Financial Statement and Risk Return analysis

Question 1

Each of the following falls into the category of bank assets except:

Välj ett av alternativen:

a)
loans

b)
other assets

c)
cash and due from banks

d)
investment securities

e)
demand deposits

Answer 1

e)
demand deposits

Question 2

Banks generate their largest portion of income from:

Välj ett av alternativen:

a)
loans

b)
short-term investments

c)
demand deposits

d)
trading account gains & fees

e)
certificates of deposits

Answer 2

A) Loans

Question 3

A bank which starts with ALL of $1.48 million at the beginning of the year, charges off worthless loans of $0.94 million during the year, recovers $0.12 million on loans previously charged off and charges current income for a $1.02 million provision for loan losses, will have an ALL at the end of the year of:

Välj ett av alternativen:

a)
0.66 million

b)
1.68 million

c)
1.28 million

d)
3.32 million

e)
The same amount as at the beginning of the year

Answer 3

b)
1.68 million

Question 4

Nonperforming loans are credits on which any scheduled loan repayments and interest payments are past due for more than:

Välj ett av alternativen:

a)
None of the options are correct

b)
90 days

c)
30 days

d)
180 days

e)
60 days

Answer 4

b)
90 days

Question 5

Which of the following adjustments are made to gross loans and leases to obtain net loans and leases?

Välj ett av alternativen:

a)
Loan and lease loss allowance is added to gross loans

b)
Loan and lease loss allowance is subtracted from gross loans and investment income is added to gross interest received

c)
Loan and lease loss allowance and unearned income is subtracted from gross loans

d)
Investment income is added to gross interest received

Answer 5

C) Loan and lease loss allowance and unearned income is subtracted from gross loans

Question 6

The noncash expense item on a bank’s Report of Income designed to shelter a bank’s current earnings from taxes and to help prepare for bad loans is called:

Välj ett av alternativen:

a)
short-term debt interest

b)
provision for taxes

c)
provision for possible loan losses

d)
noninterest expense

e)
None of the options are correct.

Answer 6

c)
provision for possible loan losses

Question 7

A financial institution’s bad-debt reserve, as reported on its balance sheet, is called

Välj ett av alternativen:

a)
customer liability on acceptances

b)
unearned income or discount

c)
None of the options are correct

d)
intangible assets

e)
allowance for possible loan losses

Answer 7

e)
allowance for possible loan losses

Question 8

A bank that has total interest income of $67 million and total noninterest income of $14 million. This bank has total interest expenses of $35 million and total noninterest expenses (excluding PLL) of $28 million. Its provision for loan losses is $6 million and its taxes are $5. What is this bank’s net interest income?
A) $7
B) -$14
C) $18
D) $32
E) None of the above

Answer 8

D) 67-35 = 32 (Interest income - Total interest expenses = Net interest income)

Question 9

Which of the following financial statements shows the revenues and expenses of a bank over a set period of time?

Välj ett av alternativen:

a)
The Funds-Flow Statement

b)
None of the options are correct

c)
The Statement of Stockholders Equity

d)
The Report of Income

e)
The Report of Financial Condition

Answer 9

D) Report of Income

Question 10

Which of the following accounts is also called the bank’s primary reserves

Välj ett av alternativen:

a)
Fed funds sold

b)
None of the options are correct

c)
Trading account securities

d)
Cash and deposits due from banks

e)
Investment securities

Answer 10

d) Cash and deposits due from banks

Question 11

Which of the following most accurately describes the principal type(s) of bank noninterest income?

Välj ett av alternativen:

a)
Fees from deposit transactions

b)
Fees from fiduciary transactions

c)
All of the options are correct

d)
Fees from additional noninterest income

e)
Fees from securities transactions

Answer 11

c)
All of the options are correct

Question 12

Securities purchased to provide short-term profits from short-term price movements are reported as:

Välj ett av alternativen:

a)
trading account assets

b)
federal funds

c)
due from depository institutions

d)
reverse repurchase agreements

e)
investment securities

Answer 12

A) Trading account assets

Question 13

A bank’s ROE equals its ROA times its

Välj ett av alternativen:

a)
ratio of net after-tax income to total operating revenues

b)
None of the options is correct

c)
total assets divided by total equity capital

d)
total operating revenues divided by total assets

e)
net profit margin

Answer 13

A bank’s ROE equals its ROA times its

c)
total assets divided by total equity capital

Question 14

The TRC Bank has a net profit margin of 7.5%, an asset utilization ratio of 18%, and an equity multiplier of 20. What is the bank’s ROE?

Välj ett av alternativen:

a)
27%

b)
3,6%

c)
4%

d)
6%

e)
1,35%

Answer 14

a)
27%

Question 15

A larger proportion of small and medium-size bank’s loans tend to be,

Välj ett av alternativen:

a)
higher-interest business loans

b)
higher-interest consumer loans

c)
None of the options is correct

d)
lower-interest-business loans

e)
lower-interest consumer loans

Answer 15

b)
Higher-interest consumer loans

Question 16

What do loans and security investments represent for a bank?

Välj ett av alternativen:

a)
Market-valued assets

b)
Contra-assets

c)
Discretionary accounts

d)
None of the options is correct

e)
Earning assets

Answer 16

e)
Earning assets

Question 17

The risk that a financial institution may be forced to borrow emergency funds excessive cost to cover its immediate cash needs is known as:

Välj ett av alternativen:

a)
interest-rate risk

b)
market risk

c)
None of the options is correct

d)
credit risk

e)
liquidity risk

Answer 17

e)
liquidity risk

Question 18

Which of the following ratios can be used to measure a bank’s credit risk?

Välj ett av alternativen:

a)
Interest sensitive assets/Interest sensitive liabilities

b)
Nonperforming assets/Total loans and leases e

c)
Total assets/Number of full time employees

d)
Net loans’ duration/Total assets

e)
Cash and equivalents/Total loans and leases

Answer 18

B) Nonperforming assets/Total loans and leases e

Question 19

The risk of deterioration in the value of a financial firm’s assets as a result of fluctuating currency prices is known as:

Välj ett av alternativen:

a)
political risk

b)
foreign-exchange risk

c)
basis risk

d)
country risk

Answer 19

b)
foreign-exchange risk

Question 20

Paul Smith is planning to invest in the stock of Capital City Bank. He is examining the ratios of interest sensitive assets to interest sensitive liabilities and uninsured deposits to total deposits. What type of risk is Paul attempting to measure with these ratios?

Välj ett av alternativen:

a)
Liquidity risk

b)
Credit risk

c)
Interest rate risk

d)
Legal risk

e)
Operational risk

Answer 20

c)
Interest rate risk

Question 21

Chaos State Bank has an old computer system which can go down for weeks at a time, leaving customers unable to access their accounts online. Many customers have left the bank for banks with more reliable computer systems. Which type of risk would this be an example of?

Välj ett av alternativen:

a)
Legal risk

b)
Compliance risk

c)
Operational risk

d)
Reputation risk

e)
Strategic risk

Answer 21

C) Operational risk

Question 22

Brian Smith, the CEO of Carter National Bank, anticipates that interest rates may fall in the future and as a result buys $100 million in 30 year Treasury Bonds for the bank’s security portfolio. Instead, interest rates rise, causing the value of these bonds to fall. This would be an example of which of the following types of risk?

Välj ett av alternativen:

a)
Legal risk

b)
Reputation risk

c)
Strategic risk

d)
Compliance risk

e)
Operational risk

Answer 22

c)
Strategic risk

Question 23

The net interest margin of a bank is influenced by:

Välj ett av alternativen:

a)
changes in the level of interest rates

b)
All of the options are correct

c)
changes in interest income from loans and investments

d)
changes in the volume of interest-bearing assets and interest-bearing liabilities

e)
changes in interest expense on deposits and other borrowed funds

Answer 23

b)
All of the options are correct

Question 24

hich of the following types of banks tend to enjoy the highest net-interest margins in the industry?

Välj ett av alternativen:

a)
Virtual banks

b)
Large commercial banks

c)
Small-sized banks

d)
Investment banks

e)
Federally chartered banks

Answer 24

c)
Small-sized banks

Question 25

A financial institution with a low ROA can achieve a relatively high ROE through:

Välj ett av alternativen:

a)
None of the options is correct

b)
high leverage

c)
tax swap

d)
high owner’s capital

e)
low leverage

Answer 25

b)
high leverage

Question 26

What is the equity multiplier for a bank whose equity is equal to 10 percent of total assets?

Välj ett av alternativen:

a)
90

b)
30

c)
10

d)
20

e)
15

Answer 26

c)
10