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Banking Exam Two

Terms in this set (29)

which of the following choices is the primary source of bank capital
sale of equity
provide two differences between the objective
...
TRUE/ FALSE: bank loans are normall regarded to be liquid assets because their is high demand from asset managers for high yield negotiable assets
False
Which of the following choices is a capital that either or both the Basel III convention and the federal reserve bank have established for members


a. Minimum capital%
b. leverage ratio
c. Margin Ratio
d. All the Above
e. A and B
a. Minimum capital%
b. leverage ratio
c. Margin Ratio
d. All the Above
E> A and B
T/F The Dodd Frank Act enables the federal stability Oversight board to allow the federal Reserve Bank to to regulate the non-bank financial companies that it considers to be symmetrically important
True
T/F: The economic policy used by the central bank of THE US to stabilize economic growth based on Keynesian economics
False
Which of the following factors can have a significant impact on the type of loans in a bank's loan portfolio

a. size of the bank
b. location of the bank
c. nature of the demographics
d. a thru c
a. size of the bank
b. location of the bank
c. nature of the demographics
D> A THRU C
e. a and C
T/F: Before banks can begin to making loans, federal regulators require banks to establish written policies and effective internal controls over 1) the issuance of loans and 2) oversight of the loan portfolio
True
Which of the following choices is NOT a primary objective of the federal reserve Bank?

a. regulate bank holding companies and foreign banks
b. borrow funds on behalf of the US Government
c. Establish financial policy that must be executed by the executive branch of the US Government
d. monetary policy
e. both b and d
a. regulate bank holding companies and foreign banks
b. borrow funds on behalf of the US Government
C> Establish financial policy that must be executed by the executive branch of the US Government
d. monetary policy
e. both b and d
which of the following statements regarding standardization loan agreements is accurate?
1. Consumer loans must be
2. Competition among banks to provide large loans to very large companies
3. large # of consumers
4. A & C
5. B & C
5. B & C
T/F: The largest US Banks are less successful then small banks when marketing retail loans such as
False
Which of the following choices provide a typical objective of the loan process?
a. Ensure that credit quality of the indv. loans in the loan portfolio
b. Verify that borrower is complying with agreement
c. Ascertain that the bank is following its own loan process
d. A and B
e. A thru C
E>
T/F: The primary US regulatory strategy to increase the ability of the US to increase the overall amount of capital that the bank must maintain AND to increase the capital requirements for assets that regulators perceive to be risky
True
T/F: Typically, the large publicly held corporations with good credit who wish to borrow term debit can obtain lower interest rates in the securities market than the interest rates offered by the bank.
True
Prof, which of the following choices provides a compelling reason for banks to to include loan covenants in their commercial loan agreements that restrict the borrower from borrowing additional funds from other banks?

a. additional loans from other from other banks can dilute the current trader's claim on the borrowers assets

b. additional creditors can complicate the current banks negoations w/ the borrower

c. additional loans can incresase the lenders credit risk
all the above
T/F: a loan default occurs when either the borrower or the lender violates the terms of the loan agreement
true
If a bank has a net liquid liability balance it is likely that the net margin will increase or decrease if interest rates rise?
decline
T/F: The loan committee of a bank is typically composed of bankers who arranged the loan, credit annaylist who approved the loan, and in large banks only, the senior members of the loan group
True
Typically the reference rate that the US banks use for loans for their best customers is called
Prime Rate
T/F: assume that a bank manages its ALM by grouping its interest sensitive assets and liabilities by ranges of maturity
True
T/F: A bank must ALWAYS have sufficient liquid funds to meet the customers and pay its liabilites
True
Main Objectives of the Fed
1. Central bank of the US
2. Bank for the US government
3. Maintain US economic growth*
4. Protect the US banking system
5. Conduct US monetary policy*
Banking responsibility
1. Regulator of banking industry (particularly large banks)
2. Lender to banks
3. Operator of financial payments system (Fed wire/check clearing)
4. Economic and bank market research
5. Operates foreign currency operations and linkages to foreign banking systems
The government can speed up or slow the economy by controlling the supply of money
The FRB can add money by lowering interest rates and buying or selling bonds to/from US banks
The FRB has purchased long term mortgage loans to drive down US interest rates to stimulate the US economy
The FRB can lend money to members of the FRS system overnight
The FRB can adjust the amount of required capital held by banks
Other activities of the FOMC
Sets the range for the growth of the money supply (monetary aggregates)
Sets the federal funds rate
Monitors (but does not set) reserve requirements and the discount rate
Releases the Beige Book
A widely read summary of economic conditions in each Reserve District
Release of minutes of the deliberations of its Open Market Committee meetings
A repurchase agreement
A repurchase agreement involves a short-term sale and subsequent repurchase of securities by a bank or other financial institution
Reverse Repo
Reverse Repo is the repo as seen from the point of view of the cash lender, since the cash lender does not repurchase, but rather has securities
Federal Funds Rate
The federal funds rate is the interest rate at which private depository institutions (mostly banks) lend FRB balances (federal funds) to each other (usually overnight).
The five basic C's of assessing Credit
1. Character
2. Capacity
3. Capital
4. Condition
5. Collateral
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