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Quiz
9 Chapter 20 and 21
Bank
Performance
1. A(n)
____ in interest rates could reduce a commercial bank's expected cash flows
because the interest paid on deposits may ____ than the interest earned on
loans and investments.
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a.
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increase; increase to a greater degree
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b.
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increase; increase to a lesser degree
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c.
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decrease; increase to a greater degree
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d.
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decrease; increase to a lesser degree
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2. Even
if other external forces (such as interest rates) are unchanged, a commercial
bank's expected cash flows can change in response to a change in its management
skills.
a.
True
b.
False
3. The
risk premium on a commercial bank is ____ related to economic growth and ____
related to management skills.
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a.
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positively; negatively
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b.
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positively; positively
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c.
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negatively; negatively
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d.
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negatively; positively
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4. Interest
income generated from all assets is called
|
a.
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net interest margin.
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b.
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the spread.
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c.
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gross interest income.
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d.
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net interest income.
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5. Interest
paid on deposits and borrowed funds is called
|
a.
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net interest expense.
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b.
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net interest margin.
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c.
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gross interest expense.
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d.
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net spread expense.
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6. Net
interest income is the difference between gross interest income and interest
expenses and is measured as a percentage of
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a.
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liabilities.
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b.
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shareholder's equity.
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c.
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assets.
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d.
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revenues.
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7. Fees
charged by a bank on various services allow the bank to generate:
|
a.
|
noninterest income
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b.
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components of net interest margin
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c.
|
components of net interest income
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d.
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components of gross interest income
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8. The
loan loss provision as a percentage of assets should increase during periods of
high economic growth.
a.
True
b.
False
9. A
bank's net interest margin represents the proportion of its investments that
are financed with borrowed funds.
a.
True
b.
False
10. If
a bank has short-term deposits and provides long-term fixed rate loans, and
interest rates decline over time, its net interest margin should be:
|
a.
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declining over time.
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b.
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rising over time.
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c.
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constant over time.
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d.
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consistently negative.
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11. For
a given level of return on assets, a bank with a higher level of capital will
have a lower
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a.
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return on equity.
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b.
|
leverage measure.
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c.
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noninterest income.
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d.
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liquidity.
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12. Net
income measured as a percentage of assets is
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a.
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return on equity (ROE).
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b.
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return on liabilities (ROL).
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c.
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return on investment (ROI).
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d.
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return on assets (ROA).
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13. When
only equity counts as capital, the leverage measure is
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a.
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equal to the capital ratio.
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b.
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equal to return on assets.
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c.
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the inverse of return on assets.
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d.
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assets divided by equity.
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14. When
only equity counts as capital, the higher the capital ratio, the
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a.
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lower the leverage measure.
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b.
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lower the degree of financial leverage.
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c.
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higher the leverage measure.
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d.
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A and B
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e.
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B and C
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15. Gross
interest income is affected by
|
a.
|
market interest rates.
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b.
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the composition of assets held by banks.
|
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c.
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interest expenses.
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d.
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non-interest expenses.
|
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e.
|
A and B
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16. If
a bank increases its provisions for loan losses, its interest income is ____,
and its noninterest income is ____.
|
a.
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reduced; not affected
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b.
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reduced; reduced
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c.
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not affected; reduced
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d.
|
not affected; not affected
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17. Return
on assets (ROA) will usually reveal when a bank's performance is not up to par,
but it does not indicate the reason for poor performance.
a.
True
b.
False
18. Gross
interest expense is affected by
|
a.
|
market interest rates.
|
|
b.
|
the composition of assets held by the bank.
|
|
c.
|
fee services provided by the bank.
|
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d.
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A and B
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19. If
a bank had long-term fixed-rate assets and short-term liabilities, and interest
rates increased over time, its net interest margin should
|
a.
|
decrease.
|
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b.
|
increase.
|
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c.
|
stay the same.
|
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d.
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either A or B, depending on whether the asset
maturities exceed 10 years
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20. The
sum of net interest income, non-interest income, and securities gains, minus
provision for loan losses and non-interest expenses equals
|
a.
|
net interest margin.
|
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b.
|
gross interest margin.
|
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c.
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net income.
|
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d.
|
income before taxes.
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21. Which
of the following banks would likely have the highest return on equity?
|
a.
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high return on assets, high capital ratio
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b.
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high return on assets, low capital ratio
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c.
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low return on assets, low capital ratio
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d.
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low return on assets, high capital ratio
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22. Banks
A and B have the same net income. Bank A has a higher capital ratio and more
assets than B. Bank A's return on assets is ____ than Bank B's. Bank A's return
on equity is ____ than Bank B's.
|
a.
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higher; higher
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b.
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higher; lower
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c.
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lower; higher
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d.
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lower; lower
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23. Banks
G and H are the same size and have similar operations. Bank G holds the minimum
level of capital and Bank H holds a higher level of capital. Bank G's return on
equity is probably ____ volatile than that of Bank H. Bank G's beta is probably
____ than that of Bank H.
|
a.
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less; lower
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b.
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less; higher
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c.
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more; higher
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d.
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more; lower
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24. Bank
K is conservatively managed. It benefits slightly when general economic
conditions are very favorable and is hurt slightly when general economic
conditions are very unfavorable. Its beta would likely be
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a.
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less than zero.
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b.
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zero.
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c.
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between zero and 1.00.
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d.
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greater than 1.00.
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25. ____
results from a bank's sale of securities.
|
a.
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Noninterest income
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b.
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Loan loss provision
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c.
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Securities gains and losses
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d.
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Noninterest expenses
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e.
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none of the above
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26. Bank
X obtains most of its funds from NCDs, while Bank Y obtains much of its funds
from passbook savings and from demand deposit accounts. Given this information,
the net interest margin of Bank X would likely be ____ than that of Bank Y, and
noninterest expenses would likely be ____ than that of Bank Y.
|
a.
|
greater; greater
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b.
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greater; less
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c.
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less; less
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d.
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less; greater
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27. A
bank's ROE ____ account for its financial leverage. A bank's ROA ____ account
for its financial leverage.
|
a.
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does; does
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b.
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does; does not
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c.
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does not; does not
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d.
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does not; does
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28. A
bank's ROA ____ account for taxes on earnings. A bank's ROE ____ account for
taxes on earnings.
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a.
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does; does
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b.
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does; does not
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c.
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does not; does not
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d.
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does not; does
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29. A
bank's ROA ____ account for loan losses. A bank's ROE ____ account for loan
losses.
|
a.
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does; does
|
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b.
|
does; does not
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c.
|
does not; does not
|
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d.
|
does not; does
|
30. A
bank's net interest margin includes
|
a.
|
noninterest expenses.
|
|
b.
|
noninterest income.
|
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c.
|
loan losses.
|
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d.
|
none of the above
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31. Banks
with relatively ____ ROAs often incur ____ noninterest expenses.
|
a.
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low; very low
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b.
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low; very high
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c.
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high; very high
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d.
|
none of the above
|
32. Bank
T generally obtains a high percentage of its funds from wholesale CDs. Bank V
which obtains most of its funds from retail CDs. Bank Z obtains its funds from
checking accounts. The bank that will incur the highest interest expenses is
____.
|
a.
|
Bank T
|
|
b.
|
Bank V
|
|
c.
|
Bank Z
|
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d.
|
all banks are the same
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33. Which
of the following is not a factor that affects cash flows of a commercial bank?
|
a.
|
changes in economic growth
|
|
b.
|
changes in the risk-free interest rate
|
|
c.
|
changes in industry conditions
|
|
d.
|
changes in management abilities
|
|
e.
|
all of the above are factors that affect cash
flows of a commercial bank
|
34. The
value of a commercial bank can be modeled as the present value of its future
cash flows.
a.
True
b.
False
35. The
level of competition is an industry characteristic that will favorably affect
cash flows, because a high level of competition may increase a bank's volume of
business or increase the prices it can charge for its services.
a.
True
b.
False
36. If
the risk premium on a commercial bank rises, so will the required rate of
return by investors who invest in the bank.
a.
True
b.
False
37. Gross
interest expenses of banks are normally higher in periods when market interest
rates are higher
a.
True
b.
False
38. If
banks continue to offer new services (such as insurance or securities
services), their noninterest income will decrease over time.
a.
True
b.
False
39. The
loan loss provision should increase during periods when loan losses are more
likely, such as during a recessionary period.
a.
True
b.
False
40. Any
individual bank's ROA depends on the bank's policy decisions, but not on uncontrollable
factors relating to the economy and government regulations.
a.
True
b.
False
41. Access
to a bank's ROA without any other information reveals when its performance is
not up to par and the reasons for its poor performance.
a.
True
b.
False
42. During
the credit crisis, the level of ____ was much higher than in other periods.
|
a.
|
interest income
|
|
b.
|
income expenses
|
|
c.
|
noninterest expenses
|
|
d.
|
loan loss provision
|
43. During
periods of ____ economic growth, loan demand tends to be ____, allowing banks
to provide ____ loans.
|
a.
|
strong; higher; more
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b.
|
weak; higher; more
|
|
c.
|
weak; lower; more
|
|
d.
|
strong; lower; fewer
|
|
e.
|
none of the above
|
44. Changes
in ____ are a factor affecting the value of a commercial bank over which the
bank has some control.
|
a.
|
economic growth
|
|
b.
|
the risk-free interest rate
|
|
c.
|
industry conditions
|
|
d.
|
management abilities
|
|
e.
|
none of the above
|
45. If
a bank is too ____ in attempting to avoid loan losses, its net interest margin
will be ____.
|
a.
|
conservative; high
|
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b.
|
conservative; low
|
|
c.
|
aggressive; high
|
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d.
|
aggressive; low
|
|
e.
|
none of the above
|
46. Banks
offering ____ nontraditional services will incur ____ noninterest expenses and
____ noninterest income.
|
a.
|
fewer; higher; higher
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|
b.
|
more; lower; higher
|
|
c.
|
more; higher; higher
|
|
d.
|
fewer; lower; higher
|
|
e.
|
none of the above
|
47. When
interest rates fall, the rates that a bank pays on deposits typically decline
less than the interest rates that the bank earns on its loans and investments.
a.
True
b.
False
48. Small
banks tend to make more loans to small local businesses, and the rates on these
loans are typically lower than the rates that larger banks charge on the loans
they provide to large businesses.
a.
True
b.
False
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