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Chapter 12

Chapter 12

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Published by: skwagwok on Feb 13, 2010
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Chapter 12 Commercial Banks’ Financial Statements and Analysis
True/False Questions
1.A wholesale bank is one that focuses its business activities on commercial bankingrelationships.Answer: True Page: 351 Level: Easy2.In 2004 Bank of America, headquartered in Charleston, West Virginia, was thenation's sixth largest bank.Answer: False Page: 351-352 Level: Medium3.Banks have higher leverage than most manufacturing firms.Answer: True Page: 352,355 Level: Easy4.Loans to consumers and to individuals are jointly termed C&I loans on a bank balancesheet.Answer: False Page: 355 Level: Easy5.Currency in the process of collection is checks that the bank owes to other banks buthas not yet paid.Answer: True Page: 352 Level: Medium6.C&I loans are loans to businesses used to finance capital needs, equipment purchasesand plant expansions.Answer: True Page: 355 Level: Easy7.The provision for loan loss account is actual loan losses less loan recoveries in a giventime period.Answer: False Page: 356, 366 Level: Medium8.The allowance for loan and lease losses is bank management's estimate of the amountof gross loans and leases that will not be repaid to the bank.Answer: True Page: 355-356 Level: Medium
9.In ratio analysis, the profit margin times the asset utilization ratio equals return onassets.Answer: True Page: 371 Level: Medium10.Loans are the major item on a bank's balance sheet, and they generate the largestamount of revenue.Answer: True Page: 354 Level: Easy11.Unearned income on a loan is the amount of income that the bank has received on aloan from a customer but has not yet recorded on the income statement.Answer: True Page: 355-356 Level: Easy12.Banks generally pay higher interest rates on NOW accounts than on MMDAs.Answer: False Page: 356 Level: Easy13.Wholesale CDs obtained from an investment house rather than directly from acustomer are referred to as brokered deposits.Answer: True Page: 357 Level: Easy14.Financial standby letters of credit are an alternative to loan commitments.Answer: True Page: 361-362 Level: Medium15.Rate sensitive funding sources at a bank are termed core deposits.Answer: False Page: 358 Level: Medium
Multiple Choice Questions
16.Core deposits are deposits that areA)At the bank solely for the interest rate earnedB)Very stable funds sourcesC)Typically for larger denominations than hot money sourcesD)Very frequently turned oveAnswer: B Page: 358 Level: Easy
17.A construction firm cannot obtain the necessary permits to begin building a shoppingmall until it can show it either has or will have the necessary funding to complete the project. The firm may ask a bank for which of the following to allow it to obtain the permits?I.Commercial letter of creditII.Loan commitmentIII.Credit lineIV.Repurchase agreementA)I or IIB)II or IIIC)II or IVD)III or IVE)I or IVAnswer: B Page: 359-360 Level: Medium18.Which one of the following is the definition of the 'spread?'A)(Net Interest Income--Net Noninterest income) / Earning AssetsB)Net Interest Income / Interest Bearing LiabilitiesC)(Interest Income--Interest Expense) / Earning AssetsD)(Interest Income--Interest Expense) / Interest Bearing LiabilitiesE)(Interest Income / Earning Assets)--(Interest Expense / Interest BearingLiabilities)Answer: E Page: 376 Level: Medium19.Uniform principles, standards and report forms for depository institutions are prescribed by theA)FDICB)Federal ReserveC)Federal Financial Institutions Examination CouncilD)Office of Comptroller of CurrencyAnswer: C Page: 351 Level: Medium20.The bank's top earning asset category isA)Cash and balances due from other depository institutionsB)Investment securitiesC)LoansD)Physical plant and equipmentAnswer: C Page: 354 Level: Easy

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