FIN 3080 Final Exam Questions With 100% Verified Correct Answers Graded A+.
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Suppose that the Federal Reserve announces that it will sell a large amount of T-bills. This action will have ripple effects through the economy. What is the likely impact on the stock market?
Decrease in the value of stocks - correct answer Decrease in the val...
Suppose that the Federal Reserve announces that it will sell a large amount of T-bills. This action will
have ripple effects through the economy. What is the likely impact on the stock market?
Decrease in the value of stocks - correct answer Decrease in the value of stocks
Mortgage backed securities are often created with different tranches such as AAA, A, BBB. Which of the
following statements is incorrect regarding the differences between these tranches? - correct answer
The different tranches are backed by different pools of mortgages
In a 1998 study, Strahan and Weston found that consolidation among small banks seemed to increase
lending to small businesses. This finding suggests that... - correct answer the
diversification benefits of consolidation outweigh costs such as moving decision making authority to a
central location.
Competition from ________ has left commercial banks with fewer deposits. - correct answer
money market mutual funds
A nationally chartered bank headquartered in South Carolina is regulated by which entity/entities?
I. Federal Deposit Insurance Corporation
II. Office of the Comptroller of the Currency
III. Federal Reserve System
IV. Office of the Commissioner of Banking in South Carolina (state authority) - correct answer
I., II., and III. only
What is the typical debt ratio (total liabilities/total assets) of a commercial bank? - correct answer
89%
A commercial bank loans funds to a business to finance a project and charges an interest rate of 9.9%.
The funds will be returned in one year, with interest, if the project is successful. If the project is not
successful, the bank gets nothing. Assume that the bank's goal is to breakeven. From this information,
what is the chance of success of the project? - correct answer 90.99%
,Which types of commercial banks rely heavily on nondeposit or borrowed sources of funds? - correct
answer Money center banks
A commercial bank reports the following financials:
Net Income= $6M
Total Assets=$770M
Common Equity=$123M
Calculate the bank's Equity Multiplier. - correct answer 6.26
Why do commercial banks hold equity close to the minimum required by regulators? - correct answer
Due to the low cost of obtaining deposits
Which feature of commercial bank balance sheets leads to interest rate risk? - correct answer
The fact that liabilities have shorter maturities than assets
A commercial bank reports the following financials:
Net Income= $2M
Common Equity=$66.67M
Equity Multiplier=6.
Calculate ROA for the bank (expressed in percent, round to two decimals, such as 0.67% or 1.25%). -
correct answer 0.50%
Which type of banks specialize in retail or consumer banking? - correct answer
Community banks
Politicians and regulators have proposed solutions to shrink the size of large financial institutions. Which
is not one of the commonly discussed ways to shrink banks? - correct answer Allow
US banks to be purchased by foreign financial institutions
Rank the categories of commercial bank assets from largest to smallest. - correct answer
Loans (largest), investment securities, cash
, Loans by commercial banks fall into four categories. Which category represents the largest portion of
loans on commercial bank balance sheets? - correct answer Real estate loans
Deductible provisions in car insurance policies and suicide exclusions in life insurance policies are
designed to combat which phenomenon? - correct answer Moral hazard
What does the balance sheet of an insurance company look like? - correct answer
Assets consist largely of bonds while liabilities consist largely of net policy reserves
According to the National Vital Statistics Report, the likelihood that a 20-year old person dies within the
next year is 0.13%. A life insurance company anticipates that the likelihood that a 20-year old
policyholder dies is __________________ . - correct answer higher than 0.13% due
to adverse selection
Suppose that, if car insurance did not exist, the likelihood of an accident would be 3% in a given year.
What is the likelihood of an accident within a car insurance company's pool of policyholders? - correct
answer Greater than 3% due to moral hazard
Which of the following describes modern financial institutions (e.g., USAA) - correct answer
Modern FIs typically have operations across multiple types of institutions
An outbreak of a deadly virus (e.g., Ebola) in the United States would have the largest effect on which of
the following for a life insurance company? - correct answer Loss ratio
An insurance company begins a program to work with its policyholders to prevent losses. In the
program, the insurance company installs "forward collision warning" devices into cars in order to reduce
the chances of car accidents. If this program is successful, which of the following is likely to occur as a
direct result? - correct answer Loss ratio decreases and Loss Adjustment Expense
ratio decreases
How do life insurance companies solve the adverse selection problem? - correct answer
Establish different pools of the population based on health characteristics
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