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The correct answer for each question is indicated by a .

1 INCORRECT

Which of the following would be a demand for liquid funds for a bank? A) B) C) A deposit into a savings account by Jim Roy A dividend payment to the stockholders of Holiday Bank The sale of a group of automobile loans to an insurance company

D)The final payment on a home mortgage by Fred Sullivan All of the above are demands for liquid funds

E)

2 INCORRECT

The Double Trouble State Bank has incoming deposits of $2000, revenues from nondeposit services of $200, customer loan repayments of $1000, the sale of assets of $500 and borrowings from the money market of $2000. At the same time they had deposit withdrawals of $1500, acceptable loan requests of $1200, repayments of borrowings for the bank of $1000 and other operating expenses of $500. What is the net liquidity position of this bank? A) B) C) This bank has a liquidity surplus of $1500 This bank has a liquidity deficit of $1500 This bank has a liquidity surplus of $3500

D)This bank has a liquidity deficit of $3500 None of the above

E)

3 INCORRECT

According to the textbook, when is there a greater demand for liquid funds? A) B) During the spring when people have to pay taxes During the winter when people have to purchase new coats

During the fall and summer corresponding to school, holidays and C) travel plans D)During the spring when people work in their gardens more

E)

None of the above

4 INCORRECT

Which of the following would be considered a liquid asset? A) B) C) A Treasury Bill with 45 days to maturity A municipal bond with 5 years to maturity A federal agency security with 90 days to maturity

D)A federal funds loan to another bank All of the above

E)

5 INCORRECT

Which of the following would be an example of borrowing liquidity? Lending the reserves held by the bank at the Federal Reserve to A) another bank B) C) Borrowing the reserves held at the Federal Reserve of another bank Purchasing a Treasury Bill with 90 days to maturity

D)Owning a municipal bond with 8 years to maturity All of the above

E)

6 INCORRECT

The fact that liquidity rises as deposits increase and loans decrease and that liquidity falls when deposits decrease and loans rise is the basis for: A) B) C) The sources and uses of funds approach The structure of funds approach The liquidity indicator approach

D)Signals from the marketplace None of the above

E)

7 INCORRECT

When a bank examines the loss sales of assets and the banks ability to meet commitments to credit customers this forms the basis for:

A) B) C)

The sources and uses of funds approach The structure of funds approach The liquidity indicator approach

D)Signals from the marketplace None of the above

E)

8 INCORRECT

Which of the following would be part of legal reserves for a bank? A) B) C) U.S. Treasury Bills Short Term Government Agency Securities Deposits held in Reserve Accounts at the Federal Reserve

D)Deposits held with large banks All of the above

E)

9 CORRECT

The Reserve Maintenance Period for a bank begins how many days after the beginning of the Reserve Computation Period? A) B) C) 14 days 15 days 30 days

D)45 days None of the above

E)

10 INCORRECT

Which of the following is a factor to consider when deciding on which source of liquid funds the bank should use? A) B) The duration of the need Access to the market for liquid funds

C)

Rules and regulations applicable to a liquidity source

D)Outlook for central bank monetary policy All of the above

E)

Chapter 10
The correct answer for each question is indicated by a .

1 INCORRECT

Federal Regulators require institutions to develop a written investment policy that includes: A) B) Guideline on how many of the loans can serve as collateral Guidelines on the degree of speculative potential of the investments

Guidelines on the degree of default risk exposure the institution is C) willing to accept D)Guidelines on the profit potential of all investments All of the above

E)

2 INCORRECT

Some authorities refer to investments as: A) B) C) The cash account The crossroads account The end of the line account

D)The middle of the road account None of the above

E)

3 INCORRECT

Short term securities supported by the taxing power of the federal government are: A) Treasury Bills

B) C)

Federal Agency Securities Short Term Municipal Obligations

D)Commercial Paper Certificates of Deposit

E)

4 INCORRECT

Interest bearing receipts for deposits of funds in a financial institution are: A) B) C) Treasury Bills Federal Agency Securities Short Term Municipal Obligations

D)Commercial Paper Certificates of Deposit

E)

5 INCORRECT

The Seaside National Bank is thinking about purchasing a bond that has an 8 percent coupon rate with 15 years to maturity. This bond has a face value of $1000 and is selling in the market for $1141. What is the yield to maturity on this bond? A) B) C) 8 percent 15 percent 6.5 percent

D)8.5 percent None of the above

E)

6 INCORRECT

The Seaside National Bank is thinking about purchasing a bond that has an 8 percent coupon rate with 15 years to maturity. This bond has a face value of $1000 and is selling in the market for $1141. The Seaside National bank expects to hold this bond for 9 years and thinks they can sell it at the end of 9 years for $1209. What is the holding period return for this bond? A) 8 percent

B) C)

6.5 percent 9 percent

D)7.5 percent None of the above

E)

7 INCORRECT

A municipal bond has a yield to maturity of 7 percent, while a corporate bond with equivalent default risk and time to maturity has a yield to maturity of 9.21 percent? At what tax rate would these bonds have the same after tax yield? A) B) C) 24 percent tax rate 31.6 percent tax rate 50 percent tax rate

D)76 percent tax rate None of the above

E)

8 INCORRECT

The risk that has to do with the breadth and depth of the secondary market is: A) B) C) Interest rate risk Business risk Liquidity risk

D)Call risk Prepayment risk

E)

9 CORRECT

The risk that has to do with the falling sales and rising unemployment in the local area is: A) B) Interest rate risk Business risk

C)

Liquidity risk

D)Call risk Prepayment risk

E)

10 INCORRECT

The risk that loans will be terminated or paid off ahead of schedule because they will be refinanced or because of turnover of assets used to back the loans is: A) B) C) Interest rate risk Business risk Liquidity risk

D)Call risk Prepayment risk

E)

Chapter9
The correct answer for each question is indicated by a .

1 INCORRECT

What process requires a bank to set aside a group of income earning assets, such as home mortgages, and then sell securities against those assets in the open market? A) B) C) Securitization Credit enhancement Sale of loans

D)Credit swap None of the above

E)

2 INCORRECT

An investor in securities backed by loans can receive protection against default through the use of:

A) B) C)

A credit enhancement A liquidity enhancement A trustee

D)A special purpose entity A credit rating agency

E)

3 CORRECT

An independent party appointed to make sure the issuer of securitized assets fulfills all of their obligations is called: A) B) C) A credit enhancement A liquidity enhancement A trustee

D)A special purpose entity A credit rating agency

E)

4 INCORRECT

The issuer of loans pooled and securitized is often: A) B) C) A credit enhancement A liquidity enhancement A trustee

D)A special purpose entity A credit rating agency

E)

5 INCORRECT

Pooling of loans through securitization helps: A) B) Diversify a lenders credit risk exposure Reduce the need to monitor each individual loans payment stream

C)

Create liquid assets out of illiquid, expensive to sell assets

D)Transforms illiquid assets into new sources of funds for lenders All of the above

E)

6 CORRECT

Which government sponsored enterprise creates its own mortgage backed securities? A) B) C) Government National Mortgage Association Federal National Mortgage Association Student Loan Marketing Association

D)Farmers Housing Administration None of the above

E)

7 INCORRECT

When the seller of a loan keeps the ability to collect interest and principal payments on a loan they are: A) B) C) issuing credit enhancements issuing liquidity enhancements retaining the servicing rights

D)earning additional interest income None of the above

E)

8 INCORRECT

When the purchaser of a loan is effectively receiving a put option with the purchase of the loan: A) B) C) The loan is being sold as is The loan is being sold with rebound The loan is being sold with course correction The loan is being sold with recourse

D) None of the above

E)

9 CORRECT

What type of obligation is a standby letter of credit? A) B) C) It is a moral obligation It is a contingent obligation It is an independent obligation

D)It is a correlated obligation None of the above

E)

10 INCORRECT

The Fred Jones Company can issued $1,000,000 in commercial paper on its own with an interest rate of 5.75 percent. If it gets an SLC from the Hardy Bank, it can issue commercial paper with a rate of 5.15 percent. The Hardy bank will charge the Fred Jones Company $7500 for the SLC. Should the Fred Jones Company get the SLC? Yes, because the price of the SLC is lower than their savings from the A) lower interest rate B) Yes, because it is the right thing to do

No, because the price of the SLC is higher than their savings from the C) lower interest rate D)No, because SLCs are immoral Cannot be determined from the above information

E)