FIN 3113 EXAM 3 QUESTIONS AND
ANSWERS
The ______________ provides deposit insurance to commercial banks. - Answer- FDIC
The U.S. banking system is often referred to as a ____________________ banking
system, because there are two governmental "levels" providing bank charters. -
Answer- Dual
A/an __________________is a smaller bank, specializing in consumer-oriented
banking services. - Answer- Community Bank
When a bank displays lower its average production costs by offering wider variety of
services, it demonstrates the phenomenon called ________ - Answer- Economies of
scope
The difference between a commercial bank's average rate earned on loans and its
average rate paid on deposits is called the ______. - Answer- Interest rate spread
Looking at a commercial bank's balance sheet, we observe the customer deposits as
a/an _______________ item. - Answer- Liability
The risk that an unanticipated increase in liability withdrawals may cause an FI to have
to sell assets at fire sale prices is an example of - Answer- liquidity risk
A bank has invested in U.S. Treasury investments that mature in 2 years. They will be
held until maturity. The investments are funded with 3 year maturity time deposits. The
primary risk this bank faces is - Answer- Rein^estment Risk
If a bank is exposed to refinancing risk its profitability is reduced if interest rates ______,
and if it is exposed to reinvestment risk its profitability is reduced if interest rates
______. - Answer- Rise; fall
The process of packaging and/or selling mortgages which are then used to back
publicly traded debt securities is called . - Answer- Securitization
With a fixed rate mortgage the _____ bears the interest rate risk and with an ARM the
______ bears the interest rate risk. - Answer- Lender; borrower
As compared to FRMs, ARMs result in which of the following for the lender?
ANSWERS
The ______________ provides deposit insurance to commercial banks. - Answer- FDIC
The U.S. banking system is often referred to as a ____________________ banking
system, because there are two governmental "levels" providing bank charters. -
Answer- Dual
A/an __________________is a smaller bank, specializing in consumer-oriented
banking services. - Answer- Community Bank
When a bank displays lower its average production costs by offering wider variety of
services, it demonstrates the phenomenon called ________ - Answer- Economies of
scope
The difference between a commercial bank's average rate earned on loans and its
average rate paid on deposits is called the ______. - Answer- Interest rate spread
Looking at a commercial bank's balance sheet, we observe the customer deposits as
a/an _______________ item. - Answer- Liability
The risk that an unanticipated increase in liability withdrawals may cause an FI to have
to sell assets at fire sale prices is an example of - Answer- liquidity risk
A bank has invested in U.S. Treasury investments that mature in 2 years. They will be
held until maturity. The investments are funded with 3 year maturity time deposits. The
primary risk this bank faces is - Answer- Rein^estment Risk
If a bank is exposed to refinancing risk its profitability is reduced if interest rates ______,
and if it is exposed to reinvestment risk its profitability is reduced if interest rates
______. - Answer- Rise; fall
The process of packaging and/or selling mortgages which are then used to back
publicly traded debt securities is called . - Answer- Securitization
With a fixed rate mortgage the _____ bears the interest rate risk and with an ARM the
______ bears the interest rate risk. - Answer- Lender; borrower
As compared to FRMs, ARMs result in which of the following for the lender?
