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Exam 19: Types of Risks Incurred by Financial Institutions

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Question 31

Multiple Choice

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Rank order the net charge-off rates from high to low for the following loan types: I. C&I loans II. Credit card loans III. Real estate loans

A) I,II,III
B) I,III,II
C) II,I,III
D) II,III,I
E) III,I,II

F) D) and E)
G) B) and D)

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Question 32

Multiple Choice

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A bank has on-balance-sheet assets with a book value of $940 million and a market value of $985 million and on-balance-sheet liabilities with a book value of $900 million and a market value of $930 million. The bank also has off-balance-sheet assets currently valued at $150 million and off-balance-sheet liabilities worth $160 million. Stockholders' net worth should be valued at ________ million.

A) $30
B) $40
C) $45
D) $50
E) $55

F) A) and D)
G) None of the above

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Question 33

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The subprime crisis is a good example of the credit risk faced by financial institutions.

A guarantee issued by an FI that obligates the FI to pay if the purchaser of the letter defaults on a debt is called a

Breakdowns of ATMs and fraudulent use of information stored on a bank's computer system are examples of operational risk.

The Fed allowed nonbank financial institutions to borrow money from the discount window during the mortgage crisis and even allowed nonbanks to swap mortgages for Treasury securities. This was an attempt by the Fed to reduce ________ at institutions.

In May 2007,the largest known credit card theft was discovered when it was revealed that 200 million card numbers were stolen from TJX Company. This is an example of

Which of the following would normally be banking book assets rather than trading book assets?

Why would an FI be willing to issue a letter of credit guarantee to a municipal bond issuer?

Interest rate risk is probably greatest at which of the following intermediaries?

Maintaining a diversified loan portfolio helps a bank reduce systematic credit risk.

How does foreign exchange risk arise for an FI?

Regulators' overall evaluation of the riskiness of a depository institution is measured by the ________.

Rising interest rates decrease the value of fixed-income assets and increase the value of fixed-income liabilities.

In year one,a bank facing reinvestment risk earns 11 percent on its assets and pays 10 percent on its liabilities. In year two,the bank had a negative profit spread of 100 basis points. Which of the following is true? In year two,