Practice Quiz 6A

None

The financial performance of both Commercial Banks and Savings Banks is measured using the Net Interest Margin (NIM). a, Explain what the Net Interest Margin is measuring and evaluating. b, Cite an example of why the Net Interest Margin could turn negative.

Statement I - Relaxation of Credit Standard increases the Investment in Accounts receivableStatement II - Restriction of credit standard may decrease the chance of incurring bad debts that ultimately affects the profit positively a. False; True b. True; False c. False; False d. True; True   Which of the following statements is most correct? a. Other things held constant, the higher a firm’s days sales outstanding (DSO), the better its credit department. b. If a firm sells on terms of 2/10, net 30, and its DSO is 30 days, then its aging schedule would probably show some past due accounts. c. If a firm that sells on terms of net 30 changes its policy and begins offering all customers terms of 2/10, net 30, and if no change in sales volume occurs, then the firm’s DSO will probably increase.

Select all that are true regarding credit risk for a bank. O This risk is an estimate of future uncollectibility that results in a provision expense on the bank's income statement. O Changes in the business cycle affect all firms the same, so credit risk is pro-cyclical. O Despite it's significance to banks, the housing market is a small part of the economy and has little effect elsewhere so there is no impact to credit risk. Material changes in the housing market impacts banks and their credit risk significantly due to the relative size of the mortgage portfollos. O Business cycles create variations in this risk, but affect each borrower differently.

please help with practice problems

A. If Nominal Interest Rate is 6% and the inflation premium is 2% the real interest rate earned by the bank is equal to B. Which tool of monetary policy appeals to the profit motive of the commercial banks to encourage or discourage lending? Edit Format Table

When a bank increases its provision for loan losses, it generally indicates the bank expects an increase in nonperforming and noncurrent loans lower net charge-offs an increase in net operating income increase demand for liquidity

Gross interest expenses of banks are normally higher in periods when market interest rates are higher.   Group of answer choices: True False

Suppose that: Banks Debt Ratio Total Liabilities Total Capital Net Income Bank Alpha 1.50 $3,106,717m $279,354m $27,410m Bank Beta 1.39 $2,059,798m $200,523m $11,370m Which one is the best performing bank? a. Bank Alphab. Bank Betac. Both Banks

A security analyst calculates the following ratios for two banks. How should the analyst evaluate the financial health of the two banks.Bank A Bank BROE 22% 24%ROA 2% 1.5%Equity Multiplier 11X 16XProfit Margin 15% 14%Asset Utilization 13% 11%Spread 3% 3%Interest Exp. Ratio 35% 40%Provision for loan loss ratio 1% 4%

A lending officer at C Bank has insisted that your firm improve the current ratio of 0.8 before the bank will consider a loan. Which of the following actions would INCREASE the ratio? Group of answer choices: Selling some of the existing inventory at cost Using cash to pay off current liabilities Borrowing long-term debt to pay off short-term bank loan Paying off long-term debt. Collecting some of the current accounts receivable

hich one is not an incentive for a bank to Securitize its mortgage loans? A) Reduce insurance premium paid to FDIC B Meet the regulations on equity capital adequacy Increase the duration of the bank's asset portfolio D Reduce the bank's illiquidity exposure

aa.2

Question 12 Which is NOT a factor of a credit score? Credit History Length Debt Burden Payment History Asset base Question 13 What did Fed study result say about machine learning and lending risk? Machine learning and logistic models are the same in predicting default risk. Logistic regression model superior to the machine learning models in finding default risk. Superior to the benchmark logistic model more so in their ability to separate defaulted loans from the rest of the loans

If a bank has a positive repricing gap (RSAs > RSLs), then: Does this bank have reinvestment or refinancing risk? If interest rates increase, net interest income will: A. Reinvestment risk, increase B. Reinvestment risk, decrease C. Refinancing risk, increase D. Refinancing risk, decrease

If a bank has rate-sensitive assets than liabilities, then in interest rates will increase bank profits. O fewer; an increase fewer; a surge more; an increase more; a decline