Question 1

Which of the following is not true regarding common stock?

Accepted Answer

A) Common stock has no maturity. 
B) New issues of common stock may dilute existing shareholder equity. 
C) Common stock is a permanent source of funds. 
D) Dividends paid are not tax-deductible. 
E) Dividends are considered a fixed charge that must be paid. 
A) Common stock has no maturity. 
B) New issues of common stock may dilute existing shareholder equity. 
C) Common stock is a permanent source of funds. 
D) Dividends paid are not tax-deductible. 
E) Dividends are considered a fixed charge that must be paid.

Question 2

Use the following information for questions 
A bank currently just meets its total capital requirements of 8%.The bank currently has a dividend payout ratio of 35%.Assets are expected to grow at 5%.
-If the bank expects its ROA to be .45% and the bank does not wish to change its dividend payout ratio from 35%, how much new equity capital (as a percent of total assets) must the bank issue to support the growth in assets?

Accepted Answer

A) 0.001075% 
B) 0.01075% 
C) 0.1075% 
D) 1.075% 
E) 10.75% 
A) 0.001075% 
B) 0.01075% 
C) 0.1075% 
D) 1.075% 
E) 10.75%

Question 3

How does bank capital reduce bank risk?

Accepted Answer

A) It provides a cushion for firms to absorb losses. 
B) It creates unlimited growth opportunities. 
C) It limits access to the financial markets. 
D) All of the above. 
E) a.and b. 
A) It provides a cushion for firms to absorb losses. 
B) It creates unlimited growth opportunities. 
C) It limits access to the financial markets. 
D) All of the above. 
E) a.and b.

Question 4

Prior to the Basle Agreement, primary capital included all of the following except:

Accepted Answer

A) long-term subordinated debt. 
B) common stock. 
C) undivided profits. 
D) perpetual preferred stock. 
E) the allowance for loan losses. 
A) long-term subordinated debt. 
B) common stock. 
C) undivided profits. 
D) perpetual preferred stock. 
E) the allowance for loan losses.

Question 5

Which of the following is true regarding subordinated debt?

Accepted Answer

A) Subordinated debt claims come before the claims of depositors. 
B) Principal payments are not mandatory. 
C) Transaction costs on issuing new debt are lower than when issuing new equity. 
D) Interest payments on subordinated debt are tax-deductible. 
E) New subordinated debt dilutes existing shareholder equity. 
A) Subordinated debt claims come before the claims of depositors. 
B) Principal payments are not mandatory. 
C) Transaction costs on issuing new debt are lower than when issuing new equity. 
D) Interest payments on subordinated debt are tax-deductible. 
E) New subordinated debt dilutes existing shareholder equity.

Question 6

Approximately what percentage of commercial banks are currently considered well capitalized at the end of 2007?
a.97%
b.87%
c.77%
d.67%
e.57%

Accepted Answer

The answer of Approximately what percentage of commercial banks are...

Question 7

To be considered adequately capitalized, a bank's minimum Tier 1 capital, total capital, and leverage capital must be:

Accepted Answer

A) 4%, 8%, and 3%, respectively. 
B) 8%, 5%, and 3%, respectively. 
C) 10%, 10%, and 10%, respectively. 
D) 6%, 10%, and 5%, respectively. 
E) 3%, 4%, and 8%, respectively. 
A) 4%, 8%, and 3%, respectively. 
B) 8%, 5%, and 3%, respectively. 
C) 10%, 10%, and 10%, respectively. 
D) 6%, 10%, and 5%, respectively. 
E) 3%, 4%, and 8%, respectively.

Question 8

Regulatory capital ratios focus on the book value of equity.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is not a historical problem with deposit insurance?

Accepted Answer

A) Deposit insurance is a substitute for some functions of bank capital. 
B) Some banks are considered Too-Big-To-Fail. 
C) Historically, deposit insurance premium levels have been insufficient to cover potential payouts. 
D) Historically, deposit insurance premiums were not assessed against all of a bank's insured liabilities. 
E) All of the above are historical problems with deposit insurance. 
A) Deposit insurance is a substitute for some functions of bank capital. 
B) Some banks are considered Too-Big-To-Fail. 
C) Historically, deposit insurance premium levels have been insufficient to cover potential payouts. 
D) Historically, deposit insurance premiums were not assessed against all of a bank's insured liabilities. 
E) All of the above are historical problems with deposit insurance.

Question 10

The Basel Committee defines operational risk as the risk of loss resulting from:

Accepted Answer

A) changes in interest rates. 
B) changes in inflation. 
C) inadequate internal processes. 
D) excessive default risk. 
E) inadequate capital. 
A) changes in interest rates. 
B) changes in inflation. 
C) inadequate internal processes. 
D) excessive default risk. 
E) inadequate capital.

Question 11

What are some of the weaknesses behind risk-based capital standards?

Accepted Answer

Risk-based capital standards are regulat

Question 12

To be considered well-capitalized, a bank's minimum Tier 1 capital, total capital, and leverage capital must be:

Accepted Answer

A) 4%, 8%, and 3%, respectively. 
B) 8%, 5%, and 3%, respectively. 
C) 10%, 10%, and 10%, respectively. 
D) 6%, 10%, and 5%, respectively. 
E) 3%, 4%, and 8%, respectively. 
A) 4%, 8%, and 3%, respectively. 
B) 8%, 5%, and 3%, respectively. 
C) 10%, 10%, and 10%, respectively. 
D) 6%, 10%, and 5%, respectively. 
E) 3%, 4%, and 8%, respectively.

Question 13

How do capital requirements constrain bank growth?

Accepted Answer

A) By discouraging investments in Treasury securities. 
B) By disallowing the ownership of mortgage loans. 
C) By decreasing a bank's net interest margin. 
D) By limiting the amount of new assets that a bank can acquire through debt financing. 
E) By reducing a bank's CAMELS ratings. 
A) By discouraging investments in Treasury securities. 
B) By disallowing the ownership of mortgage loans. 
C) By decreasing a bank's net interest margin. 
D) By limiting the amount of new assets that a bank can acquire through debt financing. 
E) By reducing a bank's CAMELS ratings.

Question 14

Banks with greater capital can do all of the following except:

Accepted Answer

A) borrow at lower rates. 
B) make larger loans. 
C) expand faster through acquisitions. 
D) expand faster through internal growth 
E) Banks with greater capital can do all of the above. 
A) borrow at lower rates. 
B) make larger loans. 
C) expand faster through acquisitions. 
D) expand faster through internal growth 
E) Banks with greater capital can do all of the above.

Question 15

In general, smaller banks have higher capital ratios than larger banks.

Accepted Answer

A) True 
 B)False

Question 16

Prior to the Basle Agreement, secondary capital included which of the following?

Accepted Answer

A) The allowance for loan losses 
B) Limited-life preferred stock 
C) Long-term subordinated debt 
D) All of the above 
E) b.and c. 
A) The allowance for loan losses 
B) Limited-life preferred stock 
C) Long-term subordinated debt 
D) All of the above 
E) b.and c.

Question 17

Use the following information for questions 
  
-How much Tier 1 capital does the bank have?

Accepted Answer

A) $100 
B) $450 
C) $700 
D) $750 
E) $1000 
A) $100 
B) $450 
C) $700 
D) $750 
E) $1000

Question 18

Under current capital requirements, Tier 1 Capital takes of all of the following into account except:

Accepted Answer

A) common stockholder's equity. 
B) equity in subsidiaries. 
C) goodwill. 
D) mandatory convertible debt. 
E) non-cumulative perpetual preferred stock. 
A) common stockholder's equity. 
B) equity in subsidiaries. 
C) goodwill. 
D) mandatory convertible debt. 
E) non-cumulative perpetual preferred stock.

Question 19

Smaller banks rely more heavily on internally generated capital than larger banks.

Accepted Answer

A) True 
 B)False

Question 20

Use the following information for questions 
  
-What is the amount of risk-adjusted assets for the bank?

Accepted Answer

A) $7,700 
B) $8,700 
C) $9,700 
D) $14,700 
E) $15,700 
A) $7,700 
B) $8,700 
C) $9,700 
D) $14,700 
E) $15,700

Which of the following is not true regarding common stock?

How does bank capital reduce bank risk?

Prior to the Basle Agreement, primary capital included all of the following except:

Which of the following is true regarding subordinated debt?

Approximately what percentage of commercial banks are currently considered well capitalized at the end of 2007? a.97% b.87% c.77% d.67% e.57%

To be considered adequately capitalized, a bank's minimum Tier 1 capital, total capital, and leverage capital must be:

Regulatory capital ratios focus on the book value of equity.

Which of the following is not a historical problem with deposit insurance?

The Basel Committee defines operational risk as the risk of loss resulting from:

What are some of the weaknesses behind risk-based capital standards?

To be considered well-capitalized, a bank's minimum Tier 1 capital, total capital, and leverage capital must be:

How do capital requirements constrain bank growth?

Banks with greater capital can do all of the following except:

In general, smaller banks have higher capital ratios than larger banks.

Prior to the Basle Agreement, secondary capital included which of the following?

Use the following information for questions -How much Tier 1 capital does the bank have?

Under current capital requirements, Tier 1 Capital takes of all of the following into account except:

Smaller banks rely more heavily on internally generated capital than larger banks.

Use the following information for questions -What is the amount of risk-adjusted assets for the bank?

Banking and the Financial Services Industry

Government Policies and Regulation

Analyzing Bank Performance

Managing Noninterest Income and Noninterest Expense

The Performance of Nontraditional Banking Companies

Pricing Fixed-Income Securities

Managing Interest Rate Risk: Gap and Earnings Sensitivity

Managing Interest Rate Risk: Economic Value of Equity

Using Derivatives to Manage Interest Rate Risk

Funding the Bank

Managing Liquidity

Overview of Credit Policy and Loan Characteristics

Evaluating Commercial Loan Requests and Managing Credit Risk

Evaluating Consumer Loans

Managing the Investment Portfolio

Global Banking Activities

Filters

Exam 12: The Effective Use of Capital

Which of the following is not true regarding common stock?

How does bank capital reduce bank risk?

Prior to the Basle Agreement, primary capital included all of the following except:

Which of the following is true regarding subordinated debt?

Approximately what percentage of commercial banks are currently considered well capitalized at the end of 2007? a.97% b.87% c.77% d.67% e.57%

To be considered adequately capitalized, a bank's minimum Tier 1 capital, total capital, and leverage capital must be:

Regulatory capital ratios focus on the book value of equity.

Which of the following is not a historical problem with deposit insurance?

The Basel Committee defines operational risk as the risk of loss resulting from:

What are some of the weaknesses behind risk-based capital standards?

To be considered well-capitalized, a bank's minimum Tier 1 capital, total capital, and leverage capital must be:

How do capital requirements constrain bank growth?

Banks with greater capital can do all of the following except:

In general, smaller banks have higher capital ratios than larger banks.

Prior to the Basle Agreement, secondary capital included which of the following?

Use the following information for questions -How much Tier 1 capital does the bank have?

Under current capital requirements, Tier 1 Capital takes of all of the following into account except:

Smaller banks rely more heavily on internally generated capital than larger banks.

Use the following information for questions -What is the amount of risk-adjusted assets for the bank?

Banking and the Financial Services Industry

Government Policies and Regulation

Analyzing Bank Performance

Managing Noninterest Income and Noninterest Expense

The Performance of Nontraditional Banking Companies

Pricing Fixed-Income Securities

Managing Interest Rate Risk: Gap and Earnings Sensitivity

Managing Interest Rate Risk: Economic Value of Equity

Using Derivatives to Manage Interest Rate Risk

Funding the Bank

Managing Liquidity

Overview of Credit Policy and Loan Characteristics

Evaluating Commercial Loan Requests and Managing Credit Risk

Evaluating Consumer Loans

Managing the Investment Portfolio

Global Banking Activities

Filters