Theoretical MCQ's Chapter 5

83. Which assets are excluded from risk assets?

A) Real Estate Loans
B) Commercial Paper
C) Plant and Equipment
D) Commercial and Industrial Loans
E) All of the above are risk assets
Answer: C

84. Operational risk includes which of the following?

A) Failure of bank’s computer system
B) Closure of a bank for three months due to flooding from a major hurricane
C) Embezzlement of funds of a bank by a teller of the bank
D) Closure of a bank for two weeks due to a fire from a lightening strike
E) All of the above are example of operational risk
Answer: E

85. Brian Smith, CEO of Carter National Bank, decides that interest rates are
going to fall in the future and as a result buys $100 million in 30 year Treasury
Bonds for the bank’s security portfolio. Instead, interest rates rise causing the
value of these bonds to fall. This would be an example of which of the
following types of risk?
A) Operational risk
B) Legal risk
C) Compliance risk
D) Strategic risk
E) Reputation risk
Answer: D

86. Chaos State Bank has an old computer system which can go down for weeks
at a time, leaving customers unable to access their accounts online. Many
customers have left the bank for banks with more reliable computer systems.
Which type of risk would this be an example of?
A) Operational risk
B) Legal risk
C) Compliance risk
D) Strategic risk
E) Reputation risk
Answer: A

87. Carson County State Bank has a ratio of equity capital to total assets of 2.5%.
The FDIC which regulates this bank has determined that this is not enough
equity capital and is making the bank issue new stock in the market. In
addition, they are not allowing the bank to issue a dividend to their current
stockholders. Which type of risk would this be an example of?
A) Operational risk
B) Legal risk
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 C) Compliance risk
D) Strategic risk
E) Reputation risk
Answer: C

88. Everett Bank has just learned that there is a disgruntled former employee who
has created a blog that is telling everyone that Everett Bank has halved their
customer service representatives and so customers have great difficulty
getting through to a live person when there is a problem with their account.
Everett is worried that they may lose customers as a result. Which type of
risk would this be an example of?
A) Operational risk
B) Legal risk
C) Compliance risk
D) Strategic risk
E) Reputation risk
Answer: E

89. Norman Bank made a loan of $1,000,000 to Jarod LeFevre. Jarod has declared
bankruptcy and Norman Bank has just learned that the judge in the case has
ruled that Jarod does not have to pay any of the loan back or forfeit any of his
assets. Which type of risk would this be an example of?
A) Operational risk
B) Legal risk
C) Compliance risk
D) Strategic risk
E) Reputation risk
Answer: B

90. Forrest Fennell is thinking about investing in Capital City Bank. He is

examining certain ratios of the bank including the ratio of nonperforming
loans to total loans and leases and the provision for loan losses to total loans
and leases. What type of risk is Forrest attempting to measure with these
ratios?
A) Credit risk
B) Liquidity risk
C) Market risk
D) Interest rate risk
E) Operational risk
Answer: A

91. Gerald Wilkens is thinking about investing in Tallahassee State Bank. He is

examining certain ratios of the bank including the ratio of cash assets and
government securities to total assets and purchased funds to total assets.
What type of risk is Gerald attempting to measure with these ratios?
A) Credit risk
B) Liquidity risk
C) Market risk
D) Interest rate risk
E) Operational risk
This79
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 Answer: B

92. Amy Farmer is thinking about investing in the Guthrie National Bank. She is
examining certain ratios of the bank including the ratio of the book value of
the assets to the market value of the assets and the market value of the
bonds held by the bank to their recorded value. What type of risk is Amy
attempting to measure with these ratios?
A) Credit risk
B) Liquidity risk
C) Market risk
D) Interest rate risk
E) Operational risk
Answer: C

93. Paul Smith is thinking about investing in Capital City Bank. He is examining
certain ratios of the bank including the ratio of interest sensitive assets to
interest sensitive liabilities and uninsured deposits to total deposits. What
type of risk is Paul attempting to measure with these ratios?
A) Credit risk
B) Liquidity risk
C) Market risk
D) Interest rate risk
E) Operational risk
Answer: D

94. The Garic State Bank of New Orleans was under water for three weeks after
Hurricane Katrina hit the state. The lobby is full of mud and other debris.
Many of the valuables stored in the bank’s safety deposit boxes have been
ruined. John Garic, the President and CEO of the bank, has been working
night and day to reopen the bank. What type of risk has John been dealing
with?
A) Credit risk
B) Liquidity risk
C) Market risk
D) Interest rate risk
E) Operational risk
Answer: E

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