MINISTRY OF EDUCATION AND TRAINING

MANAGEMENT IN FINANCIAL
NATIONAL ECONOMICS UNIVERSITY
INSTITUTIONS

Mode of study: Full time. Intake: 61

Exam place: A2 – 908; A2- 909

School of Advanced Education Programs
Exam date: 12/05/2022 Exam shift: 2

Version: No.2 Allowed time: 90 minutes

I: Multiple choice (30 points) These statements are True or False?

1. The role performed by banks in the economy in which they transform savings into credit is known as
the intermediation role

2. Recoveries on loans previously charged off are added to the Allowance for Loan Losses (ALL) account
on a bank's balance sheet

3. Demand deposits are among the most volatile and least predictable of a bank's sources of funds with
the shortest potential maturity

4. The letter “C” in the CAMELS rating system for banks in the U.S. refers to the “Character” of a bank

5. Retail credit in banking refers to such loans as residential mortgages and installment loans to
individuals

6. At commercial banks, total revenue is the same as total operating income.

7. Commercial banks’ borrowings are insured by deposit insurance .

8. The borrower X has asked for a type of loan its lender normally refuses to make. This is Condition in
6Cs when analyzing clients

9. The borrower Y has achieved higher earnings each year for the past six years. This is Cash in 6Cs
when analyzing clients

10. The borrower Z has an excellent credit rating. This is Character in 6Cs when analyzing clients

11. On a bank's income statement (Report of Income) deposit costs are financial outputs

12. Loans and leases are financial inputs on a financial institution's balance sheet or Report of Condition
 PART II: Assignments (30 points)

Assignment II.1: How has the composition of deposits changed in recent years? How will it be with the
Industrial Revolution 4.0 and fintech development? (10 points)

Assignment II.2: “The emerging Fintech industry is a serious threat to traditional banks (and bankers)”.
Do you agree with this statement? Why? (20 points)

PART III: Exercises (40 points)

Exercise III.1: (10 points)

Suppose that a customer holds a savings deposit in a savings bank for a year. The balance in the account
stood at $15,000 for 160 days, $12,000 for 120 days and $50 for the remaining days in the year. If the
Savings bank paid this depositor $850 in interest earnings for the year, what APY did this customer
receive?

Exercise III.2: (30 points)

MM Bank has experienced the following trends over the past five years (all figures in millions of US
dollars):

Year Net Income Total Operating Total average Total average

Revenues Assets Equity

202X 2.7 26.5 300 273

202X+1 3.5 30.1 315 288

202X+2 4.1 39.8 331 301

202X+3 4.8 47.5 347 314

202X+4 5.7 55.9 365 329

Determine the figures for ROA, ROE, profit margin, asset utilization, and equity multiplier for this bank.
Are any adverse trends evident? Where would you recommend that management look to deal with the
bank’s emerging problem(s)?

Note: Students are allowed to bring hand-writing papers and the calculator in the exam room

MINISTRY OF EDUCATION AND TRAINING

MANAGEMENT IN FINANCIAL
NATIONAL ECONOMICS UNIVERSITY
 INSTITUTIONS

Mode of study: Full time. Intake: 61

School of Advanced Education Programs
Exam place: A2 – 908; A2- 909

Exam date: 12/05/2022 Exam shift: 2

Version: No.1
Allowed time: 90 minutes

I: Multiple choice (30 points) These statements are True or False?

1. An institution making only loans to households and offering uninsured checkable deposits and savings
deposits qualifies as a commercial bank.

2. Loans and leases are financial outputs on a financial institution's balance sheet or Report of Condition

3. Net loans on a bank's balance sheet are derived by adding the allowance for loan losses and unearned
discounts from gross loans

4. Large banks depend more on non-deposit borrowings than small banks

5. Households tend to be interest-inelastic borrowers

6. The letter “M” in the CAMELS rating system for banks in the U.S. refers to the “management quality”
of a bank

7. If the economy slows down a bank should review its outstanding loans more frequently.

8. The lender's secondary source of repayment in case of default is capital.

9. The borrower X has asked for a type of loan its lender normally refuses to make. This is Character in
6Cs when analyzing clients

10. Non-deposit borrowings are a financial input on a bank's balance sheet or Report of Condition

11. Recoveries on loans previously charged off are added to the Provision for Loan Losses (PLL) account
on a bank's income statement.

12. The cost of non-deposit borrowings is a financial input on a bank's income statement or Report of
Income

PART II: Assignments (30 points)

Assignment II.1: Explain the meaning of the following terms: character, capacity, cash, collateral,
conditions, and control? How do you assess your owned 6Cs? (10 points)
Assignment II.2: “Financial institutions should not be strictly regulated”. Do you agree with this
statement? Why? (20 points)

PART III: Exercises (40 points)

Exercise III.1. (10 points)

Banks and other lending affiliates within the holding company of A are reporting heavy loan demand this
week from companies in the region B that are planning a significant expansion of inventories and
facilities before the beginning of the fall season. The holding company plans to raise $3500 million in
short-term funds this week, of which about $3250 million will be used to meet these new loan requests.
Interbank funds are currently trading at 6.5%, negotiable CDs are trading in the stock market at 7%, and
foreign borrowings are available at all maturities under one year at 8%. Noninterest costs are estimated at
1 % for interbank, 0.7 % for CDs; 0.2 % for foreign borrowings. Calculate the effective cost rate of each
of these sources of funds and make a management decision on what sources to use. Be prepared to defend
your decision.

Exercise III.2: (30 points)

This is the 202X Balance Sheet of the Bank B with annually average figures

Amount Interest Amount

Interest
Assets (USD rate Liabilities & Equity (USD rate (%)
mil) (%) mil)
Cash and deposits due 150 1,500 1
Demand deposit
from banks
3-month Treasury 550 1 3-month bank 800 5
Bills deposits

5-year fixed-rate 450 3 6-month corporate 2,750 11

Government Bonds deposits

12-month floating-rate 2,950 12 Non-deposit 1450 16

corporate loans borrowings

10 year fixed-rate 2,500 17 650

Equity
mortgage loans
550
Fixed assets

This Bank earned USD 5560 mil in fees and commissions and USD 1420 mil in securities gain; paid USD
5250 mil in overhead costs; USD 1950 in loan loss provision. Corporate income tax rate is 15%.
 a. How much are: Net interest margin, net non-interest margin, ROE (20 points).
b. How can the bank reach its ROE to 5% (two options: increasing average lending rates or reducing
average deposit rates) (10 points).

Note: Students are allowed to bring hand-writing papers and the calculator in the exam room