EXAM CODE 1

Question 1: In a Loan Agreement, ………… are those things a borrower must do. They are
actions the borrower must take. Examples include filing periodic financial statements with the
bank and purchasing insurance on any collateral pledged.
a. Affirmative covenants c. Promissory note
b. Negative covenants d. Borrower Guaranties and Warranties
Question 2: A money market security which represents a bank's commitment to pay a stipulated
amount of money on a specific future date under specific conditions and which is often used in
international trade is known as a(n)
a. Commercial Paper c. Bankers' acceptance
b. Certificate of Deposit d. Asset backed security
Question 3: Which following statements is not correct about bank loans?
a. A written loan policy gives loan officers and the bank's management specific guidelines in
making individual loan decisions and in forming the bank's loan portfolio.
b. Cash is one of the 6 C's of lending and refers to the fact that the lender wants to make sure the
borrower has the ability to generate enough cash to repay the loan. c. Loan review is considered
to be a luxury, not a necessity for most banks, especially those with sound lending policies.
d. The principal reason credit institutions are chartered by state bank is to make loans to their
customers.
Question 4: Which of the following types of banks would most likely offer the largest types of
financial services?
a. Universal bank c. Commercial bank
b. Community bank d. International bank
Question 5: By offering financial institution will buys and sells securities on behalf of customers
and for their own accounts.
a. Brokerage service c. Trust service
b. Security investment d. Cash management
Question 6: A bank sells shares of its common stock with a par value of $200 for $300 in the
market. Which two accounts on the bank's balance sheet are going to be affected?
a. Retained earnings and capital surplus accounts
b. Retained earnings and common stock outstanding accounts
c. Common stock outstanding and capital surplus accounts
d. Subordinated notes and debentures and commons stock outstanding account
Question 7: How much interest will be earned in the third year if $1,000 is deposited that earns
8% interest compounded annually?
a. $593.31 c. $105.62
b. $93.31 d. $104.00
Question 8: Commercial bank finances the purchase of automobiles, mobile homes, appliances,
and other retail goods to repair and modernize homes. They are all classified under which of
following loan categories?
a. Financial institution loans c. Loans to individuals
b. Commercial industrial d. Real estate loans
Question 9: Which are pricipal roles of financial institution's investment portfolio played in
banking operation?
a. Income stability c. Backup liquidity
b. Offset credit risk d. All of the above
Question 10: The lists the assets, liabilities and equity capital held by the bank on a given date.
a. Report of Income c. Report of Cash flow
b. Report of Condition d. Notes to financial statement
Question 11: Dan Cross is a junior loan officer with First State Bank of Durant. He has been
busy visiting local businesses to see if any of them needs credit. Which step in the lending
process is Dan performing?
a. Finding prospective customers
b. Making a site visit and evaluating a customer's credit history
c. Evaluating a prospective customer's financial condition
d. Assessing possible collateral and signing the loan agreement
Question 12: As one of the 6 C's of lending,suggests that the lender must look at the position of
the business firm in the industry and the outlook of the industry and the economy to evaluate a
loan.
a. Condition c. Capicity
b. Character d. Collateral
Question 13: When a loan is considered uncollectible, the bank's accounting department will
write it off the books by increasing the then reducing the accounts. Which choice below correctly
fills in the blank in the preceding sentence?
a. Allowance for loan losses: Gross Loans
b. Allowance for loan losses; Net Loans
c. Gross Loans; Allowance for loan losses
d. Net Loans ; Allowance for loan losses
Question 14: …………….. is an alternative to lending in which the financial institution
purchases the equipment and rents it to its customers.
a. Long-term Loan c. Financial Advice
b. Trust service d. Leasing service
Question 15: A(n) ………… is where the financial institution agrees to guarantee repayment of
a customer's loan received from a third party
a. Loan and Leasing c. Unused loan commitment
b. Standby credit agreement d. Security investment
Question 16: Which of the following is not one of the capital market instruments in which banks
invest?
a. U.S. Treasury notes c. Treasury bonds
b. Corporate notes and bonds d. Commercial paper
Question 17: Bank assets fall into each of the following categories except:
a. Loan c. Investment securities
b. Time deposit d. Cash
Question 18: When loan demand is low, commercial bank may invest more on financial
securities. But bank may sell investments when loan demand is high. It is the role of financial
investment playing on which account on the bank's balance sheet?
a. Non-deposit borrowing c. Loan
b. Deposit d. Cash
Question 19: Lucky Louie has $10,000 that he wants to invest for 3 years but wants to take
lowest risk on the investment. His best course of action would be to:
a. Put his money in a 3 year saving account
b. Invest in a blue chip stockportfolio
d. Put his money in a checking account
Question 20: Which sentence is wrong about bank?
a. Banks are those financial institutions that today offer the widest range of financial services of
any business firm in the economy
b. Lending institutions act as delegated monitors and can diversify and reduce their risk
exposure, resulting in increased safety for savers' funds.
c. The role performed by banks in the economy in which they transform savings into credit is
known as the intermediation role.
d. The loosening of government regulation and control of financial institutions is called
reregulation.