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Financial Systems Exam 2

Terms in this set (106)

Advantages of going global for US banks, include all but which one of the following?
low fixed costs involved in international expansion
A "callable" bond is one that:
can be repurchased by the issuer, prior to maturity
The FDIC is concerned about issuance of mortgage backed bonds (MBBs) because
the process reduced the amount of assets available to back insured deposits
A contingent item that may be placed on the right hand side of the balance sheet or expensed on the income statement is an
off balance sheet liability
The _______________ feature of common stock means that losses of stockholders are limited to the amount of their original investment
limited liability
In a loan participation, which of the following are true?
1. The loan buyer has no part in the original underlying credit agreement, even after purchase of the loan.
2. If the selling bank fails, the loan buyer's claim against the selling bank may be treated as unsecured.
3. In the event the selling bank fails, the original borrower's deposits may be used to reduce the loan amount without any proceeds going to the loan buyer.
1, 2, & 3
A ______________ permits the investor to exchange the bond for shares of the issuing firm's common stock.
convertible bond
The Government National Mortgage Association is well known for its role in producing:
pass through securities
A group of investment banks is selling the new bonds of Protech Corp., but the bankers are not promising Protech a set dollar amount from the offering. From this, we know that this is a:
best efforts offering
A significant part of _______________ entails small banks selling off parts of their larger loans to bigger banks.
correspondent banking
if all preferred dividend payments that have been missed must be paid before any common stock dividend can be paid, the preferred stock is called ______________ preferred stock
cumulative
______________________ is an unsecured bond, and one that is in a lower-priority relative to other unsecured bonds issued by the same company
a subordinated debenture
Mortgage payments are ________ on a 15 year fixed rate mortgage than on a 30 year fixed rate mortgage, and _________ is paid on a 15 year mortgage than on a 30 year mortgage, ceteris paribus
higher; less interest
Inflation-indexed bonds, issued by the US Treasury, are called:
TIPS
"Freddie Mac" and "Fannie Mae" are important institutions that came up in connection with:
securitization of mortgage loans
Julie is applying for a home mortgage loan of $190,000. The quoted interest rate is 9%. Julie will make equal monthly payments, to pay off the loan over 30 years. The monthly payment amount is _____________.
$1,529
The US banking system is often referred to as a _____________________ banking system, because there are two governmental "levels" providing bank charters.
dual
With a fixed rate mortgage the __________ bears the interest rate risk and with an ARM the __________ bears the interest rate risk.
lender; borrower
Loan sales are likely to continue because
they can increase near term reported earnings & they reduce the amount of capital required
the process of packaging and/or selling mortgages which are then used back publicly traded debt securities is called
securitization
mortgage fees paid by the homeowner at or prior to closing upon the purchase of a house typically include all but which one of the following:
prepayment penalty
you buy stock for $14 per share and sell it for $18 after you collect a $1.00 per share dividend. Your pre-tax capital gain yield is ________ and you pre-tax yield is _______
28.57% ; 7.14%
A/an _____________________ enables stockholders to vote in an annual stockholders' meeting by absentee ballot, or to authorize others to vote on their behalf
proxy
With ______________ voting, all directors up for election are voted on by the shareholders at the same time in one general election
cumulative
Today, Stock A is worth $20 and has 1000 shares outstanding. Stock B costs $30 and has 500 shares outstanding. If tomorrow Stock A is priced at $22, Stock B at $35, and Stock C is worth $48 what would the value weighted index amount equal? (the index has a base period value of 100)
108.44
If a mortgage loan is called "conventional", this means the loan:
is not a VA or FHA mortgage
You purchase a $1000 face value convertible bond for $975. The bond can be converted into 150 shares of stock. the stock is currently priced at $5.25. At what minimum stock price would you be willing to convert?
$6.50
A/an ______________________ is issued with a number of different maturity dates. A portion of the overall issue is scheduled to be repaid on each maturity date.
serial bond
Common stocks typically have which of the following that bonds do not have:
1. voting rights
2. fixed cash flows
3. set maturity date
4. tax deductibility of cash flows of investors
1. voting rights
with ____________________ preferred stock, the preferred stockholders could receive dividend payments in excess of the regular, stated amount.
participating
a "revenue bond" is a:
municipal bond, to be paid off by cash generated from a particular project
A significant feature of municipal bonds is that:
they pay interest to investors which is exempt from Federal income tax
Advantages of loan sales and securitization typically include all but which one of the following?
increase in net interest income
A bond issue sold with a/an _____________________ will require the issuer to make payments to the bond's trustee over time. The resulting cash proceeds will be used to retire the bonds.
sinking fund provision
Major liabilities for banks include
deposits
The two basic types of corporate stock are:
common and preferred
using Standard & Poor's ratings scheme, so-called "junk bonds" would be those with ratings of:
below BBB
You purchase a $255,000 house and you pay 20% down. You obtain a fixed rate mortgage where the annual interest rate is 5.85% and there are 360 monthly payments. What is the monthly payment?
$1,203.48
The ___________________ is the contract between the bond issuer and the bond investor
indenture
A pass-through security is best characterized as
a security with a prorata claim to the underlying pool of assets
When a bank displaying lower its average production costs by offering wider variety of services, it demonstrates the phenomenon called:
economies of scope
State chartered banks _____________ be members of the Federal Reserve System and nationally chartered banks _____________ be members of the Federal Reserve System:
may; must
___________________ provide the main revenue-generating asset category
loans
for a loan sold with with recourse
1. The loan seller has no further obligation at all to the buyer
2. The loan seller removes the assets from the balance sheet and does not report a contingent liability in the footnotes
3. The loan buyer cannot collect from the loan seller in the event of borrower default
4. No reserve requirement is imposed
none of the above
The major government-sponsored agencies involved in securitization of home mortgage loans are:
GNMA, FNMA, & FHLMC
A/an _______________________ is similar to a "pass through" security, but it assigns different combinations of risk and return to various investor groups
CMO
We've encountered so-called "subprime" loans, which have been especially newsworthy over the last year or two. These are:
loans to higher-risk borrowers
A/an __________________ mortgage is one in which the interest rate is tied to some market interest rate. As the market rate changes, the mortgage interest rate will be re-set; hence, the payment amount can change.
adjustable rate
The preemptive right is designed to
allow existing shareholders to buy shares of there new offering if they desire
if a mortgage pass through experiences large prepayments early on in the life of the security the result will be that pass through holders will receive ___________ than expected cash flows early on and _____________ than expected cash flows later on.
greater; less
Securities that are not traded on an organized exchange such as NYSE and AMEX are:
traded "over the counter"
Which one of the following types of transactions leaves the assets on the balance sheet?
mortgage backed bonds issued
with a ______________________- bond, mortgage loans are serving as collateral for the bond, but the bond's interest and principal payments are not necessarily directly connected to the mortgage payments
mortgage backed
over recent years, many homes mortgage loans are pooled, and bonds are issued against the mortgage loan payments represented in the pool
securitized
A/an _______________________ can be viewed as a multi-class pass-through security, arising when mortgage loans are securitized
collateralized mortgage obligation
we've encountered so-called "subprime" loans, which have been especially newsworthy over the last year or two. These are:
loans to higher-risk borrowers
A/an ___________________ can be viewed as a multi-class pass-through security, arising when mortgage loans are securitized.
collateralized mortgage obligation
Julie is applying for a home mortgage loan of $190,000. The quoted interest rate is 9.0%. Julie will make equal monthly payments, to pay off the loan over 30 years. The monthly payment amount is ______________. (nearest dollar)
$1,529
"Freddie Mac" and "Fannie Mae" are important institutions that came up in connection with:
securitization of mortgage loans
If a mortgage loan is called "conventional ," this means that the loan:
is not a VA or FHA mortgage
Over recent years, many home mortgages have been ___________________. This means that the mortgage loans are pooled, and bonds are issued against the mortgage loan payments represented in the pool.
securitized
A/an ____________________ mortgage is one in which the interest rate is tied to some market interest rate. As the market rate changes, the mortgage interest rate is tied to some market interest rate. As the market rate changes, the mortgage interest rate will be re-set; hence, the payment amount can change.
adjustable rate
a "callable" bond is one that:
can be purchased by the issuer, prior to maturity.
A significant feature of municipal bonds is that:
they pay interest to investors which is exempt from Federal income tax.
Using Standard & Poor's ratings scheme, so-called "junk bonds" would be those with ratings of:
below BBB
A group of investment banks is selling the new bonds of Prtech Corp, but the bankers are not promising Protech a set dollar amount from the offering. From this, we know that this is a/an:
best efforts offering
A/an ____________________ is issued with a number of different maturity dates. A portion of the overall issue is scheduled to be repaid on each maturity date.
serial bond
The __________________ is the contract between the bond issuer and the bond investor.
indenture
a "revenue bond" is a :
municipal bond, to be paid off by cash generated from a particular project
Inflation-indexed bonds, issued by the US Treasury, are called:
TIPS
A bond issue sold with a/an ______________________ will require the issuer to make payments to the bond's trustee over time. the resulting cash proceeds will be used to retire the bonds.
sinking funds provision
A ____________________ permits the investor to exchange the bond for shares of the issuing firm's common stock.
convertible bond
The process of packaging and/or selling mortgages which are then used to back publicly traded debt securities is called
securitization
Mortgage payments are _________ on a 15 year fixed rate mortgage than on a 30 year fixed rate mortgage, and __________ is paid on a 15 year mortgage than on a 30 year mortgage, ceteris paribus
higher; less interest
with a fixed rate mortgage the _____________ bears the interest rate risk and with an ARM the ___________ bears the interest rate risk
lender; borrower
You purchase a $255,000 house and you pay 20% down. You obtain a fixed rate mortgage where the annual interest rate is 5.85% and there are 360 monthly payments. What is the monthly payment?
$1,203.48
mortgage fees paid by the homeowner at or prior to closing upon the purchase of a house typically include all but which one of the following:
prepayment penalty
Common stocks typically have which of the following that bonds do not have:
voting rights
Advantages of loan sales and securitization typically include all but which one of the following?
increase in net interest income
A pass-through security is best characterized as
a security with a prorata claim to the underlying pool of assets
Which one of the following types of transactions leaves the assets on the balance sheet?
Mortgage back bonds issued
For a loan sold with recourse
none of the above
The major government-sponsored agencies involved in securitization of home mortgage loans are:
FNMA and FHLMC
A/an _______________ is similar to a "pass through" security, but it assigns different combinations of risk and return to various investor groups
CMO
With a ____________________ bond, mortgage loans are serving as collateral for the bond, but the bond's interest and principal payments are not necessarily directly connected to the mortgage payments
mortgage backed
A significant part of __________________ entails small banks selling off parts of their larger loans to bigger banks
Correspondent banking
The Government National Mortgage Association is well known for its role in producing:
pass through securities
With ______________ voting, all directors up for election are voted on by the shareholders at the same time in one general election
cumulative
the two basic types of corporate stock are:
common and preferred
The _________________________ feature of common stock means that losses of stockholders are limited to the amount of their original investment
limited liability
A/an ___________________ enables stockholders to vote in an annual stockholders' meeting by absentee ballot, or to authorize others to vote on their behalf
proxy
with ______________________ preferred stock, the preferred stockholders could receive dividend payments in excess of the regular, stated amount
participating
securities that are not traded on an organized exchange such as NYSE and AMEX are:
traded "over the counter"
Loan sales are likely to continue because
they can increase near term reported earnings
&
they reduce the amount of capital required.
Advantages of going global for US banks include all but which one of the following?
low fixed costs involved in international expansion
A contingent item that may eventually be placed on the right hand side of the balance sheet or expensed on the income statement is a/an
off balance sheet liability
If all preferred dividend payments that have been missed must be paid before any common stock dividend can be paid the preferred stock is called ___________ preferred stock
cumulative
The preemptive right is designed to
allow existing shareholders to buy shares of the new offering if they desire
Major liabilities for banks include
deposits
state chartered banks ________________ be members of the Federal Reserve System and nationally chartered banks _________________ be members of the Federal Reserve System:
may; must
You buy a stock for $14 per share and sell it for $18 after you collect a $1.00 per share dividend. You pre-tax capital gain yield is _________ and your pre-tax dividend yield is __________.
28.57% ; 7.14%
___________________ provide the main revenue-generating asset category for banks
loans
The US banking system is often referred to as a ________________ banking system, because there are two governmental "levels" providing bank charters
dual
When a bank displays lower its average production costs by offering wider variety of services, it demonstrates the phenomenon called:
economies of scope
The FDIC is concerned about issuance of mortgage backed bonds (MBBs) because
the process reduces the amount of assets available to back insured deposits
if a mortgage pass through experiences large prepayments early on in the life of the security the result will be that pass through holders will receive ____________ than expected cash flows early on and ____________ than expected cash flows later on
greater; less
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