ECON 365 Final Exam - Practice Questions from Teacher

True or False: Sustained credit quality problems can drain an FI's capital and net worth
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True or False: Sustained credit quality problems can drain an FI's capital and net worth
True
True or False: The amount of security or collateral on a loan and the interest rate or risk premium on a loan normally are negatively related
True
Which of the following is NOT characteristic of the real estate portfolio for most banks?
(a) Commercial real estate mortgages have been the fastest growing component of real estate loans.
(b) Adjustable rate mortgages have rates that are periodically adjusted to some index.
(c) Borrowers prefer fixed-rate loans to ARMs during periods of high interest rates.
(d) Residential mortgages are the largest component of the real estate loan portfolio.
(e) The proportion of ARMs to fixed-rate mortgages can vary considerably over the rate cycle.
(c) Borrowers prefer fixed-rate loans to ARMs during periods of high interest rates
Which of the following factors may affect the promised return an FI receives on a loan?
(a) The collateral backing of the loan.
(b) Fees relating to the loan.
(c) The interest rate on the loan.
(d) The credit risk premium on the loan.
(e) All of the options
(e) All of the options
Credit scoring models include all of the following broad types of models EXCEPT
(a) Linear discriminant models.
(b) Linear probability models.
(c) Term structure models.
(d) Logit models.
(e) None of the options
None oftheoptions
(c) Term Structure Models
Confidence Bank has made a loan to Risky Corporation. The loan terms include a default risk-free borrowing rate of 8 percent, a risk premium of 3 percent, an origination fee of 0.1875 percent, and a 9 percent compensating balance requirement. Required reserves at the Fed are 6 percent. What is the expected or promised gross return on the loan?
12.22%
True or False: Comparing the loan mix of an individual FI to a national benchmark loan mix is useful in determining the extent that the individual FI may differ from an efficient portfolio composition
True
True or False: Banks whose loan portfolio composition deviates from the national benchmark should immediately implement policies to move toward benchmark alignment
False
1. Which of the following is a source of loan volume data?
(a) Commercial bank call reports.
(b) Data on shared national credits.
(c) Commercial databases.
(d) All of the options.
(e) Only the Federal Reserve has this data.
(d) All of the options
1. Kansas Bank has a policy of limiting their loans to any single customer so that the maximum loss as a percent of capital will not exceed 20 percent for both secured and unsecured loans. The limit has been adopted under the assumption that if the unsecured loan is defaulted, there will be no recovery of interest or principal payments. For loans that are secured (collateralized), it is expected that 40 percent of interest and principal will be collected.

What is the concentration limit (as a % of capital) for secured loans made by this bank?
33%