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FINC 4331 Exam Questions and 100% Correct Verified Answers
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FINC 4331 Exam Questions and 100% Correct Verified Answers
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FINC 4331 Exam Questions and 100%Correct Verified Answers
What is meant by "liability sensitive"? - ANSWER A negative GAP is liability sensitive
For a given interest rate change interest expense changes more than interest income
What is meant by "asset sensitive"? - ANSWER A positive GAP is asset sensitive
For a given interest rate change, interest income changes more than interest expense
what are some examples of "embedded options" in asset and liability items? - ANSWER
Refinancing of loans
Prepayment of principal on loans
Bonds being called
Early withdrawal of deposits prior to final maturity
Caps on loan or deposit rates
Floors on loan or deposit rates
Call or put options on FHLB advances
Exercise of loan commitments by borrowers
Why might we calculate GAP divided by Earning Assets? - ANSWER An alternative risk
measure that relates the absolute value of a bank's GAP to earning assets.
What are the five primary reasons identified for bank regulation (broad general
reasons)? - ANSWER Ensure the safety and soundness of institutions and
instruments Provide an efficient and competitive financial system
, Provide monetary stability
Maintain the integrity of the nation's payments system
To protect consumers from abuses by credit-granting institutions
What is meant by a "dual banking system"? - ANSWER dual banking system - a
banking system that includes both a federal and a state regulatory system; and both a
federal and state system for allowing the creation of new banks.
What is a bank "charter"? - ANSWER A charter from either a state (state banking
agency) or the federal government (Office of the Comptroller of the Currency - OCC) is
required to open a commercial bank in the U.S. All national (federally chartered) banks
are required to be members of the Federal Reserve System. State bank may decide
whether they wish to be members of the Fed.
What is the FDIC? - ANSWER Federal Deposit Insurance Corporation
What is deposit insurance? - ANSWER Insures bank customer deposits up to $250,000
Depositor does not lose funds if the bank fails
What benefit does it provide to depositors? to banks? - ANSWER Deposit customers
are thus willing to accept interest rates on insured deposits that are below the rates
banks would have to pay without FDIC insurance.
Benefit for Banks:Such deposits are generally more stable because customers
don't withdraw the funds quickly when the economic climate changes.
What is the Federal Reserve? - ANSWER The Fed is the Central Bank of U.S.
What are the Fed's primary roles/functions? - ANSWER Conduct the nation's monetary
policy
Provide and maintain an effective and efficient payments
system Supervise and regulate depository institution operations
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