Commercial Banking 1 (CB1) Mid-Term Exam Questions môn Thống kê trong kinh tế và kinh doanh | Trường Đại học Kinh tế Quốc dân

COMMERCIAL BANKING 1 COURSE MID-TERM EXAM QUESTIONS Time: 75 minutes
Part 1: Multiple Choice Questions. Choose the best answer and explain why (30 marks) 1.1.
The Central Bank sales of securities could reduce lending interest rate charged by commercial banks (CBs). F
Central banks tend to focus on one “policy rate”—generally a short-term, often overnight,
rate that banks charge one another to borrow funds. When the central bank removes money
into the system by sêling securities, colloquially called tightening policy, the rate increases
and make the loans more expensive
The Central Bank sales of securities can reduce lending interest rates charged by
commercial banks because it increases the money supply in the economy. When the Central
Bank sells securities, it injects new money into the banking system. This additional money
can help increase the supply of funds available for lending, which can drive down the cost of borrowing.
As a result, commercial banks may lower their lending interest rates to attract more
borrowers who are looking to take advantage of the cheaper credit. In addition, the
increased competition among banks to lend out these funds can also contribute to lower interest rates.
Overall, the Central Bank's actions can have a significant impact on the level of interest
rates throughout the entire economy. By effectively managing the supply of money and
credit, the Central Bank can use monetary policy to influence economic growth, inflation,
and other important macroeconomic factors. 1.2.
Regulations imposed by Central Bank will hinder the growth of commercial banks. F
This statement is incorrect because regulations imposed by the Central Bank can actually
promote stability and growth in the banking system. For example, regulations on capital
requirements can help ensure that banks have enough funds to absorb losses and continue
lending during times of economic stress. 1.3.
Commercial banks should concentrate on mobilizing the cheapest deposits from the public. F
This statement is too narrow and not fully accurate because there are many factors that
commercial banks should consider when mobilizing deposits from the public, including
interest rates, deposit insurance, convenience, reputation, and customer service. 1.4.
The use of non-deposit borrowing should be limited to liquidity demand rather than expanding credit. F
1.4: This statement is not fully accurate because non-deposit borrowing can also be used to
fund credit expansion. However, it is true that excessive reliance on non-deposit borrowing
can increase liquidity risk for banks, especially during times of market stress. 1.5.
Interest rates on non-deposits are highly volatile. T
This statement is generally true, as interest rates on non-deposits, such as interbank loans or
commercial paper, tend to be more volatile than deposit rates. However, this can depend on
market conditions and other factors. 1 1.6.
Bad loans normally do not affect current income. F
Bad loans can actually have a significant impact on a bank's current income, as they can
result in loan write-offs, provisions for loan losses, and lower net interest income. 1.7.
Allowance for Loan Losses (ALL) is the asset item, and Provision for Loan Losses (PLL) is the
non-cash expense item before profit loss. T
This statement is accurate, as allowance for loan losses (ALL) represents the estimated
amount of losses that a bank expects to incur in its portfolio of loans, while provision for
loan losses (PLL) represents the actual amount of losses recognized in the bank's income statement. 1.8.
Off-balance sheet items of banks do not expose to risks. F
This statement is incorrect, as off-balance sheet items, such as derivatives or loan
commitments, can expose banks to various risks, including credit risk, market risk, and operational risk. 1.9.
In looking at comparative balance sheets, it can be seen that large banks rely more heavily on
nondeposit borrowings while small banks rely more heavily on deposits. F
This statement is too narrow and not fully accurate, as the mix of funding sources can vary
widely among banks of different sizes and business models. Additionally, some large banks
may be able to access cheaper deposit funding through their retail banking operations,
while some small banks may rely heavily on non-deposit funding sources. 1.10.
The number one source of revenue for a bank based on volume is usually loan income. F
Interest income is the primary way that most commercial banks make money.
This statement is incomplete, as banks also generate revenue from other sources, such as
fees, trading income, and investment income. However, loan income is typically a major
source of revenue for most banks.
Part 2: Multiple Choice Questions. Choose the best answer (20 marks)
2.1. Bank assets fall into each of the following categories except: A) Loans. B) Investment securities. C) Demand deposits.
D) Non Interest cash and due from banks. E) Other assets 2
2.2. Banks perform the indispensable task of:
A) Creating money without making loan.
B) Absorbing the excess liquidity created by other financial institutions
C) Intermediating between surplus-spending individuals or institutions and deficit-
spending individuals or institutions D) Issuing risky deposits E) None of the above 2.3.
Which of the following has become the principal tool of central bank monetary policy today? A) Open market operations
B) Changing the discount rate
C) Changing reserve requirements D) Using moral suasion E) None of the above 2.4.
The Central bank buys Treasury Bills in the open market. This will tend to:
A) Cause interest rates in the market to rise (đoán v nhé vì money supply increases)
B) Cause interest rates in the market to fall
C) Cause reserves held at the Federal Reserve to decrease
D) Cause a decrease in the growth of deposits and loans E) All of the above
2.5.The difference between such sources of bank income as service charges on deposits and trust-service
fees and such sources of bank expenses as salaries and wages and overhead expenses divided by total
assets or total earning assets is called the: A) Net profit margin B) Net operating margin C) Net non interest margin D) Net return on assets E) None of the above
đáp án: total assets divided by total equity capital.
Part 3: Assignment: (20 marks)
How are the balance sheets and income statements of finance companies, insurers, and securities
firms similar to those of banks, and in what ways are they different? What might explain the differences you observe?
The balance sheets and income statements of finance companies, insurers, and securities firms are
similar to those of banks in that they are all financial institutions and deal with assets, liabilities,
revenues, and expenses. However, there are some differences:
Assets: While banks hold predominantly cash, loans, and securities, insurers hold primarily investments
in securities, and finance companies and securities firms hold a majority of their assets in loans and securities.
Liabilities: Banks rely heavily on deposits as their primary source of funds. Insurers rely on policyholder
funds, and finance companies and securities firms rely heavily on issuing debt securities and borrowing from banks.
Revenues: Banks generate revenue primarily through interest income from loans and securities, while
insurers generate revenue through premium income and investment income, and finance companies and
securities firms earn revenue through interest income, brokerage fees, and underwriting fees. 3
Expenses: Banks' primary expenses are interest on deposits and operating expenses, while insurers'
expenses are primarily claiming payments and policyholder benefits, and finance companies and
securities firms have high operating expenses due to the cost of underwriting and servicing loans and securities.
The differences in the balance sheets and income statements can be explained by the types of services
and products offered by each institution and the sources of their funding. For example, banks rely mostly
on deposits for funding, while finance companies and securities firms rely heavily on debt securities to
fund their operations. Insurers, on the other hand, must rely on premiums from policyholders to generate revenue.
Part 4: calculation: (30 marks)
4.1. The ABC Bank is developing a list of off-balance-sheet items for its call report. Please fill in the
missing items from its statement shown below. Using Table 5-5 – p. 143, describe how ABC compares
with other banks in the same size category regarding its off-balance sheet activities.
Off-balance-sheet items for ABC Bank (in millions of $) Total unused commitments $7,000
Standby letters of credit and foreign office guarantees $1,350 (Amount conveyed to others) ($50) Commercial Letters of Credit $48 Securities Lent $2,200 Derivatives (total) $97,000
Notional Amount of Credit Derivatives $22,000 Interest Rate Contracts 54000
Foreign Exchange Rate Contracts ?
Contracts on other commodities and equities $1,200
All other off - balance -sheet liabilities $49 Total off-balance-sheet Items ?
Total Assets (on-balance sheet) $10,500
Off-balance-sheet assets ÷ on-balance-sheet assets ?
* Foreign Exchange Rate Contracts
=Total derivatives −All other derivatives
=$97,000 – ($22,000+ $54,000+ $1200) =$19,800
* Total off-balance-sheet Items
=The sum of all of the off-balance sheet items
=$7,000 + $1,350 – $50 + $48 + $2,200 + $97,000 + $49 =$107,597
* Off-balance-sheet assets ÷ on-balance-sheet assets =$107,597 ÷ $10,500 = 10.25 4
4.2. Please fill in the missing items from its statement shown below (all figures in millions of dollars): Report of Income Total Interest Income $120 Total Interest Expense ? Net Interest Income 40
Provision for Loan and Lease Losses ? Total Noninterest Income 58 Fiduciary Activities 8
Service Charges on Deposit Accounts 6
Trading Account Gains and Fees ? Additional Noninterest Income 30 Total Noninterest Expense 77 Salaries and Benefits ?
Premises and Equipment Expense 10
Additional Noninterest Expense 20 Pretax Net Operating Income 17 Securities Gains (Losses) 1 Applicable Income Taxes 5
Income Before Extraordinary Income ? Extraordinary Gains – Net 2 Net Income ? *Total interest expense
= Total interest income −Net interest income = $120 − $40 = $80
*Provision for loan and lease losses
= Net interest income+ Total noninterest income−Total noninterest expense−Pretax net operating income =$40 + $58 –$77 –$17 =$4
*There are four areas of Total noninterest income and only one is missing and the total is given: $58 − $8 − $6 − $30 =$14
*There are three areas of Total noninterest expense and only one is missing and the total is given: $77 –$10 –$20 =$47
*Income before extraordinary items
= Pretax income +Security gains –Taxes 5 =$17 + $1 –$5 =$13 *Net income
= Income before extraordinary items + Extraordinary gains – net =$13 + $2 =$15 6