BUSN 410 WEEK 8 FINAL EXAM TEST BANK
2026 UPDATED QUESTIONS AND ANSWERS
GRADED A+
⩥ Describe a bank liability. Answer: Vast majority of bank liabilities are
deposits.
Deposits vary in maturity, interest, check-writing privilege.
⩥ Describe the categories of deposits. Answer: 1) Checking deposits
2) Saving deposits
3) Time deposits
⩥ Describe the different deposit categories. Answer: 1) Checking: bank
accounts allow the account owners to write checks that are available on
demand
2) Saving: bank accounts with no set maturity and limit or no check-
writing privileges
3) Time: bank accounts that have fixed maturity dates (penalty for early
deposits)
⩥ Describe off-balance sheet activities. Answer: Off balance sheet
activities are important sources of fee income for bank banks.
These activities have the potential to produce cash flows.
,Less obvious to financial statement because they usually appear as notes
to financial statements
⩥ Give examples of off-balance sheet activities. Answer: loan
commitments, letters of credit, loans sold, and derivative securities
⩥ Describe loan commitment. Answer: Also known as Line of Credit,
contractual agreement by a bank to provide loans to a company up to a
maximum amount at predetermined interst rate terms.
A loan commitment also defines a period over which the company has
the right to draw down the commitment
⩥ Give two examples of why a company would buy a loan commitment.
Answer: 1) Ford entered into loan commitment with lendors -> Ford
informed lenders intention to draw remaining balance available under
loan commitment -> lenders disbursed $10BB to Ford and the interest
on laon was LIBOR + 2.25%
2) Support their commercial paper programs -> usually turn to
commercial paper for short term funding -> if company cannot roll over
maturing CP it uses loan commitment to pay off CP
⩥ Describe loans sold. Answer: Loans sold are loans that a bank
originated and sold to other investors.
Loans can be sold with recourse.
, Such loans can be returned to seller if credit quality of loan deteriorates.
Loans can also be sold without recourse.
Such loans cannot be returned to seller even if credit quality of loans
deteriates thus buyer assumes full risk of loss
⩥ Derivative securities examples. Answer: Futures, forwards, swaps,
and options
⩥ How are derivatives traded?. Answer: Many are traded over-the-
counter markets
Banks can be users for hedging or dealers that act as counterparties in
trades with customers for a fee.
⩥ Income statement of commercial banks. Answer: IS presents major
categories of revenues and expenses and the net income or loss for a
bank over a period.
Because a bank's asset/liabilities are mainly financial, most items on IS
are related to interest
⩥ Interest income. Answer: IS first reports sources of interest income.
Interst income on loans and leases accounts for majority of total interst
income.
Can also be on investment securities.
2026 UPDATED QUESTIONS AND ANSWERS
GRADED A+
⩥ Describe a bank liability. Answer: Vast majority of bank liabilities are
deposits.
Deposits vary in maturity, interest, check-writing privilege.
⩥ Describe the categories of deposits. Answer: 1) Checking deposits
2) Saving deposits
3) Time deposits
⩥ Describe the different deposit categories. Answer: 1) Checking: bank
accounts allow the account owners to write checks that are available on
demand
2) Saving: bank accounts with no set maturity and limit or no check-
writing privileges
3) Time: bank accounts that have fixed maturity dates (penalty for early
deposits)
⩥ Describe off-balance sheet activities. Answer: Off balance sheet
activities are important sources of fee income for bank banks.
These activities have the potential to produce cash flows.
,Less obvious to financial statement because they usually appear as notes
to financial statements
⩥ Give examples of off-balance sheet activities. Answer: loan
commitments, letters of credit, loans sold, and derivative securities
⩥ Describe loan commitment. Answer: Also known as Line of Credit,
contractual agreement by a bank to provide loans to a company up to a
maximum amount at predetermined interst rate terms.
A loan commitment also defines a period over which the company has
the right to draw down the commitment
⩥ Give two examples of why a company would buy a loan commitment.
Answer: 1) Ford entered into loan commitment with lendors -> Ford
informed lenders intention to draw remaining balance available under
loan commitment -> lenders disbursed $10BB to Ford and the interest
on laon was LIBOR + 2.25%
2) Support their commercial paper programs -> usually turn to
commercial paper for short term funding -> if company cannot roll over
maturing CP it uses loan commitment to pay off CP
⩥ Describe loans sold. Answer: Loans sold are loans that a bank
originated and sold to other investors.
Loans can be sold with recourse.
, Such loans can be returned to seller if credit quality of loan deteriorates.
Loans can also be sold without recourse.
Such loans cannot be returned to seller even if credit quality of loans
deteriates thus buyer assumes full risk of loss
⩥ Derivative securities examples. Answer: Futures, forwards, swaps,
and options
⩥ How are derivatives traded?. Answer: Many are traded over-the-
counter markets
Banks can be users for hedging or dealers that act as counterparties in
trades with customers for a fee.
⩥ Income statement of commercial banks. Answer: IS presents major
categories of revenues and expenses and the net income or loss for a
bank over a period.
Because a bank's asset/liabilities are mainly financial, most items on IS
are related to interest
⩥ Interest income. Answer: IS first reports sources of interest income.
Interst income on loans and leases accounts for majority of total interst
income.
Can also be on investment securities.
