Question 1

A bank plans on borrowing $225 million for 10 days through an RP transaction collateralized by T-Bills.The current RP rate is 4.5 percent.What is the bank's total interest cost in dollars?

Accepted Answer

The interest cost is calculated using the formula: Interest = Principal x Rate x Time. Here, Principal = $225 million, Rate = 4.5% per annum (or 0.045), and Time = 10/360 (since RP transactions typically use a 360-day year). Thus, Interest = $225,000,000 x 0.045 x (10/360) = $281,250.

Question 2

A bank promises an annual return of 4.85 percent on a 60 day,$300,000 CD.What will be the total amount due to the customer at the end of the two-month period?

Accepted Answer

The annual return is 4.85%, which means the rate for 60 days is 4.85%/365*60=0.79%. 
The total amount due to the customer at the end of the two-month period is $300,000*(1+0.79%)=$302,425. Therefore, the correct answer is A.

Question 3

With liability management,institutions in need of more funds to cover expanding loan commitments or deficiencies in the cash reserves can ______________________ to reduce their volume of money market borrowings.

Accepted Answer

The answer of With liability management,institutions in need of more...

Question 4

A Fed Funds loan that is an unwritten agreement,negotiated via wire or telephone,and with the borrowed funds returned the next day is known as a(n):

Accepted Answer

An unwritten agreement for a short-term loan, negotiated via wire or telephone and with the borrowed funds returned the next day, is known as an overnight loan. The other options are not relevant to this type of loan.

Question 5

Setting the Federal Reserve primary-credit discount rate above the Fed Funds rate mirrors what credit facilities used by several European central banks?

Accepted Answer

The Lombard credit facilities, used by several European central banks, allow banks to borrow money from the central bank at a rate higher than the Fed Funds rate, similar to the Federal Reserve setting the primary-credit discount rate above the Fed Funds rate. The other options (Vince, Adam Smith, and Lower Back) are not real credit facilities used by central banks.

Question 6

A bank plans on borrowing $450 million for 20 days through a RP transaction collateralized by T-Bills.The current RP rate is 6.25 percent.What is the bank's total interest cost in dollars?

Accepted Answer

The answer of A bank plans on borrowing $450 million...

Question 7

The Carter State Bank is planning on raising $600 million in a new offering of commercial paper through its holding company.It plans on using $500 million of it to fund new loans.The current interest rate for similar commercial paper is 4.85 percent and it expects 0.3 percent in issuing costs.What is the effective rate of interest on this issue of commercial paper?

Accepted Answer

The answer of The Carter State Bank is planning on...

Question 8

In the United States,legal reserve requirements on certificates of deposits is currently:

Accepted Answer

The Federal Reserve eliminated reserve requirements for all depository institutions as of March 26, 2020, making the reserve requirement effectively zero.

Question 9

Money market suppliers of funds typically have a(n)______________ response to changes in the market interest rates.

Accepted Answer

Suppliers of funds to the money market tend to have an elastic response to changes in market interest rates, meaning they are responsive to interest rate changes, adjusting the amount of funds they supply based on the prevailing rates.

Question 10

The largest unregulated financial market place in the world is the:

Accepted Answer

The Eurocurrency market is the largest unregulated financial market place in the world. It involves offshore banking centers where financial transactions are conducted in currencies outside the country where the bank is located. The market is unregulated because there is no central authority or regulatory body that oversees its activities. This lack of regulation makes it attractive for investors, but also increases the risk of fraud and other illegal activities.

Question 11

A bank promises an annual return of 7.75 percent on a 180 day,$250,000 CD.What will be the total amount due the customer at the end of the six-month period?

Accepted Answer

The interest rate is annual, so we need to divide it by 2 to get the rate for a 6-month period:

7.75% / 2 = 3.875%

Next, we need to calculate the interest earned on the CD:

Interest = Principal x Rate x Time
Interest = $250,000 x 3.875% x 180/365
Interest = $2,812.50

Finally, we add the interest to the principal to get the total amount due:

Total = Principal + Interest
Total = $250,000 + $2,812.50
Total = $259,687.50

Therefore, the answer is B.

Question 12

When a foreign branch lends a Euro deposit to its home office in the U.S. ,how is this listed on the balance sheet of the home office?

Accepted Answer

When a foreign branch lends a Euro deposit to its home office in the U.S., it is considered a liability to the U.S. home office. Therefore, the best choice would be "Liabilities to foreign branches."

Question 13

The HTR Bank is planning on raising $750 million in a new offering of commercial paper through its holding company.It plans on using $725 million of it to fund new loans.The current interest rate for similar commercial paper is 7.15 percent and it expects 0.15 percent in issuing costs.What is the effective rate of interest on this issue of commercial paper?

Accepted Answer

The answer of The HTR Bank is planning on raising...

Question 14

Which of the following is one of the disadvantages of following the customer relationship doctrine?

Accepted Answer

Following the customer relationship doctrine may lead to poor credit scores of customers as it involves extending credit to maintain relationships, sometimes to customers with less-than-ideal creditworthiness.

Question 15

Which of the following is an advantage of a General Collateral Finance RP?

Accepted Answer

All of the options listed are advantages of a General Collateral Finance RP. This financing product allows for flexibility in securities being pledged and returned, can be settled on the books of the FICC for netting purposes, has lower transaction costs compared to other financing products, and helps make the RP market more liquid. Therefore, E is the correct answer.

Question 16

The interest rate on a Fed funds loan is:

Accepted Answer

The interest rate on a Fed funds loan is subject to negotiation between the borrower and the lender, rather than being set by a specific entity or tied to a particular rate like LIBOR or Euribor.

Quiz 13: Managing Nondeposit Liabilities