FIN 3080 Final Exam Correct Questions & Answers(Rated A+)

Suppose that the Federal Reserve announces that it will sell a large amount of T-bills. This action will have ripple effects through the economy. What is the likely impact on the stock market? Decrease in the value of stocks - ANSWER Decrease in the value of stocks Mortgage backed securities are often created with different tranches such as AAA, A, BBB. Which of the following statements is incorrect regarding the differences between these tranches? - ANSWER The different tranches are backed by different pools of mortgages In a 1998 study, Strahan and Weston found that consolidation among small banks seemed to increase lending to small businesses. This finding suggests that... - ANSWER the diversification benefits of consolidation outweigh costs such as moving decision making authority to a central location. Competition from ________ has left commercial banks with fewer deposits. - ANSWER money market mutual funds A nationally chartered bank headquartered in South Carolina is regulated by which entity/entities? I. Federal Deposit Insurance Corporation II. Office of the Comptroller of the Currency III. Federal Reserve System IV. Office of the Commissioner of Banking in South Carolina (state authority) - ANSWER I., II., and III. only What is the typical debt ratio (total liabilities/total assets) of a commercial bank? - ANSWER 89% A commercial bank loans funds to a business to finance a project and charges an interest rate of 9.9%. The funds will be returned in one year, with interest, if the project is successful. If the project is not successful, the bank gets nothing. Assume that the bank's goal is to breakeven. From this information, what is the chance of success of the project? - ANSWER 90.99% Which types of commercial banks rely heavily on nondeposit or borrowed sources of funds? - ANSWER Money center banks A commercial bank reports the following financials: Net Income= $6M