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FIN 475 FINAL EXAM 2025 QUESTIONS AND
CORRECT ANSWERS GRADED A+
Customers purchasing nondeposit investment accounts sold by a bank operating in the United States must be told in writing that:
A. investment accounts are not federally insured.
B. investment accounts are neither deposits nor guaranteed by a depository institution.
C. investment accounts could suffer loss of principal.
D. All of the options are correct.
D. All of the options are correct.
A trust departments activities often center around establishing:
A. an independent relationship with the customer.
B. a partnership relationship with the customer.
C. a fiduciary relationship with the customer.
D. a subservient relationship with the customer.
E. None of the options is correct.
C. a fiduciary relationship with the customer.
A bank would offer insurance services in addition to traditional banking services if it believed in the potential benefits of:
A. reputation.
B. economies of scale.
C. economies of scope.
D. investment services.
E. None of the options is correct.
C. economies of scope.
Which of the following is an example of a nondeposit investment product of the bank?
A. Time deposit
B. NOW account
C. Passbook savings account
D. Proprietary mutual fund
E. All of the options are correct.
D. Proprietary mutual fund
Which of the following trust agreements is used to back the issue of securities by a corporation?
A. Revocable trust
B. Irrevocable trust
C. Charitable trust
D. Indenture trust
E. None of the options is correct.
D. Indenture trust
A bank is considering adding life insurance underwriting to the services it offers. It has estimated that the expected return and standard deviation of its traditional services are 12 percent and 6 percent respectively. It has also estimated that the expected return and standard deviation of its new underwriting services are 18 percent and 10 percent respectively. The correlation between these services has been estimated to be +0.10 and the bank estimates that 90 percent of its business will be from traditional services and 10 percent from the new underwriting services. What is the expected return of the new combination of services?
A. 17.40 percent
B. 12.60 percent
C. 5.59 percent
D. 15.00 percent
E. None of the options is correct.
B. 12.60 percent
A bank is considering adding life insurance underwriting to the services it offers. It has estimated that the expected return and standard deviation of its traditional services are 12 percent and 6 percent respectively. It has also estimated that the expected return and standard deviation of its new underwriting services are 18 percent and 10 percent respectively. The correlation between these services has been estimated to be +0.10 and the bank estimates that 90 percent of its business will be from traditional services and 10 percent from the new underwriting services. What is the expected standard deviation of the new combination of services?
A. 6.40 percent
B. 12.60 percent
C. 5.59 percent
D. 9.08 percent
E. None of the options is correct.
C. 5.59 percent
A bank is considering adding life insurance underwriting to the services it offers. It has estimated that the expected return and standard deviation of its traditional services are 12 percent and 6 percent respectively. It has also estimated that the expected return and standard deviation of its new underwriting services are 18
When a bank is expecting to be able to employ the same managers, employees, and physical resources to offer multiple products and generate costs savings they are expecting which of the following effects?
A. Product-line diversification effect
B. Economies of scope effect
C. Economies of scale effect
D. Geographic diversification effect
E. None of the options is correct.
B. Economies of scope effect
Trust department activities include all of the following except:
A. safeguarding customers assets.
B. generating earnings.
C. generating large deposits.
D. lending.
E. preparing wills.
D. lending.
A financial holding company may include all of the following services except:
A. corporate liquidation.
B. consumer lending.
C. trust services.
D. investment banking.
E. insurance.
A. corporate liquidation.
Among potential advantages of combining various financial services activities in one FHC, all of the following can be included except:
A. supplementing traditional sources of funds with new funds.
B. supplementing traditional revenue with new revenue sources.
C. lowering the cost of service production through economies of scale and scope.
D. reducing the risk of failure.
E. increasing earnings fluctuations.
E. increasing earnings fluctuations.
If the correlation between revenues from traditional banking and nontraditional services offered by a bank rises, potential diversification benefits:
A. a leveraged buyout.
B. an annuity.
C. the net asset value.
D. a hedge fund.
E. None of the options is correct.
B. an annuity.
A customers pro rata value of a share in a mutual fund, if the assets of the fund were liquidated and liabilities paid off, is called:
A. a mutual fund.
B. an annuity.
C. the net asset value.
D. a hedge fund.
E. None of the options is correct.
C. the net asset value.
A virtually regulated private investment pool, which primarily offers its wealthy investors and large institutions, the possibility of higher investment returns by taking on relatively risky assets is called:
A. a mutual fund.
B. an annuity.
C. the net asset value.
D. a hedge fund.
E. None of the options is correct.
D. a hedge fund.
A bank is considering adding security underwriting services to the services it offers. It has estimated that the expected return and standard deviation of its traditional service are 8% and 10% respectively. It has estimated that the expected return and standard deviation of its new securities underwriting services are 16% and 20% respectively. The correlation between these
services has been estimated to be -0.3 and the bank estimates that 80% of its business will be from traditional services and 20% from the new services. What is the expected return of the new combined firm?
A. 8.0 percent
B. 9.6 percent
C. 12.0 percent
D. 14.4 percent
E. 16 percent
B. 9.6 percent
B. 10.8 percent
C. 10.0 percent
D. 9.2 percent
E. 6.0 percent
D. 9.2 percent
A bank is considering adding security brokerage services to the services it offers. It has estimated that the expected return and standard deviation of its traditional service are 6% and 14% respectively. It has estimated that the expected return and standard deviation of its new securities brokerage services are 14% and 24% respectively. The correlation between these
services has been estimated to be -0.4 and the bank estimates that 60% of its business will be from traditional services and 40% from the new services. What is the standard deviation of the new combined firm?
A. 24.00 percent
B. 18.00 percent
C. 15.07 percent
D. 14.00 percent
E. 9.91 percent
E. 9.91 percent
Recently, both investment banks and commercial banks have come under a pressure to raise large amounts of capital, which is designed to:
A. increase their interest income.
B. reduce their high volume of assets.
C. increase their leverage ratio.
D. reduce their non-performing assets.
E. reduce their high debt ratio.
E. reduce their high debt ratio.
The trusts that arise under a probated will and are often used to save on estate taxes are called:
A. revocable trusts.
B. irrevocable trusts.
C. indenture trusts.
D. testamentary trusts.
E. living trusts.
D. testamentary trusts.
For which of the following banking services can the bank be legally liable for losses due to failure to act as a prudent decision maker?
A. Leveraged buyouts
B. Security underwriting
C. Initial public offering
D. Hedge funds
E. Annuities
C. Initial public offering
According to the textbook, the role(s) of capital is to:
A. provide a cushion against failure risk.
B. provide funds needed to charter, organize, and operate a bank.
C. promote public confidence.
D. support growth and the development of new services.
E. All of the options are correct.
E. All of the options are correct.
The textbook discusses several alternative defenses banks have against risk. These defenses include:
A. quality management.
B. portfolio diversification.
C. geographic diversification.
D. deposit insurance.
E. All of the options are correct.
E. All of the options are correct.
Measured by dollar volume, the largest category of capital at U.S. banks is:
A. par value of common stock.
B. subordinated notes and debentures.
C. surplus.
D. undivided profits and capital reserves.
E. None of the options is correct.
C. surplus.
The fundamental purposes of regulating bank capital cited in the textbook include which of the following?
A. To reduce liquid funds held by the banks.
B. To preserve public confidence in banks.
C. To limit losses to the public arising from insurance claims.
D. To increase the risk taking ability of the banks.
A. 15 percent
B. 9 percent
C. 8 percent
D. 6 percent
E. None of the options is correct.
B. 9 percent
Possible breakdowns in quality control, inefficiencies in producing and delivering financial services, weather damage, aging or faulty computer systems, and errors in judgment by bank management illustrate what form of risk faced by banks?
A. Credit risk
B. Liquidity risk
C. Interest-rate risk
D. Operational risk
E. None of the options is correct.
D. Operational risk
The ratio of core capital to average total assets is called the:
A. supplemental capital ratio.
B. leverage ratio.
C. long-term capital ratio.
D. GAAP capital ratio.
E. None of the options is correct.
B. leverage ratio.
The risk that a customer with whom the bank has entered into a contract with, will fail to pay or to perform, forcing the bank to find a replacement contract with another party that may be less satisfactory is what form of risk listed below?
A. Counterparty risk
B. Interest-rate risk
C. Operating risk
D. Credit risk
E. Liquidity risk
A. Counterparty risk
In the United States a "well capitalized" bank must have a ratio of capital to risk- weighted assets of at least:
A. 6 percent.
