FIN 350 Week 10 Quiz – Strayer



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Quiz 9 Chapter 20 and 21

Bank Performance

     1.   A(n) ____ in interest rates could reduce a commercial bank's expected cash flows because the interest paid on deposits may ____ than the interest earned on loans and investments.
a.
increase; increase to a greater degree
b.
increase; increase to a lesser degree
c.
decrease; increase to a greater degree
d.
decrease; increase to a lesser degree


                                          
          
          

     2.   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.
a. True
b. False

                                          
          


     3.   The risk premium on a commercial bank is ____ related to economic growth and ____ related to management skills.
a.
positively; negatively
b.
positively; positively
c.
negatively; negatively
d.
negatively; positively


                                          
          


     4.   Interest income generated from all assets is called
a.
net interest margin.
b.
the spread.
c.
gross interest income.
d.
net interest income.


                                          
          
          

     5.   Interest paid on deposits and borrowed funds is called
a.
net interest expense.
b.
net interest margin.
c.
gross interest expense.
d.
net spread expense.


                                          
          
          

     6.   Net interest income is the difference between gross interest income and interest expenses and is measured as a percentage of
a.
liabilities.
b.
shareholder's equity.
c.
assets.
d.
revenues.


                                          
          
          

     7.   Fees charged by a bank on various services allow the bank to generate:
a.
noninterest income
b.
components of net interest margin
c.
components of net interest income
d.
components of gross interest income


                                          
          
          

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

                                          
          
          

     9.   A bank's net interest margin represents the proportion of its investments that are financed with borrowed funds.
a. True
b. False

                                          
          
          

   10.   If a bank has short-term deposits and provides long-term fixed rate loans, and interest rates decline over time, its net interest margin should be:
a.
declining over time.
b.
rising over time.
c.
constant over time.
d.
consistently negative.


                                          
          


   11.   For a given level of return on assets, a bank with a higher level of capital will have a lower
a.
return on equity.
b.
leverage measure.
c.
noninterest income.
d.
liquidity.


                                          
          


   12.   Net income measured as a percentage of assets is
a.
return on equity (ROE).
b.
return on liabilities (ROL).
c.
return on investment (ROI).
d.
return on assets (ROA).


                                          
          
          

   13.   When only equity counts as capital, the leverage measure is
a.
equal to the capital ratio.
b.
equal to return on assets.
c.
the inverse of return on assets.
d.
assets divided by equity.


                                          
          
          

   14.   When only equity counts as capital, the higher the capital ratio, the
a.
lower the leverage measure.
b.
lower the degree of financial leverage.
c.
higher the leverage measure.
d.
A and B
e.
B and C


                                          
          


   15.   Gross interest income is affected by
a.
market interest rates.
b.
the composition of assets held by banks.
c.
interest expenses.
d.
non-interest expenses.
e.
A and B


                                          
          
          

   16.   If a bank increases its provisions for loan losses, its interest income is ____, and its noninterest income is ____.
a.
reduced; not affected
b.
reduced; reduced
c.
not affected; reduced
d.
not affected; not affected


                                          
          


   17.   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.
a. True
b. False

                                          
          
          


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