Bank Management

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Question 1
Free
Multiple Choice

Which of the following statements is incorrect?

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A

Managers may be tempted to make decisions that are in their own best interests rather than shareholder interests.

B

Directors are responsible for making most of the bank's decisions regarding loans to customers, which encourages a loan department to extend loans with a very high concern for risk.

C

To prevent agency problems, some banks provide stock as compensation to managers.

D

The underlying goal behind the managerial policies of a bank is to maximize the wealth of the bank's shareholders

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Question 2
Free
Multiple Choice

Banks can resolve cash deficiencies by

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A

creating additional liabilities

B

selling assets

C

buying back common stock

D

increasing dividend payouts

E

A or B

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Question 3
Free
Multiple Choice

As the secondary market for loans has become active, banks are more able to satisfy their liquidity needs with a ____ proportion of loans while achieving ____ profitability.

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A

higher; higher

B

lower; lower

C

higher; lower

D

lower; higher

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Question 4
Free
True/False

Banks are more liquid as a result of securitization because it allows them to request repayment of the loan principal from the borrower upon demand.

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True

False

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Question 5
Free
Multiple Choice

During a period of rising interest rates, a bank's net interest margin will likely ____ if its liabilities are ____ its assets.

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A

increase; more rate sensitive than

B

decrease; more rate sensitive than

C

increase; equally rate sensitive as

D

decrease; equally rate sensitive as

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Question 6
Multiple Choice

If a bank expects interest rates to consistently ____ over time, it will consider allocating most funds to rate- ____ assets.

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A
decrease; sensitive
B
decrease; insensitive
C
increase; insensitive
D
none of the above
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Question 7
Multiple Choice

Petri Bank had interest revenues of $70 million last year and $30 million in interest expenses. About $300 million of Petri's $800 million in assets are rate sensitive, while $600 million of itsliabilities are rate sensitive. Petri Bank's net interest margin is ____ percent.

Choose correct answer/s
A
4
B
3.6
C
6.7
D
5
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Question 8
Multiple Choice

The measure of interest rate risk that uses the difference between rate-sensitive assets and rate-sensitive liabilities is called

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A
gap measurement.
B
duration measurement.
C
duration ratio.
D
gap ratio.
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Question 9
Multiple Choice

A gap ratio of less than one suggests that

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A
rate-sensitive assets exceed rate-sensitive liabilities.
B
an increase in interest rates would increase the bank's net interest margin.
C
rate-sensitive liabilities exceed rate-sensitive assets.
D
a decrease in interest rates would decrease the bank's net interest margin.
E
B and D
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Question 10
True/False

Each bank may have its own classification system of interest rate sensitivity, because there is no perfect measurement of the gap.

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True
False
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Question 11
Multiple Choice

The duration of zero-coupon bonds will be ____ the duration of coupon bonds with the same maturity.

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A
lower than
B
higher than
C
the same as
D
A or B, depending on the size of the coupon payment
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Question 12
Multiple Choice

Other things being equal, assets with shorter maturities have ____ durations. Assets that generate more frequent coupon payments have ____ durations.

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A
shorter; longer
B
shorter; shorter
C
longer; shorter
D
longer; longer
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Question 13
Multiple Choice

For most banks, the average duration of assets ____ the average duration of liabilities, so the duration gap is ____ .

Choose correct answer/s
A
exceeds; zero
B
exceeds; negative
C
exceeds; positive
D
is less than; negative
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Question 14
Multiple Choice

Other things being equal, assets with ____ maturities and ____ frequent coupon payments have longer durations.

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A
shorter; more
B
shorter; less
C
longer; more
D
longer; less
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Question 15
Multiple Choice

If a bank attempts to reduce exposure to interest rate risk by replacing long-term marketable securities with more floating-rate commercial loans, it is likely that the bank's

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A
credit risk would decrease.
B
credit risk would increase.
C
liquidity risk would increase.
D
liquidity risk would decrease.
E
B and C
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Question 16
Multiple Choice

Which of the following is not a likely method used by a bank to reduce interest rate risk?

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A
maturity matching
B
using fixed-rate loans
C
using interest rate futures contracts
D
using interest rate caps
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Question 17
True/False

Floating-rate loans cannot completely eliminate interest rate risk; if the cost of funds is changing more frequently than the rate on assets, the bank's net interest margin is still affectedbyinterest rate fluctuations.

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True
False
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Question 18
Multiple Choice

The ____ of interest rate futures ____ the potential adverse effect of rising interest rates on a bank's interest expenses.

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A
sale; increases
B
sale; reduces
C
purchase; reduces
D
both A and C are correct
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Question 19
Multiple Choice

Which of the following financial institutions would be most willing to swap variable-rate payments for fixed-rate payments in order to reduce exposure to interest rate risk?

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A
one whose assets and liabilities are equally interest-rate sensitive
B
one whose assets are more interest-rate sensitive than its liabilities
C
one whose liabilities are more interest-rate sensitive than its assets
D
one whose gap ratio is equal to 1.0
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Question 20
True/False

Banks increase their risk by increasing their capital as a percentage of assets

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True
False
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