National University

Bank Investment Analysis

SAMPLE QUIZ #01

Here are 20 multiple-choice questions (MCQs) for Bank Investment Analysis:

1. What is the primary objective of bank investment analysis?

A) Maximizing shareholder wealth
B) Minimizing liquidity
C) Maximizing market share
D) Minimizing regulatory compliance
Answer: A) Maximizing shareholder wealth

2. Which of the following is NOT a common type of investment for banks?

A) Corporate bonds
B) Government securities
C) Real estate
D) Equity ownership in other banks
Answer: C) Real estate

3. What is the purpose of credit analysis in bank investment?

A) Assessing the bank's capital adequacy
B) Evaluating the bank's liquidity position
C) Assessing the creditworthiness of potential borrowers
D) Analyzing the bank's interest rate risk
Answer: C) Assessing the creditworthiness of potential borrowers

4. Which investment is considered to have the lowest risk for banks?

A) Corporate bonds
B) Government securities
C) Derivatives
D) Mortgage-backed securities
 Answer: B) Government securities

5. What does the term "duration" measure in bank investment analysis?

A) The time until a security matures
B) The sensitivity of a security's price to changes in interest rates
C) The credit risk associated with a security
D) The liquidity of a security
Answer: B) The sensitivity of a security's price to changes in interest rates

6. Which of the following factors is NOT typically considered in assessing the credit risk
of a corporate bond?
A) The issuer's financial stability and credit rating
B) Economic conditions and industry trends
C) The coupon rate of the bond
D) The maturity date of the bond
Answer: C) The coupon rate of the bond

7. What is the purpose of stress testing in bank investment analysis?

A) To assess the impact of economic downturns on investment returns
B) To increase investment risk
C) To eliminate investment opportunities with high returns
D) To reduce the need for regulatory compliance
Answer: A) To assess the impact of economic downturns on investment returns

8. Which investment strategy involves spreading investments across different asset

classes to reduce risk?
A) Diversification
B) Concentration
C) Speculation
D) Arbitrage
Answer: A) Diversification

9. Which type of risk refers to the potential loss due to changes in interest rates?
A) Credit risk
 B) Market risk
C) Liquidity risk
D) Operational risk
Answer: B) Market risk

10. What is the primary goal of asset-liability management (ALM) in bank investment
analysis?
A) Maximizing investment returns
B) Minimizing liquidity
C) Matching the bank's assets and liabilities to manage interest rate risk
D) Minimizing credit risk
Answer: C) Matching the bank's assets and liabilities to manage interest rate risk

11. Which investment analysis tool calculates the present value of future cash flows from
an investment?
A) Net present value (NPV)
B) Internal rate of return (IRR)
C) Payback period
D) Return on investment (ROI)
Answer: A) Net present value (NPV)

12. What is the primary purpose of the Sharpe ratio in bank investment analysis?
A) Measuring the return of an investment relative to its volatility
B) Assessing the liquidity of an investment
C) Evaluating the credit risk of an investment
D) Comparing the historical performance of different investments
Answer: A) Measuring the return of an investment relative to its volatility

13. Which investment analysis method compares the benefits and costs of an investment
to determine its profitability?
A) Cost-benefit analysis
B) Sensitivity analysis
C) Scenario analysis
D) Monte Carlo simulation
 Answer: A) Cost-benefit analysis

14. What is the primary function of scenario analysis in bank investment analysis?
A) Calculating the expected return of an investment
B) Assessing the impact of various economic scenarios on investment performance
C) Evaluating the liquidity of an investment
D) Analyzing the credit risk of an investment
Answer: B) Assessing the impact of various economic scenarios on investment
performance

15. Which investment analysis tool calculates the rate of return at which the present
value of cash inflows equals the present value of cash outflows?
A) Net present value (NPV)
B) Internal rate of return (IRR)
C) Payback period
D) Return on investment (ROI)
Answer: B) Internal rate of return (IRR)

16. Which of the following factors is NOT typically considered in assessing the liquidity
risk of an investment?
A) The ease of buying and selling the investment
B) The time until the investment matures
C) The potential impact of market conditions on the investment's value
D) The issuer's credit rating
Answer: D) The issuer's credit rating

17. What does the term "liquidity premium" refer to in bank investment analysis?
A) The extra return required by investors for investing in illiquid assets
B) The additional interest paid on liquid assets
C) The risk of default associated with an investment
D) The potential loss due to changes in interest rates
Answer: A) The extra return required by investors for investing in illiquid assets
18. Which investment analysis tool measures the sensitivity of an investment's value to
changes in specific variables?
A) Net present value (NPV)
B) Internal rate of return (IRR)
C) Sensitivity analysis
D) Payback period
Answer: C) Sensitivity analysis

19. What is the primary purpose of conducting a credit rating analysis in bank investment
analysis?
A) To assess the liquidity of an investment
B) To evaluate the market risk of an investment
C) To determine the creditworthiness of an issuer
D) To calculate the internal rate of return of an investment
Answer: C) To determine the creditworthiness of an issuer

20. Which investment analysis tool calculates the time required for an investment to
recover its initial cost?
A) Net present value (NPV)
B) Internal rate of return (IRR)
C) Payback period
D) Return on investment (ROI)
Answer: C) Payback period