UCE (Economic Finance) EXAM 3
QUESTIONS WITH VERIFIED SOLUTIONS
RATED A.
The aggregate amount of covered transactions with all affiliates is limited
to ____% of member bank capital.
A. 100%
B. 50%
C. 25%
D. 10%
C. 25%
Which statement is not true.
A. Earnings may be rated '4' even if the bank is not generating losses.
B. Budget and MIS are considered in the 'earnings' component as well as
the 'management' component rating.
C. Earnings at risk is a factor in the 'sensitivity to market risk' component
as well as the 'earnings' component rating.
D. An earnings rating of '1' indicates a bank with strong earnings and no
increasing risk.
E. All are true.
F. None are true.
D. An earnings rating of '1' indicates a bank with strong earnings and no
increasing risk. OCC Bulletin 97-1 and Comptroller's Handbook discussion of
Supervision by Risk.
If losses have at any time been sustained, equal or exceeding ______, no
dividend shall be paid.
,A. undivided profits then on hand;
B. tier 2 capital as of last quarter-end;
C. surplus;
D. none of the above;
A. undivided profits then on hand; 12 USC 56
Which of the following is a true statement?
A. Holding company strength/weakness should not be considered when
assigning the capital component rating. Bank must stand on it's own.
B. Capital can not be rated '3' if bank is 'well capitalized' per PCA.
C. A rating of '2' indicates a satisfactory level of capital relative to bank's
risk profile and peer group.
D. A rating of '1' indicates strong capital levels, with low and stable risk
factors.
E. All of the above are true.
F. None of the above are true.
F. None of the above are true. OCC Bulletin 97-1 and Comptroller's
Handbook discussion of Supervision by Risk
A bank must file a Suspicious Activity Report for employee theft even if
the employee makes restitution and agrees to resign.
A. True
B. False
A. True; Required by 12 CFR 21
Most community banks do not process large volumes of wire transfers,
therefore, audits of this function are not critical.
A. True
B. False
B. False; There is potential for significant loss in this area in all banks.
,Record retention guidelines are the same for paper or imaged documents.
A. True
B. False
A. True; 12 CFR 103 makes no distinction.
To maintain their objectivity, the audit department should not be involved
in initial discussions regarding new products and services.
A. True
B. False
B. False; Audit department should be involved in initial discussions so they can
develop procedures and expertise to audit new areas. They may also
highlight potential problem areas for management.
Examiners should review the bank's audit program toward the end of the
examination to determine if we come to the same conclusion.
A. True
B. False
B. False; Review of audit program should occur before the exam or at the
beginning to help se the scope.
All banks must have an Audit Committee comprised of a majority of
outside directors.
A. True
B. False
B. False; 12 CFR 363 applies to banks over 500 million. OCC Bulletin 99-37
encourages banks of all sizes to have an independent external audit.
Committee membership is not discussed.
Which statement is true if flood insurance is required?
A. Borrower must purchase additional policy to cover junior lienholder.
, B. Flood insurance should cover the outstanding principal balance of the
loan or the overall value of the improved property, whichever is less.
C. Flood insurance must be obtained even if collateral is obtained as an
abundance of caution.
D. Lender may not lend on property in a flood zone in a nonparticipating
community.
C. Flood insurance must be obtained even if collateral is obtained as an
abundance of caution.
Which banking function has the least potential for money laundering
activity?
A. private banking
B. trust departments
C. offshore international activity
D. mortgage banking
E. wire transfer
D. mortgage banking; BSA/AML Handbook lists various departments
vulnerable to money laundering activities.
A firewall:
A. is a hotsite serviced by a vendor.
B. is a method of virus protection.
C. detects and prevents receipt and transmission of unauthorized data.
D. encodes messages in a form unreadable to an unauthorized interceptor.
C. detects and prevents receipt and transmission of unauthorized data.
Business Resumption Planning is most effective if prepared by the:
A. IT department.
B. senior management.
C. audit committee.
D. team from throughout the bank.
QUESTIONS WITH VERIFIED SOLUTIONS
RATED A.
The aggregate amount of covered transactions with all affiliates is limited
to ____% of member bank capital.
A. 100%
B. 50%
C. 25%
D. 10%
C. 25%
Which statement is not true.
A. Earnings may be rated '4' even if the bank is not generating losses.
B. Budget and MIS are considered in the 'earnings' component as well as
the 'management' component rating.
C. Earnings at risk is a factor in the 'sensitivity to market risk' component
as well as the 'earnings' component rating.
D. An earnings rating of '1' indicates a bank with strong earnings and no
increasing risk.
E. All are true.
F. None are true.
D. An earnings rating of '1' indicates a bank with strong earnings and no
increasing risk. OCC Bulletin 97-1 and Comptroller's Handbook discussion of
Supervision by Risk.
If losses have at any time been sustained, equal or exceeding ______, no
dividend shall be paid.
,A. undivided profits then on hand;
B. tier 2 capital as of last quarter-end;
C. surplus;
D. none of the above;
A. undivided profits then on hand; 12 USC 56
Which of the following is a true statement?
A. Holding company strength/weakness should not be considered when
assigning the capital component rating. Bank must stand on it's own.
B. Capital can not be rated '3' if bank is 'well capitalized' per PCA.
C. A rating of '2' indicates a satisfactory level of capital relative to bank's
risk profile and peer group.
D. A rating of '1' indicates strong capital levels, with low and stable risk
factors.
E. All of the above are true.
F. None of the above are true.
F. None of the above are true. OCC Bulletin 97-1 and Comptroller's
Handbook discussion of Supervision by Risk
A bank must file a Suspicious Activity Report for employee theft even if
the employee makes restitution and agrees to resign.
A. True
B. False
A. True; Required by 12 CFR 21
Most community banks do not process large volumes of wire transfers,
therefore, audits of this function are not critical.
A. True
B. False
B. False; There is potential for significant loss in this area in all banks.
,Record retention guidelines are the same for paper or imaged documents.
A. True
B. False
A. True; 12 CFR 103 makes no distinction.
To maintain their objectivity, the audit department should not be involved
in initial discussions regarding new products and services.
A. True
B. False
B. False; Audit department should be involved in initial discussions so they can
develop procedures and expertise to audit new areas. They may also
highlight potential problem areas for management.
Examiners should review the bank's audit program toward the end of the
examination to determine if we come to the same conclusion.
A. True
B. False
B. False; Review of audit program should occur before the exam or at the
beginning to help se the scope.
All banks must have an Audit Committee comprised of a majority of
outside directors.
A. True
B. False
B. False; 12 CFR 363 applies to banks over 500 million. OCC Bulletin 99-37
encourages banks of all sizes to have an independent external audit.
Committee membership is not discussed.
Which statement is true if flood insurance is required?
A. Borrower must purchase additional policy to cover junior lienholder.
, B. Flood insurance should cover the outstanding principal balance of the
loan or the overall value of the improved property, whichever is less.
C. Flood insurance must be obtained even if collateral is obtained as an
abundance of caution.
D. Lender may not lend on property in a flood zone in a nonparticipating
community.
C. Flood insurance must be obtained even if collateral is obtained as an
abundance of caution.
Which banking function has the least potential for money laundering
activity?
A. private banking
B. trust departments
C. offshore international activity
D. mortgage banking
E. wire transfer
D. mortgage banking; BSA/AML Handbook lists various departments
vulnerable to money laundering activities.
A firewall:
A. is a hotsite serviced by a vendor.
B. is a method of virus protection.
C. detects and prevents receipt and transmission of unauthorized data.
D. encodes messages in a form unreadable to an unauthorized interceptor.
C. detects and prevents receipt and transmission of unauthorized data.
Business Resumption Planning is most effective if prepared by the:
A. IT department.
B. senior management.
C. audit committee.
D. team from throughout the bank.
