BUSNFIN 726 Final Exam

Please answer each of the questions below completely.

WEEK 1: Financial Institutions & Markets
Choose among the following major banking laws to answer questions 1 to 9
(Note not all of the laws are used here):
The McFadden Act of 1927
The Glass­Steagall Act of 1933
The Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of
1980
The Garn­St Germain Depository Institutions Act of 1982
The Competitive Equality in Banking Act of 1987
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
The Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991
The Riegle­Neal Interstate Banking and Branching Efficiency Act of 1994
Financial Services Modernization Act of 1999

1. This legislation sought to limit the growth of non­bank banks.
2. This legislation introduced prompt corrective action requiring mandatory intervention by regulators when a bank’s capital falls below certain levels.
3. This legislation permits bank holding companies to acquire banks in other states.
4. This legislation limited interstate branching.
5. Eliminated restrictions on banks, insurance companies, and securities firms from entering into each other’s areas of business.
6. This legislation separated commercial and investment banking.
7. This legislation phased out Regulation Q ceilings on deposit interest rates.
8. Provided for state regulation of insurance.
9. This legislation streamlined bank holding company supervision, with the Federal Reserve as the umbrella holding company supervisor.
10. In the last few years, which noninsurance financial institution has been able to offer insurance services to the concern of the insurance industry?

Please answer each of the questions below completely.
a.finance companies

b.credit unions

c.investment banks

d.commercial banks

Please answer each of the questions below completely.

WEEK 2: The Fed
11. The primary responsibility of the Federal Open Market Committee (FOMC) is to:
a. set monetary policy
b. supervise and examine member banks.
c. guarantee excess reserves to National Banks.
d. enforce margin requirements
12. For what purposes do depository institutions keep deposits in the Federal Reserve banks?
a. for clearing checks
b. to satisfy reserve requirements
c. to earn interest
d. a and b
13. The Fed’s primary tools of monetary policy include all the following e xcept:
a.changing the discount rate.
b. open market operations.
c. adjusting reserve requirements.
d. changes in the Federal Funds rate.
14. Which of the following is in the correct historical order?
a. Second Bank of the United States, Federal Reserve Act, Crash of 1907
b. Crash of 1907, Federal Reserve Act, National Banking Acts
c. First Bank of the United States, Crash of 1907, National Banking Acts
d. Second Bank of the United States, National Banking Acts, Federal Reserve Act
15. There are ______ members of the Federal Reserve Board of Governors, _______members of the Federal Open Market Committee, and ________ Federal Reserve Banks.
a. 12; 7; 12
b. 7; 14; 12
c. 14; 12; 12
d. 7; 12; 12

16. The Discount Window
a. is a common way for depository institutions to raise loanable funds
b. relates to the Fed’s “lender of last resort” function
c. is a relatively recent innovation in the design of the Federal Reserve System
d. is available only during emergencies

WEEK 3: Assessing & Managing Risk
17. What type of risk focuses upon mismatched asset and liability maturities and
durations?
a. Liquidity risk.
b. Interest rate risk.
c. Credit risk.
d. Foreign exchange rate risk.
e. Off­balance sheet risk.
18. The asset transformation function potentially exposes the FI to:
a. foreign exchange risk.
b. technology risk
c. operational risk
d. trading risk
e. interest rate risk.
19. The risk that an investor will be forced to place earnings from a loan or security into a lower yielding investment is known as:
a.liquidity risk.
b.reinvestment risk.
c.credit risk.
d.foreign exchange risk.
e.off­balance sheet risk.
20. If interest rates decrease 50 basis points for an FI that has a gap of $5 million, the expected change in net interest income is:
a.+ $2,500.
b.+ $25,000.
c. + $250,000.
d. $250,000.
e. $25,000.
21. If interest rates increase 75 basis points for an FI that has a gap of ­$15 million, the expected change in net interest income is:
a. $112,500.
b. +$112,500.
c. +$1,125,0000.
d. $1,125,0000.
e. $150,000.

Refer the following balance sheet of XYZ Bank to answer questions 22­25. All figures in millions of US Dollars.
Assets
1. Short­term consumer loans
(one­year maturity)

Liabilities
$ 150 1.Equity capital (fixed)

2. Long­term consumer loans
3. Three­month Treasury bills
4. Six­month Treasury notes
5. Three­year Treasury bonds
6. 10­year, fixed­rate mortgages 120
7. 30­year, floating­rate mortgages
(rate adjusted every nine months)

125 2. Demand deposits (two­year maturity) 40
130 3. Passbook savings
130
135 4. Three­month CDs
140
170 5. Three­month bankers acceptances 120
6. Six­month commercial paper 160
7. One­year time deposits 120
140 8. Two­year time deposits
40

$970

$ 120

$970

22. Total one­year rate­sensitive assets is:
a. $540 million
b. $580 million
c. $555 million
d. $415 million
e. $720million
23. Total one­year rate­sensitive Liabilities is:
a. $540 million
b. $580 million
c. $555 million
d. $415 million
e. $720million
24. The cumulative one­year repricing gap (CGAP) for the bank is:
a. $25 million
b. $­140 million
c. $15 million
d. $­150 million
e. $­15 million
25. An FI finances a $250,000 2­year fixed­rate loan with a $200,000 1­year fixed­rate CD. Use the repricing model to determine (a) the FI’s repricing (or funding) gap using a 1­year maturity bucket, and (b) the impact of a 100 basis point (0.01) decrease in interest rates on the FI’s annual net interest income?
a. $0; $0
b. $200,000; +$2,000
c. $200,000; ­$2,000
d. +$50,000; ­$500
e. $200,000; ­$1,000

WEEK 4: Institutional Investment
26. Small investors are likely to invest in the money market through ____.
a. directly; commercial paper
b. locally; their credit union
c. indirectly; negotiable CDs
d. indirectly; money market mutual funds
27. Federal Funds are typically:
a. Treasury deposits.
b. Federal Reserve assets.
c. commercial bank deposits at the Federal Reserve.
d. overnight interbank loans settled in immediately available funds
28. Regulators provide a valuable function for the capital markets because they:
a. try to keep the market participants honest.
b. try to prevent excessive speculation from destabilizing the market.
c. make sure all pertinent information about publicly traded securities is disclosed.
d. all of the above
29. The New York Stock Exchange is a(n) ________ market.
a. auction
b. exchange
c. secondary
d. all of the above
30. Which of the following is not associated with the over­the­counter market for stocks?
a. NASDAQ
b. unlisted
c. auction market
d. dealer market