Question 1

Which of the following scenarios is most desirable for the FI?

Accepted Answer

A) The initial set-up and development costs are lower than the sum of the discounted present values of cash flows from selling the product. 
B) The initial set-up and development costs exceed the sum of the discounted present values of cash flows from selling the product. 
C) The initial set-up and development costs equal the sum of the discounted present values of cash flows from selling the product. 
D) The most desirable scenario depends on the FI's individual situation. 
A) The initial set-up and development costs are lower than the sum of the discounted present values of cash flows from selling the product. 
B) The initial set-up and development costs exceed the sum of the discounted present values of cash flows from selling the product. 
C) The initial set-up and development costs equal the sum of the discounted present values of cash flows from selling the product. 
D) The most desirable scenario depends on the FI's individual situation.

Question 2

According to economic theory involving economies of scale, larger and more cost-efficient FIs should prevail over smaller, less cost-efficient FIs.

Accepted Answer

A) True 
 B)False

Question 3

According to studies, which of the following may better explain cost differences and operating cost efficiencies among FIs?

Accepted Answer

A) diseconomies of scale 
B) economies of scale 
C) economies of scope 
D) X-inefficiencies 
A) diseconomies of scale 
B) economies of scale 
C) economies of scope 
D) X-inefficiencies

Question 4

Regulators have proposed that operational risk should be measured for the purpose of meeting overall capital adequacy.

Accepted Answer

A) True 
 B)False

Question 5

Diseconomies of scale refers to the:

Accepted Answer

A) fall in an FI's average costs of production as its output decreases. 
B) fall in an FI's average costs of production as its output increases. 
C) fall in an FI's average costs of production as its output remains stable. 
D) increase in an FI's average costs of production as its output increases. 
A) fall in an FI's average costs of production as its output decreases. 
B) fall in an FI's average costs of production as its output increases. 
C) fall in an FI's average costs of production as its output remains stable. 
D) increase in an FI's average costs of production as its output increases.

Question 6

Diseconomies of scope refers to the:

Accepted Answer

A) fall in an FI's average costs of production as its output increases. 
B) increase in an FI's average costs of production as its output increases. 
C) situation in which the costs of joint production of FI services are higher than they would be if they were produced independently. 
D) ability of an FI to generate synergistic cost savings through joint use of inputs in producing multiple outputs. 
A) fall in an FI's average costs of production as its output increases. 
B) increase in an FI's average costs of production as its output increases. 
C) situation in which the costs of joint production of FI services are higher than they would be if they were produced independently. 
D) ability of an FI to generate synergistic cost savings through joint use of inputs in producing multiple outputs.

Question 7

Some of the most important retail payment product innovations are:

Accepted Answer

A) ATMs, EFTPOS and online banking. 
B) home banking, telephone banking and business-to-business ecommerce. 
C) online banking, smart cards and account reconciliation. 
D) All of the listed options are correct. 
A) ATMs, EFTPOS and online banking. 
B) home banking, telephone banking and business-to-business ecommerce. 
C) online banking, smart cards and account reconciliation. 
D) All of the listed options are correct.

Question 8

An FI's operating cost and the efficient use of technology:

Accepted Answer

A) have no impact on the FI's profits before taxes. 
B) can have a significant impact on the FI's profits before taxes. 
C) will merely improve the FI's reputation. 
D) are not important as FIs have the back-up of the government in times of financial distress. 
A) have no impact on the FI's profits before taxes. 
B) can have a significant impact on the FI's profits before taxes. 
C) will merely improve the FI's reputation. 
D) are not important as FIs have the back-up of the government in times of financial distress.

Question 9

What are the advantages and disadvantages of technological advancements from the viewpoint of FIs? Use examples where appropriate.

Accepted Answer

Technological improvements in the servic

Question 10

According to KPMG there has been a decline in the number of credit cards on issue, while there was no slow-down in transaction activity.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following are the two basic approaches to analysing the cost functions of FIs?

Accepted Answer

A) Basic indicator approach and standardised approach. 
B) Standardised approach and advanced measurement approach. 
C) Production approach and intermediation approach. 
D) Basic indicator approach and advanced measurement approach. 
A) Basic indicator approach and standardised approach. 
B) Standardised approach and advanced measurement approach. 
C) Production approach and intermediation approach. 
D) Basic indicator approach and advanced measurement approach.

Question 12

External and internal fraud are both sources of operational risk.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements is true?

Accepted Answer

A) The profitability of any product innovation is negatively related to the size of the initial set-up and development costs and the FIs cost of capital. 
B) The profitability of any product innovation is positively related to the size of the initial set-up and development costs and the FIs cost of capital. 
C) The profitability of any product innovation is unrelated to the size of the initial set-up and development costs and the FIs cost of capital. 
D) The relationship depends on the FI's individual situation. 
A) The profitability of any product innovation is negatively related to the size of the initial set-up and development costs and the FIs cost of capital. 
B) The profitability of any product innovation is positively related to the size of the initial set-up and development costs and the FIs cost of capital. 
C) The profitability of any product innovation is unrelated to the size of the initial set-up and development costs and the FIs cost of capital. 
D) The relationship depends on the FI's individual situation.

Question 14

Which of the following statements is false?

Accepted Answer

A) The long-run implication of economies of scale on the FI sector is that the larger and most cost-efficient FIs will drive out smaller FIs. 
B) A potential long-run implication of economies of scale on the FI sector is an increase in large-firm dominance. 
C) A potential long-run implication of economies of scale on the FI sector is a concentration in financial services production. 
D) A potential long-run implication of economies of scale on the FI sector is a decrease in large-firm dominance. 
A) The long-run implication of economies of scale on the FI sector is that the larger and most cost-efficient FIs will drive out smaller FIs. 
B) A potential long-run implication of economies of scale on the FI sector is an increase in large-firm dominance. 
C) A potential long-run implication of economies of scale on the FI sector is a concentration in financial services production. 
D) A potential long-run implication of economies of scale on the FI sector is a decrease in large-firm dominance.

Question 15

Operational risk sources can lead to the following costs for the FI:

Accepted Answer

A) direct costs, indirect costs and opportunity costs. 
B) direct costs and indirect costs only. 
C) direct costs and opportunity costs only. 
D) indirect costs and opportunity costs only. 
A) direct costs, indirect costs and opportunity costs. 
B) direct costs and indirect costs only. 
C) direct costs and opportunity costs only. 
D) indirect costs and opportunity costs only.

Question 16

The effect of improving technology over time is to shift the AC curve upwards over time.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is true?

Accepted Answer

A) Internet transactions involve 'open' systems and thus are well protected against interception and fraud. 
B) Internet transactions involve 'closed' systems and thus are well protected against interception and fraud. 
C) Internet transactions involve 'closed' systems and thus are susceptible to interception and fraud. 
D) Internet transactions involve 'open' systems and thus are susceptible to interception and fraud. 
A) Internet transactions involve 'open' systems and thus are well protected against interception and fraud. 
B) Internet transactions involve 'closed' systems and thus are well protected against interception and fraud. 
C) Internet transactions involve 'closed' systems and thus are susceptible to interception and fraud. 
D) Internet transactions involve 'open' systems and thus are susceptible to interception and fraud.

Question 18

How can interest expense of an FI be reduced by improved technological efficiency?

Accepted Answer

A) By improving the efficiency of management of information flows. 
B) By obtaining access to low cost sources of funds. 
C) By linking services to the quality of the FI's technology. 
D) By innovating new interest earning products. 
A) By improving the efficiency of management of information flows. 
B) By obtaining access to low cost sources of funds. 
C) By linking services to the quality of the FI's technology. 
D) By innovating new interest earning products.

Question 19

Which of the following statements is true?

Accepted Answer

A) The profitability of any product innovation is negatively related to the size of the stream of expected net cash flows from selling the services. 
B) The profitability of any product innovation is positively related to the size of the stream of expected net cash flows from selling the services. 
C) The profitability of any product innovation is unrelated to the size of the stream of expected net cash flows from selling the services. 
D) The relationship depends on the FI's individual situation. 
A) The profitability of any product innovation is negatively related to the size of the stream of expected net cash flows from selling the services. 
B) The profitability of any product innovation is positively related to the size of the stream of expected net cash flows from selling the services. 
C) The profitability of any product innovation is unrelated to the size of the stream of expected net cash flows from selling the services. 
D) The relationship depends on the FI's individual situation.

Question 20

The average cost of producing an FI's output of financial services is measured as follows:

Accepted Answer

A) AC = TC - S 
B) AC = TC + S 
C) AC = TC * S 
D) AC = TC / S 
A) AC = TC - S 
B) AC = TC + S 
C) AC = TC * S 
D) AC = TC / S

Which of the following scenarios is most desirable for the FI?

According to economic theory involving economies of scale, larger and more cost-efficient FIs should prevail over smaller, less cost-efficient FIs.

According to studies, which of the following may better explain cost differences and operating cost efficiencies among FIs?

Regulators have proposed that operational risk should be measured for the purpose of meeting overall capital adequacy.

Diseconomies of scale refers to the:

Diseconomies of scope refers to the:

Some of the most important retail payment product innovations are:

An FI's operating cost and the efficient use of technology:

What are the advantages and disadvantages of technological advancements from the viewpoint of FIs? Use examples where appropriate.

According to KPMG there has been a decline in the number of credit cards on issue, while there was no slow-down in transaction activity.

Which of the following are the two basic approaches to analysing the cost functions of FIs?

External and internal fraud are both sources of operational risk.

Which of the following statements is true?

Which of the following statements is false?

Operational risk sources can lead to the following costs for the FI:

The effect of improving technology over time is to shift the AC curve upwards over time.

Which of the following statements is true?

How can interest expense of an FI be reduced by improved technological efficiency?

Which of the following statements is true?

The average cost of producing an FI's output of financial services is measured as follows:

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: The Duration Model

Managing Interest Rate Risk Using Off Balance Sheet Instruments

Credit Risk I: Individual Loan Risk

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Capital Management and Adequacy

Filters

Exam 17: Technology and Other Operational Risk

Which of the following scenarios is most desirable for the FI?

According to economic theory involving economies of scale, larger and more cost-efficient FIs should prevail over smaller, less cost-efficient FIs.

According to studies, which of the following may better explain cost differences and operating cost efficiencies among FIs?

Regulators have proposed that operational risk should be measured for the purpose of meeting overall capital adequacy.

Diseconomies of scale refers to the:

Diseconomies of scope refers to the:

Some of the most important retail payment product innovations are:

An FI's operating cost and the efficient use of technology:

What are the advantages and disadvantages of technological advancements from the viewpoint of FIs? Use examples where appropriate.

According to KPMG there has been a decline in the number of credit cards on issue, while there was no slow-down in transaction activity.

Which of the following are the two basic approaches to analysing the cost functions of FIs?

External and internal fraud are both sources of operational risk.

Which of the following statements is true?

Which of the following statements is false?

Operational risk sources can lead to the following costs for the FI:

The effect of improving technology over time is to shift the AC curve upwards over time.

Which of the following statements is true?

How can interest expense of an FI be reduced by improved technological efficiency?

Which of the following statements is true?

The average cost of producing an FI's output of financial services is measured as follows:

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: The Duration Model

Managing Interest Rate Risk Using Off Balance Sheet Instruments

Credit Risk I: Individual Loan Risk

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Capital Management and Adequacy

Filters