest on other borrowed funds; allowance for loan losses

provision for loan losses; allowance for loan losses

A

provision for loan losses; allowance for loan losses

62
Q

Interest expense is the ________ major category on the commercial bank’s income statement.

Multiple choice question.

fourth

Reason: second

third

Reason: second

first

Reason: second

second

A

second

63
Q

A(n) ________ is a contractual commitment by a financial institution to loan to a customer a certain amount at given interest rate terms for a specified period of time.

Multiple choice question.

debenture

term loan

amortized loan

loan commitment

A

loan commitment

64
Q

For a commercial bank, net income is the sum of net interest income and net noninterest income, minus ______ and ______.

Multiple choice question.

taxes; provision for loan loss

provision for loan loss; taxes and extraordinary items

provision for loan loss; extraordinary items

extraordinary items; taxes

A

provision for loan loss; taxes and extraordinary items

65
Q

True or false: Because interest income is recorded on an accrued basis, loans on which interest payments are up to 90 days past due can still be recorded as generating income for a bank.

A

True

66
Q

ROE can also be expressed as the product of the ________ times the ________.

Multiple choice question.

profit margin; equity multiplier

return on assets; equity multiplier

return on assets; asset utilization

profit margin; asset utilization

A

return on assets; equity multiplier

67
Q

The banks profit margin (PM) is the ratio of its ________ divided by its ________ and is a measure of how efficiently it converts income into profit.

Multiple choice question.

net income; total liabilities

net income; total operating income

net interest income; total assets

net income; total assets

A

net income; total operating income

68
Q

The size of the provision for loan losses is determined by the bank’s management, but it is subject to a maximum tax-deductible amount set by the

Multiple choice question.

FDIC.

Reason: IRS.

IRS.

FRS.

Reason: IRS.

OCC.

Reason: IRS.

A

IRS

69
Q

Interest expense on the bank’s income statement include interest paid on ________ and on ________.

Multiple choice question.

C&I loans; real estate loans

short-term debt securities; long-term debt securities

interest-bearing deposits; purchased funds

transaction accounts; CD’s

A

interest-bearing deposits; purchased funds

70
Q

More so than for other types of firms, the commercial bank’s net income is directly related to the _______ and the _______ on the balance sheet and the _______ associated with each.

Multiple choice question.

interest-paying assets; interest-earning liabilities; interest rate

loans; securities; interest rate

total assets; total liabilities; costs

interest-earning assets; interest-paying liabilities; interest rate

A

interest-earning assets; interest-paying liabilities; interest rate

71
Q

The bank’s net interest margin (NIM) is equal to ________ divided by ________, and is a measure of the net return on the bank’s interest earning assets.

Multiple choice question.

net income; earning assets

net interest income; total assets

net interest income; earning assets

net noninterest income; earning assets

A

net interest income; earning assets

72
Q

A commercial bank’s ROE is defined as the ratio of ________ divided by ________.

Multiple choice question.

net interest income; total equity capital

net income; total earning assets

net income; total equity capital

net income; total assets

A

net income; total equity capital

73
Q
A
74
Q
A
75
Q

The bank’s return on assets (ROA) is the product of the ________ times the ________, and is a measure of how efficiently the bank uses its total assets to generate profits.

Multiple choice question.

profit margin; asset utilization

asset utilization; equity multiplier

return on equity; equity multiplier

profit margin; equity multiplier

A

profit margin; asset utilization

76
Q

The ________ is a noncash, tax deductible expense which represents the current period’s allocation to the ________ listed on the balance sheet.

Multiple choice question.

provision for loan losses; loans and leases account

allowance for loan losses; provision for loan losses

provision for loan losses; allowance for loan losses

interest on other borrowed funds; allowance for loan losses

A

provision for loan losses; allowance for loan losses

77
Q

Interest expense is the ________ major category on the commercial bank’s income statement.

Multiple choice question.

first

third

fourth

second

A

second

78
Q

Due to their ready access to capital markets, large banks generally operate with less ________ than small banks.

Multiple choice question.

equity capital

deposits

investment securities

cash

A

equity capital

79
Q

True or false: The bank’s net interest income is equal to interest income minus interest expense.

A

True

80
Q

Large banks generate more ________ and ________ than small banks.

Multiple choice question.

noninterest income; have more equity

interest income; are less diversified

noninterest income; are less diversified

noninterest income; are more diversified

A

noninterest income; are more diversified

81
Q

The bank’s earning assets are the sum of its ________ and its ________.

Multiple choice question.

investment securities; net loans and leases

repurchase agreements and federal funds purchased; net loans and leases

loans and leases; U.S. Treasury securities

loans; leases

A

investment securities; net loans and leases

82
Q

The asset utilization ratio (AU) is the ratio of its ________ divided by its ________, and is a measure of how efficiently the bank uses its assets to generate operating income.

Multiple choice question.

total operating income; total equity

total operating income; total assets

net interest income; total assets

net noninterest income; total assets

A

total operating income; total assets

83
Q

Large banks use more ________ and less ________ than small banks.

Multiple choice question.

purchased funds; core deposits

purchased funds; commercial paper

Reason: purchased funds; core deposits

core deposits; purchased funds

Reason: purchased funds; core deposits

time deposits; purchase funds

Reason: purchased funds; core deposits

A

purchased funds; core deposits

84
Q
A
85
Q
A
86
Q
A

FIN 4020: Financial Markets & Institutions (1 decks)

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