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Review Test Submission: Practice Mid Sem Exam Sem 1 2020 &...
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[FINM3404] Banking & Lending Decisions (St Lucia). Semester 1, 2020 FINM3404S_7020_21196
Assessment
Mid Semester Exam
Review Test Submission: Practice Mid Sem Exam Sem 1 2020
Review Test Submission: Practice Mid Sem Exam Sem 1 2020
User
Alyssa Ciranni
Course
[FINM3404] Banking & Lending Decisions (St Lucia). Semester 1, 2020
Test
Practice Mid Sem Exam Sem 1 2020
Started
18/04/20 9:43 AM
Submitted
18/04/20 10:33 AM
Status
Completed
Attempt Score 17.5 out of 25 points
Time Elapsed
50 minutes out of 1 hour and 10 minutes
Instructions
Please complete the test in one attempt. Each question carries 1.25 marks.
Total marks 25.
Results
Displayed
All Answers, Submitted Answers, Correct Answers
Question 1
0 out of 1.25 points
The number of banks has grown steadily since the middle of the 1980s
for the following reasons:
Selected
Answer:
C.
changes to the regulatory regime for non-bank depository
institutions favoured conversion from building society to banks.
Answers: A. liberalisation
of conditions for foreign bank entry by APRA.
B.
deregulation of the banking industry, including the relaxation of
bank entry requirements.
C.
changes to the regulatory regime for non-bank depository
institutions favoured conversion from building society to banks.
D. All
Question 2
of the listed options are correct.
1.25 out of 1.25 points
Sunflower Inc., a publicly traded manufacturing firm, has provided the
following financial information in its application for a loan.
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Assets
$
Cash
Liabilities and equity
120 Accounts payable
$
130
Accounts receivables
90 Notes payable
90
Inventory
90 Accruals
30
Long-term debt
150
Plant and equipment
500 Equity
400
Total assets
800 Total liabilities and equity
800
Also assume sales = $400, EBIT = $200 and net income = $44; the
dividend payout ratio is 50 per cent and the market value of equity is
equal to the book value.
What is the Altman discriminant function value (Z-score) for
Sunflower Inc.?
Selected Answer:
D. 3.04
A. 1.25
Answers:
B. 1.75
C. 2.55
D. 3.04
Question 3
0 out of 1.25 points
An FI that invests $100 million into corporate bonds is exposed to the
following risks:
Selected Answer:
D. solvency
A. liquidity
Answers:
B. credit
and technology risk
and technology risk
and interest rate risk
C. off-balance-sheet
D. solvency
and interest rate risk
and technology risk
Question 4
1.25 out of 1.25 points
Which of the following is a role of a bank?
Selected
Answer:
Answers:
B.
Accept deposits and make loans and in doing so facilitate the
flow of funds from savers to borrowers.
A.
Accept deposits and make loans and in doing so facilitate the
flow of funds from borrowers to lenders.
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B.
Accept deposits and make loans and in doing so facilitate the
flow of funds from savers to borrowers.
C. Manage
D. All
the level of interest rates.
of the above are correct.
Question 5
1.25 out of 1.25 points
Economies of scale is the concept that:
Selected
Answer:
Answers:
A.
a cost reduction in trading and other transaction services results
from increased efficiency when FIs perform these services.
A.
a cost reduction in trading and other transaction services results
from increased efficiency when FIs perform these services.
B.
a profitability decrease in trading and other transaction services
results from increased efficiency when FIs perform these
services.
C.
a cost reduction in trading and other transaction services when
FIs do not perform these services at all.
None of the listed options are correct.
D.
Question 6
0 out of 1.25 points
Which of the following statements is true?
Selected
Answer:
Answers:
A.
The financing requirement is the financing gap minus an FI’s
liquid assets.
A.
The financing requirement is the financing gap minus an FI’s
liquid assets.
B.
The financing requirement is the financing gap multiplied by
an FI’s liquid assets.
C.
The financing requirement is the financing gap plus an FI’s
liquid assets.
D.
The financing requirement is the financing gap divided by
an FI’s liquid assets.
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Question 7
1.25 out of 1.25 points
Which of the following statements is true?
Selected
Answer:
B.
An off-balance-sheet liability is an item that moves onto the
liability side of the balance sheet when a contingent event occurs.
Answers: A.
An off-balance-sheet item is recorded on the balance sheet of a
financial institution when the annual report is being prepared.
B.
An off-balance-sheet liability is an item that moves onto the
liability side of the balance sheet when a contingent event occurs.
C.
An off-balance-sheet liability is an item that moves onto the asset
side of the balance sheet when a contingent event occurs or at the
end of a financial period.
All of the listed options are correct.
D.
Question 8
1.25 out of 1.25 points
Which of the following statements is true?
D. None
Selected
Answer:
of the listed options are correct.
Answers: A.
Household savers are likely to be attracted to direct investments
in corporate securities because of lower monitoring costs
compared to using financial intermediaries.
B.
Household savers are likely to be attracted to direct investments
in corporate securities because of lower liquidity costs compared
to using financial intermediaries.
C.
Household savers are likely to be attracted to direct investments
in corporate securities because of lower interest rate risk
compared to using financial intermediaries.
D. None
Question 9
of the listed options are correct.
1.25 out of 1.25 points
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A depository institution (DI) has assets of $10 million consisting of $1
million in cash and $9 million in loans. The DI has core deposits of $6
million, subordinated debt of $2 million, and equity of $2 million.
Increases in interest rates are expected to cause a net drain of $2 million
in core deposits over the year. The average cost of deposits is 5% and the
average yield on loans is 8%. The DI decides to reduce its loan portfolio
to offset this expected decline in deposits. What will be the effect on net
interest income and the size of the DI after the implementation of this
strategy?
Selected
Answer:
D.
The change in net interest income is -$60,000 and the average
size of the firm will be $8 million after the drain.
Answers: A.
The change in net interest income is -$30,000 and the average
size of the firm will be $7 million after the drain.
B.
The change in net interest income is -$40,000 and the average
size of the firm will be $8 million after the drain.
C.
The change in net interest income is -$60,000 and the average
size of the firm will be $5 million after the drain.
D.
The change in net interest income is -$60,000 and the average
size of the firm will be $8 million after the drain.
Question 10
1.25 out of 1.25 points
Price risk refers to:
Selected
Answer:
Answers:
A.
the risk that the sale price of an asset will be lower than the
purchase price of that asset.
A.
the risk that the sale price of an asset will be lower than the
purchase price of that asset.
B.
the risk that the purchase price of an asset will be lower than
the sale price of that asset.
C.
the risk that the sale price of an asset will be higher than the
purchase price of that asset.
D. None
Question 11
of the listed options are correct.
1.25 out of 1.25 points
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MNK corporation has the following market value balance sheet
structure:
Assets
Cash
Liabilities and equity
$1 000 Certificate of deposit
Bond
$10 000 Equity
Total assets
$11 000 Total liabilities and equity
$10 000
$1 000
$11 000
The bond has a face value of $10000, 10-year maturity and a fixedrate annual coupon of 10 percent. The certificate of deposit has a oneyear maturity and a 6 percent fixed rate of interest. MNK expects no
additional asset growth. If market interest rates had decreased 200
basis points by the end of year one, what would be the market value
of equity assuming that Cash and Certificate of deposit remain at the
same value?
Selected Answer:
A. 2,249.38
Answers:
A. 2,249.38
B. 3,328.56
C. 4,320.28
D. 829.15
Question 12
0 out of 1.25 points
An Australian FI that invests €100 million in four-year maturity loans
and partially funds these loans with €70 million two-year deposits is
exposed to the following risks.
Selected
Answer:
D.
A depreciation of the euro against the Australian dollar plus
credit risk plus reinvestment risk, such as decreasing interest rates
in the Eurozone
Answers: A.
An appreciation of the euro against the Australian dollar plus
credit risk plus refinancing risk, such as increasing interest rates
in the Eurozone
B.
A depreciation of the euro against the Australian dollar plus
credit risk plus refinancing risk, such as increasing interest rates
in the Eurozone
C.
A depreciation of the euro against the Australian dollar
reinvestment risk, such as increasing interest rates in the
Eurozone
D.
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A depreciation of the euro against the Australian dollar plus
credit risk plus reinvestment risk, such as decreasing interest rates
in the Eurozone
Question 13
1.25 out of 1.25 points
How does liability management affect profitability?
C. By
Selected
Answer:
Answers:
its impact on the cost of purchased funds.
A. By
enhancing the liquidity of assets held.
B. By
its impact on the interest rate sensitivity of assets.
C. By
D. By
its impact on the cost of purchased funds.
determining the default risk of investment securities.
Question 14
0 out of 1.25 points
Which of the following statements is true for the Australian banking
industry?
B. There
Selected
Answer:
are four major banks in Australia.
The Australian banking industry is highly concentrated.
Answers:
A.
B. There
are four major banks in Australia.
C.
The four major banks and the five regional banks offer a full
range of commercial and investment banking services.
D. All
of the listed options are correct.
Question 15
1.25 out of 1.25 points
Which of the following statements is true?
Selected
Answer:
B.
Open market operations are interventions in the short-term money
market by the RBA to affect the cash interest rate.
Answers: A.
Open market operations are interventions in the long-term capital
market by the RBA to affect long-term interest rates.
B.
Open market operations are interventions in the short-term money
market by the RBA to affect the cash interest rate.
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C.
Open market operations are interventions in the long-term capital
market by APRA to affect long-term interest rates.
D.
Open market operations are interventions in the short-term money
market by APRA to affect the cash interest rate.
Question 16
1.25 out of 1.25 points
Consider the following data of a prospective borrower.
Current Assets: $ 120 000
Current Liabilities: $ 60 000
Total Assets: $ 500 000
Market Value of Equity: $ 50 000
Book Value of Equity: $ 60 000
Retained earnings: $ 12 000
Interest expense: $ 20 000
Pro t before tax: $ 200 000
Additionally, the company has a sales revenue of $1,500,000.
What is this company's Z-score?
Selected Answer:
Answers:
C. 4.71
A. 2.80
B. 3.00
C. 4.71
D. 3.25
Question 17
1.25 out of 1.25 points
A DI has two assets: 50 percent in one-month T-bills and 50 percent in
real estate loans. If the DI must liquidate its T-bills today, it receives $98
per $100 of face value; if it can wait to liquidate them on maturity (in
one month's time), it will receive $100 per $100 of face value. If the DI
has to liquidate its real estate loans today, it receives $90 per $100 of face
value. However, liquidation of real estate loans at the end of one month
will produce $92 per $100 of face value. The one-month liquidity index
value for this DI's asset portfolio is:
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B. 0.979
Selected Answer:
A. 0.973
Answers:
B. 0.979
C. 1.06
D. 0.940
Question 18
0 out of 1.25 points
A lender that makes a loan to a minor would be violating which of the 6
Cs of lending?
A. Character
Selected Answer:
A. Character
Answers:
B. Collateral
C. Control
D. Capacity
Question 19
1.25 out of 1.25 points
An increase in interest rates means that the discount rate on cash flows
is:
Selected
Answer:
Answers:
B.
increased and thus the market value of an FI's assets and
liabilities decreases.
A.
decreased and thus the market value of an FI's assets and
liabilities increases.
B.
increased and thus the market value of an FI's assets and
liabilities decreases.
C.
increased and thus the market value of an FI's assets and
liabilities increases.
D.
decreased and thus the market value of an FI's assets and
liabilities decreases.
Question 20
1.25 out of 1.25 points
Non-performing loans are defined as loans that:
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Selected
Answer:
Answers:
B.
are either in default or close to being in default and are at least
90 days in arrears
A.
have been written off and loans that are at least 60 days in
arrears
B.
are either in default or close to being in default and are at least
90 days in arrears
C.
are either in default or close to being in default and are at least
60 days in arrears
D.
have been written off and loans that are at least 80 days in
arrears
Saturday, 18 April 2020 10:33:59 AM AEST
← OK
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