Question 1

Which of the following statements is true?

Accepted Answer

A)  Exchange settlement accounts allow each FI to have settlement for transactions that occur by the adjustment of credit balances held with the central bank.
B)  The central bank acts purely as a settlement agent.
C)  The central bank is not exposed to any credit risk.
D)  All of the listed options are correct. D

Question 2

The most important banking area in which technology has impacted wholesale or corporate customer services is a financial institution's ability to provide:

Accepted Answer

A)  cash-management services.
B)  residential mortgage lending.
C)  issuance of certificates of deposit.
D)  credit approval. A

Question 3

Which of the following statements is true?

Accepted Answer

A)  Various studies have shown that economies of scale best explain cost discrepancies between FIs.
B)  Various studies have shown that economies of scope best explain cost discrepancies between FIs.
C)  Various studies have shown that X-Inefficiencies best explain cost discrepancies between FIs.
D)  Various studies have shown that Y-Inefficiencies best explain cost discrepancies between FIs. C

Question 4

How can operating income of an FI be increased 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.

Question 5

Outline the main sources of operational risk and why operational risk gained prominence during the GFC.

Accepted Answer

The answer of Outline the main sources of operational risk...

Question 6

The following information is available on the average costs of the three major banks in a given local market.Bank A has assets of $10 million and average costs are 15 per cent, Bank B has assets of $20 million and average costs of 13 per cent while Bank C has assets of $30 million with average costs of 12 per cent.Average costs are measured as a proportion of total assets. The above figures indicate that:

Accepted Answer

A)  there are significant economies of scale still present in the local markets.
B)  there are significant diseconomies of scale still present in the local markets.
C)  there are significant economies of scope still present in the local markets.
D)  there are significant diseconomies of scope still present in the local markets.

Question 7

Operational risk came into prominence during the global financial crisis (GFC) due to:
A)Lehman Brothers using 'recycled collateral' to expand their funding beyond on-balance-sheet assets.
B)The classification of 'sophisticated investors' led to investment banks not providing material information about the riskiness of derivative transactions.
C)the credit default swap market was likely to cause systemic market risk due to difficulties in settling out trades with distressed or failed counterparties.
D)All of the listed options are correct.

Accepted Answer

The answer of Operational risk came into prominence during the...

Question 8

Specific problems that can create capital asset risk include:

Accepted Answer

A)  fire/flood.
B)  contractual disagreement.
C)  war.
D)  error.

Question 9

The term daylight overdraft refers to a situation in which an FI's:

Accepted Answer

A)  reserve account at the central bank is negative at the end of a banking day.
B)  reserve account at the central bank is negative at the beginning of a banking day.
C)  reserve account at the central bank becomes negative within the banking day.
D)  account with another FI becomes negative within the banking day.

Question 10

There is little strong evidence that larger multi-product financial service firms enjoy cost advantages over smaller, more specialised firms.

Accepted Answer

A) True 
 B)False

Question 11

Inputs such as capital and labour cannot be jointly used by FIs.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is true?

Accepted Answer

A)  RTGS stands for Real Transaction Gross Settlement.
B)  RTGS allows large transactions to be settled at the end of the banking day.
C)  The use of RTGS eliminates settlement risk.
D)  RTGS allows detecting any failure to complete settlement during the day that the transactions occur.

Question 13

Which of the following wholesale services offered by FIs to businesses allows the FI to combine the email capabilities of the internet with the FIs ability to process payments electronically through the interbank payment networks?

Accepted Answer

A)  electronic data exchange
B)  ecommerce facilitation
C)  electronic billing
D)  electronic funds transfer

Question 14

Technological efficiency focuses exclusively on the cost side of financial intermediation.

Accepted Answer

A) True 
 B)False

Question 15

Assume that ABC Bank produces product A for a corporate client, while XYZ Bank produces product B for the client.The total operating cost for producing product A is $200 000 and $300 000 for product B.The resulting business volumes for the FI are $7 500 000 for product A and $10 000 000 for product B.What is the total average cost of producing products A and B separately (round to two decimals)?

Accepted Answer

A)  5.67 per cent
B)  35 per cent
C)  70.84 per cent
D)  2.86 per cent

Question 16

Which of the following observations concerning the production approach is true?

Accepted Answer

A)  It views FIs' outputs of services as having three underlying inputs.
B)  Labour and capital are the only inputs.
C)  It views the output as being produced by labour, capital and the funds used to produce intermediated services.
D)  Deposit costs are viewed as an input in the banking and non-banking deposit institutions.

Question 17

The total operating cost of producing services is $125 000 for a loan volume of $12 500 000.What is the average cost of loan production for the bank?

Accepted Answer

A)  0.1 per cent
B)  1 per cent
C)  10 per cent
D)  100 per cent

Question 18

Which of the following observations concerning the intermediation approach is true?

Accepted Answer

A)  The intermediation approach views FIs' outputs of services as having two underlying inputs.
B)  Labour and capital are the only inputs.
C)  The intermediation approach views the output as being produced by labour, capital and the funds used to produce intermediated services.
D)  Premiums or reserves are viewed as an input in the banking and thrift industries.

Question 19

Specific problems that can create employee risk include:

Accepted Answer

A)  War; external fraud.
B)  Management information.
C)  Money laundering; rogue trading and fraud risk
D)  Taxation risk; confidentiality breach

Question 20

Some benefits of technological advancement for FIs include:

Accepted Answer

A)  convenience and service quality.
B)  lower operating cost, cross-marketing and cross-selling potential.
C)  less direct contact with customers.
D)  All of the listed options are correct.

Exam 17: Technology and Other Operational Risk

Which of the following statements is true?

The most important banking area in which technology has impacted wholesale or corporate customer services is a financial institution's ability to provide:

Which of the following statements is true?

How can operating income of an FI be increased by improved technological efficiency?

Outline the main sources of operational risk and why operational risk gained prominence during the GFC.

Specific problems that can create capital asset risk include:

The term daylight overdraft refers to a situation in which an FI's:

There is little strong evidence that larger multi-product financial service firms enjoy cost advantages over smaller, more specialised firms.

Inputs such as capital and labour cannot be jointly used by FIs.

Which of the following statements is true?

Which of the following wholesale services offered by FIs to businesses allows the FI to combine the email capabilities of the internet with the FIs ability to process payments electronically through the interbank payment networks?

Technological efficiency focuses exclusively on the cost side of financial intermediation.

Which of the following observations concerning the production approach is true?

The total operating cost of producing services is $125 000 for a loan volume of $12 500 000.What is the average cost of loan production for the bank?

Which of the following observations concerning the intermediation approach is true?

Specific problems that can create employee risk include:

Some benefits of technological advancement for FIs include: