Question 1

Interest income generated from all a bank's assets is called

Accepted Answer

A)  net interest margin.
B)  the spread.
C)  gross interest income.
D)  net interest income.E) None of the above
F) A) and C)

Question 2

If a bank has long-term fixed-rate assets and short-term liabilities, and interest rates increase over time, its net interest margin should

Accepted Answer

A)  decrease.
B)  increase.
C)  stay the same.
D)  EITHER decrease OR increase, depending on whether the asset maturities exceed 10 years.E) A) and C)
F) All of the above

Question 3

Banks with relatively ____ ROAs are possibly incurring ____ noninterest expenses .

Accepted Answer

A)  low; low
B)  low; high
C)  high; high
D)  None of these are correct.E) A) and D)
F) All of the above

Question 4

Even if other external forces (such as interest rates)are unchanged, a commercial bank's expected cash flows can change in response to a change in its management skills.

Accepted Answer

A) True 
 B)False

Question 5

Bank T generally obtains a high percentage of its funds from negotiable certificates of deposit (NCDs) . Bank V obtains most of its funds from retail CDs. Bank Z obtains its funds from checking accounts. The bank that will likely incur the highest interest expense is ____.

Accepted Answer

A)  Bank T
B)  Bank V
C)  Bank Z
D)  All three banks are the sameE) None of the above
F) All of the above

Question 6

Which of the following factors affecting a bank's gross interest income is NOT influenced by the bank's policy decisions?

Accepted Answer

A)  maturity and rate sensitivity of the bank's assets
B)  market interest rate movements
C)  the bank's loan rate
D)  composition of the bank's assetsE) None of the above
F) B) and C)

Question 7

Which of the following banks would likely have the highest return on equity?

Accepted Answer

A)  high return on assets, high capital ratio
B)  high return on assets, low capital ratio
C)  low return on assets, low capital ratio
D)  low return on assets, high capital ratioE) None of the above
F) All of the above

Question 8

The loan loss provision as a percentage of assets should increase during periods of high economic growth.

Accepted Answer

A) True 
 B)False

Question 9

Net income measured as a percentage of assets is

Accepted Answer

A)  return on equity (RO
E)  .
B)  return on liabilities (ROL) .
C)  return on investment (ROI) .
D)  return on assets (RO
A)  .E) B) and D)
F) A) and D)

Question 10

The loan loss provision should increase during periods when loan losses are more likely, such as during a recessionary period.

Accepted Answer

A) True 
 B)False

Question 11

Small banks tend to make more loans to small local businesses, and the rates on these loans are typically lower than the rates that larger banks charge on the loans they provide to large businesses.

Accepted Answer

A) True 
 B)False

Question 12

The accounting process used by banks to determine their earnings is still based on subjective decisions, so the earnings of a bank are partially influenced by the accounting decisions regarding loan losses.

Accepted Answer

A) True 
 B)False

Question 13

Any individual bank's ROA depends on the bank's policy decisions, but is not affected by uncontrollable factors relating to the economy and government regulations.

Accepted Answer

A) True 
 B)False

Question 14

A bank's return on assets (ROA) could be lower than desired because of all of the following EXCEPT

Accepted Answer

A)  the bank has experienced heavy loan losses.
B)  the bank was locked into fixed-rate loans prior to a rise in market interest rates.
C)  the bank is receiving a relatively small amount of noninterest income.
D)  the bank has reduced its noninterest expenses.E) A) and B)
F) None of the above

Question 15

A bank's net interest margin includes

Accepted Answer

A)  noninterest expenses.
B)  noninterest income.
C)  loan losses.
D)  None of these are correct.E) A) and B)
F) None of the above

Question 16

Gross interest expenses of banks are normally higher in periods when market interest rates are higher.

Accepted Answer

A) True 
 B)False

Question 17

The value of a commercial bank can be modeled as the present value of its future cash flows.

Accepted Answer

A) True 
 B)False

Question 18

A bank's ROA ____ account for taxes on earnings. A bank's ROE ____ account for taxes on earnings.

Accepted Answer

A)  does; does
B)  does; does not
C)  does not; does not
D)  does not; doesE) B) and D)
F) All of the above

Question 19

Return on assets (ROA)will usually reveal when a bank's performance is not up to par, but it does not indicate the reason for poor performance.

Accepted Answer

A) True 
 B)False

Question 20

During the credit crisis, the level of ____ was much higher than in other periods.

Accepted Answer

A)  interest income
B)  income expenses
C)  noninterest expenses
D)  loan loss provisionsE) A) and B)
F) None of the above

Exam 20: Bank Performance

The accounting process used by banks to determine their earnings is still based on subjective decisions, so the earnings of a bank are partially influenced by the accounting decisions regarding loan losses.

Correct AnswerverifiedShow Answer

A bank's return on assets (ROA) could be lower than desired because of all of the following EXCEPT

Correct AnswerverifiedShow Answer

Net income measured as a percentage of assets is

Correct AnswerverifiedShow Answer

The loan loss provision as a percentage of assets should increase during periods of high economic growth.

Correct AnswerverifiedShow Answer

Interest income generated from all a bank's assets is called

Correct AnswerverifiedShow Answer

Which of the following factors affecting a bank's gross interest income is NOT influenced by the bank's policy decisions?

Correct AnswerverifiedShow Answer

Bank T generally obtains a high percentage of its funds from negotiable certificates of deposit (NCDs) . Bank V obtains most of its funds from retail CDs. Bank Z obtains its funds from checking accounts. The bank that will likely incur the highest interest expense is ____.

Correct AnswerverifiedShow Answer

Gross interest expenses of banks are normally higher in periods when market interest rates are higher.

Correct AnswerverifiedShow Answer

Return on assets (ROA)will usually reveal when a bank's performance is not up to par, but it does not indicate the reason for poor performance.

Correct AnswerverifiedShow Answer

Which of the following banks would likely have the highest return on equity?

Correct AnswerverifiedShow Answer

A bank's net interest margin includes

Correct AnswerverifiedShow Answer

The value of a commercial bank can be modeled as the present value of its future cash flows.

Correct AnswerverifiedShow Answer

A bank's ROA ____ account for taxes on earnings. A bank's ROE ____ account for taxes on earnings.

Correct AnswerverifiedShow Answer

Small banks tend to make more loans to small local businesses, and the rates on these loans are typically lower than the rates that larger banks charge on the loans they provide to large businesses.

Correct AnswerverifiedShow Answer

The loan loss provision should increase during periods when loan losses are more likely, such as during a recessionary period.

Correct AnswerverifiedShow Answer

Any individual bank's ROA depends on the bank's policy decisions, but is not affected by uncontrollable factors relating to the economy and government regulations.

Correct AnswerverifiedShow Answer

During the credit crisis, the level of ____ was much higher than in other periods.

Correct AnswerverifiedShow Answer

Even if other external forces (such as interest rates)are unchanged, a commercial bank's expected cash flows can change in response to a change in its management skills.

Correct AnswerverifiedShow Answer

If a bank has long-term fixed-rate assets and short-term liabilities, and interest rates increase over time, its net interest margin should

Correct AnswerverifiedShow Answer

Banks with relatively ____ ROAs are possibly incurring ____ noninterest expenses .

Correct AnswerverifiedShow Answer

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A bank's ROA account for taxes on earnings. A bank's ROE account for taxes on earnings.

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Banks with relatively ROAs are possibly incurring noninterest expenses .

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