QUIZ 1

Which of the following statements about a bank's activities is NOT correct?

Select one:
a. A bank's loans are its assets.
b. Off-balance-sheet business items are contingent liabilities.
c. All big four banks offer some form of fund management service.
d. Liability management is the management of a bank's loans.

Each of the following balance sheet portfolio items are sources of funds for a bank, except:
Select one:
a. bill acceptance facilities.
b. term deposits.
c. Overdrafts
d. certificates of deposit.

The minimum total capital required under the Basel III guideline is:
Select one:
a. 9 per cent of risk-weighted assets.
b. 10 per cent of risk-weighted assets
c. 8 per cent of risk-weighted assets.
d. 50 per cent of risk-weighted assets.

Financial institutions that are formed under a trust deed and attract funds by inviting the public to
buy units are:

Select one:

a. life insurance offices.

b. finance companies
c. building societies.
d. unit trusts.

The financial institution that pools funds from individuals and then invests them in both the
money and capital markets is a:
Select one:
a. managed fund
b. savings bank.
c. credit union.
d. investment bank.

Alternatives to the usual source of long-term bank funds that have the characteristics of both debt
and equity are called:
Select one:
a. subordinated notes.
 b. secured debentures.
c. transferable certificates of deposit.
d. promissory notes.

The exchange of goods and services is made more efficient by:

Select one:
a. some combination of government transfer and barter.
b. money.
c. barters.
d. governments.

When a borrower issues a debt instrument with collateral specified in its contract this debt
instrument is called:
Select one:
a. defined.
b. unsecured.
c. secured.
d. negotiable.

A bank provides documentary letters of credit for a company that has a credit rating of A+. The
face value of contracts outstanding is $2 million. Calculate the dollar value of capital required
under the capital adequacy requirements to support these facilities, given that the bank
supervisor's credit conversion factor is 20 per cent.
Select one:
a. $6 400
b.$16 000
c.$160 000
d.$240 000

Unlike most other businesses, a bank's balance sheet is made up mainly of:
Select one:
a. real assets and financial liabilities.
b. financial assets and liabilities.
c.real assets and real liabilities.
d.real liabilities and financial liabilities.
When an investment bank helps a company sell large parcels of shares directly to institutional
investors, this is called:
Select one:
a. underwriting.
b. private placement.
c.due diligence.
d.securitisation.

Which of the following is NOT a characteristic commonly associated with preference shares?
Select one:
a. No entitlement to take possession of assets if the borrower defaults on payment.
b. Higher ranking than bond holders on claims on assets
c.No voting rights
d.A specified, fixed return

Banks have gradually moved to liability management in the management of their balance sheets
since the period of deregulation introduced in 1980s. Which statement best describes liability
management?
Select one:
a. The loan portfolio is tailored to match the available deposit base.
b. The liability to assets ratio is maintained within central bank standards.
c.The deposit base and other funding sources are managed in order to fund loan and other
commitments.
d.The ratio of debt to equity is managed to meet capital adequacy requirements.

The process of due diligence involves:

Select one:
a. underwriting of new equity issues by a company.
b. placement of securities to institutional investors.
c.detailed analysis of a firm's financial statements.
d.providing advice to companies on the raising of new equity.

As a depositor shifts funds from current deposits to term deposits in a bank, generally the
depositor’s:
Select one:
a. liquidity decreases and interest income decreases.
b. liquidity increases and credit risk increases.
 c.implicit interest increases and explicit interest decreases.
d.liquidity decreases and interest income increases.

A bank’s common equity requirement for the capital conservation buffer under Basel III with a
risk-weighted asset of $50 000 000 is equal to:
Select one:
a.$1 200 000
b.$1 520 000
c.$1 000 000
d.$1 250 000

The process of facilitating the flow of funds between borrowers and lenders performed by the
financial system:
Select one:
A.is hindered by the problem of double coincidence of wants.
B. greatly reduces the probability of inflation.
C.increases the rate of economic growth of a country.
D.occurs only through financial intermediaries.

Off-balance-sheet business for a bank refers to:

Select one:
a. assets that will appear on the forthcoming balance sheet.
b. transactions recorded on the previous balance sheet.
c.a bank's income.
d.a bank's contingent liabilities.

The financial institution that is a specialist provider of financial and advisory services to companies
is a/an:
Select one:
a. credit union.
b. finance company.
c.investment bank.
d.building society.

Money increases economic growth by assisting transfers from:

Select one:
a. businesses to consumers.
b. savers to borrowers.
c.borrowers to investors.
d.consumers to investors.