Deck 10: Funding the Bank

Question 1

Which of the following would not be considered "hot money"?

A)Jumbo CDs
B)Fed funds purchased
C)Eurodollar time deposits
D)Retail demand deposits
E)Repurchase agreements

Answer 1

D

Question 2

Noninterest-checking accounts are called:

A)Automatic transfer from savings accounts.
B)NOW accounts.
C)demand deposit accounts.
D)repurchase accounts.
E)whole-tail accounts.

Answer 2

C

Question 3

___________ includes common stock, preferred stock and retained earnings.

A)Retail funding
B)Wholesale funding
C)Borrowed funding
D)Equity funding
E)Lockbox funding

Answer 3

D

Question 4

Large depositors

A)receive the highest interest rates.
B)pay the lowest fees.
C)often get free checking.
D)all of the above.
E)a.and c.only

Question 5

On-us checks cashed are:

A)checks drawn on any bank other than the bank into which it was deposited.
B)the accounting transaction for selling fed funds.
C)discount window loans.
D)illegal.
E)checks drawn on a bank's own customer's account.

Question 6

High interest rates in the late 1990's on large CDs lead to the introduction of:

A)zero coupon CDs.
B)variable rate CDs.
C)callable CDs.
D)stock market indexed CDs.
E)immediately available funds CDs

Question 7

All of the following are considered transaction accounts except:

A)negotiable orders of withdrawal.
B)automatic transfer from savings.
C)demand deposit accounts.
D)money market deposit accounts.
E)all of the above are considered transaction accounts.

Question 8

___________ includes transaction accounts, MMDAs, savings accounts and small time deposits.

A)Retail funding
B)Wholesale funding
C)Borrowed funding
D)Equity funding
E)Lockbox funding

Question 9

With "relationship pricing":

A)banks unbundle services and charge separate prices for each.
B)service charges decline with larger customer deposit balances.
C)interest rates paid on deposit accounts decreases with customer deposit balances.
D)large depositors pay the highest fees.
E)small depositors receive the highest interest rates.

Question 10

___________ includes federal funds purchased, repurchase agreements and Federal Home Loan Bank borrowings.

A)Retail funding
B)Wholesale funding
C)Borrowed funding
D)Equity funding
E)Lockbox funding

Question 11

Liability management decisions determines all of the following except:

A)interest expense on borrowed funds.
B)check handling costs.
C)personnel costs.
D)fee income.
E)loan rates.

Question 12

Which of the following is true regarding money market deposit accounts (MMDAs)?

A)A maximum of three checks per month may be written on a MMDA account.
B)The average check size on an MMDA account is smaller than the average demand deposit check size.
C)MMDAs are formally transaction accounts.
D)Required reserves on MMDAs are higher than on demand deposit accounts.
E)Rates paid on MMDAs are generally higher than rates on money market mutual funds.

Question 13

CDs sold at a steep discount from par and appreciate to face value at maturity are known as:

A)zero coupon CDs.
B)variable rate CDs.
C)callable CDs.
D)stock market indexed CDs.
E)immediately available funds CDs

Question 14

Small time deposits are characterized by all of the following except:

A)they have denominations are less than $100,000.
B)they have substantial interest penalties for early withdrawal.
C)banks can pay market interest rates on them.
D)there is a substantial interest penalty for early withdrawal.
E)they have a minimum maturity of 3 days.

Question 15

Transit checks deposited are:

A)checks drawn on any bank other than the bank into which it was deposited.
B)the accounting transaction for selling fed funds.
C)discount window loans.
D)illegal.
E)checks drawn on a bank's own customer's account.

Question 16

Large time deposits are generally referred to as:

A)mini CDs.
B)jumbo CDs.
C)big CDs.
D)giant CDs.
E)super CDs.

Question 17

Core deposits are affected by all of the following except:

A)location.
B)availability.
C)volatile liabilities.
D)service charges.
E)Core deposits are affected by all of the above.

Question 18

Overdraft fees:

A)represent a risk charge.
B)are a source of wholesale funding.
C)reduce reserve requirements.
D)increases capital.
E)have increased in maturity.

Question 19

Interest costs do not equal the effective cost of bank liabilities because:

A)reserve requirements increase the effective cost.
B)there may be substantial processing costs.
C)service charges may offset a portion of non-interest expense.
D)all of the above.
E)a.and c.

Question 20

The least expensive source of funds for a typical bank is:

A)certificates of deposit.
B)negotiable order of withdrawal accounts.
C)savings accounts.
D)demand deposit accounts.
E)federal funds purchased.

Question 21

What is the net cost of an average demand deposit?

A)4.5%
B)4.8%
C)5.1%
D)6.8%
E)7.0%

Question 22

If the bank can invest the deposit balance (after adjusting for reserve requirements) at 7%, what is the break-even deposit balance?

A)$3,777
B)$3,500
C)$2,500
D)$1,825
E)$1,479

Question 23

If the bank can invest the deposit balance (after adjusting for reserve requirements) at 5%, what is the break-even deposit balance?

A)$1,000
B)$1,333
C)$1,667
D)$2,000
E)$2,333

Question 24

A brokered deposit would most likely take which of the following forms?

A)Demand deposit
B)NOW account
C)Jumbo CDs
D)Savings account
E)Small time deposit

Question 25

What is the net cost of an average demand deposit?

A)3.0%
B)3.3%
C)3.6%
D)3.9%
E)4.2%

Question 26

Which of the following would be an example of a Eurodollar account?

A)A U.S.dollar denominated deposit held at a Japanese bank.
B)A British pound denominated deposit held at a New York bank.
C)A French franc denominated deposit held at a Toronto bank.
D)A U.S.dollar denominated deposit held at a Chicago bank.
E)A EMU euro denominated deposit held at a London bank.

Question 27

A primary difference between "intelligent" smart cards and "memory" smart cards is that:

A)intelligent smart cards can store information, while memory smart cards cannot.
B)intelligent smart cards are larger than memory smart cards.
C)memory cards can only store information.
D)intelligent smart cards are "digital", while memory smart cards are not.
E)intelligent smart cards are used in ACH transactions, while memory smart cards are not.

Question 28

Which of the following is not a purpose of Check 21?

A)Prevent check truncation.
B)Foster innovation in the check collection system.
C)Improve overall efficiency of the payment's system.
D)All of the above.
E)a.and.c.

Question 29

Which of the following is primarily used as collateral for borrowings from the Federal Home Loan Bank Board?

A)Real estate loans
B)Treasury securities
C)Negotiable CDs
D)Credit card receivables
E)Repurchase agreement

Question 30

Which of the following Federal Reserve loans is to help with systematic new loan demand?

A)Extended credit loans
B)Seasonal borrowing loans
C)Fed funds loans
D)Deposit insurance loans
E)Short-term adjustment loans

Question 31

Which of the following is not a characteristic of jumbo CDs?

A)They have a minimum maturity of 7 days.
B)Interest rates are quoted on a 365-day year.
C)They are generally issued at face value.
D)They are only insured up to $100,000 per individual per institution.
E)All of the above are characteristics of jumbo CDs

Question 32

In regards to repurchase agreements, the margin is:

A)a good faith deposit.
B)a loan against the repurchase agreement.
C)a risk-free guarantee.
D)the difference between the market value of the collateral and the amount of the loan.
E)all of the above.

Question 33

A jump rate CD is also known as a(n):

A)trust CD.
B)zero coupon CD.
C)bump-up CD.
D)federal funds CD.
E)fixed-rate CD.

Question 34

Federal funds are:

A)secured bank loans from the discount window.
B)unsecured short-term loans that are settled in immediately available funds.
C)secured inter-bank loans of reserves.
D)secured core deposits.
E)secured overnight loans.

Question 35

Banks prefer money market deposit accounts to demand deposits for all of the following reasons except:

A)required reserves on money market deposit accounts are lower.
B)money market deposit accounts are less interest rate sensitive than demand deposit accounts.
C)demand deposit accounts have fewer checks written each month.
D)average demand deposit balances are higher than money market deposit account balances.
E)money market deposits accounts are not limited to the $100,000 deposit insurance limit like demand deposit accounts.

Question 36

An offline debit payment is:

A)a signature-based transaction.
B)a PIN-based transaction.
C)an ACH transaction.
D)a CHIPS transaction.
E)a Fed Wire transaction.

Question 37

Repurchase agreements are:

A)riskier than fed funds loans.
B)unsecured short-term loans.
C)secured overnight loans.
D)secured loans of reserves.
E)secured Fed funds loans.

Question 38

Which of the following are sold at a deep discount to par?

A)Trust CD
B)Zero coupon CD
C)Bump-up CD
D)Federal funds CD
E)Fixed-rate CD

Question 39

Which of the following is an example of immediately available funds?

A)Deposits at the Federal Reserve
B)Stock market indexed CDs
C)Demand deposits
D)Money market deposit accounts
E)All of the above

Question 40

An online debit payment is:

A)a signature-based transaction.
B)a PIN-based transaction.
C)an ACH transaction.
D)a CHIPS transaction.
E)a Fed Wire transaction.

Question 41

The Expedited Funds Availability Act stipulates that non-local checks typically must be cleared in no more than _____ business days.

A)1
B)2
C)3
D)4
E)5

Question 42

Today, most demand deposit accounts are owned by individuals.

Question 43

Discuss the process of estimating the cost of deposit accounts.

Question 44

Briefly explain two models used to estimate the cost of equity?

Question 45

Repurchase agreements generally carry a lower interest rate than comparable maturity Fed funds.

Question 46

What is the purpose of having a correspondent bank relationship?

Question 47

When calculating its cost of funds, should a bank use average or marginal costs? Why?

Question 48

When interest rates rise, average historical costs overstate the actual marginal costs of issuing new debt.

Question 49

A bank is going to issue $10,000,000 in 5-year par value bonds that pay a 5% annual coupon.The bank must pay .7% of the face value in floatation costs.What is the bank's effective cost of borrowing?

A)5.0%
B)5.2%
C)5.7%
D)6.2%
E)7.5%

Question 50

How has the use of "hot money" affected bank's liquidity risk?

Question 51

The Expedited Funds Availability Act stipulates that local checks typically must be cleared in no more than _____ business days.

A)1
B)2
C)3
D)4
E)5

Question 52

Trust preferred stock:

A)does not pay any dividends
B)has priority over all other claims.
C)is issued through a "preferred" bank subsidiary.
D)effectively allows banks to pay dividends that are tax deductible.
E)All of the above.

Question 53

A bank is going to issue $5,000,000 in 10-year par value bonds that pay a 6% annual coupon.The bank must pay .5% of the face value in floatation costs.What is the bank's effective cost of borrowing?

A)5.9%
B)6.1%
C)6.3%
D)6.5%
E)6.7%

Question 54

An ACH transaction is a sale that uses a smart card.

Question 55

Individuals, as a group, are not as interest-rate sensitive as wholesale customers.