Why do banks generally prefer lower capital requirements?
a.) To minimize the impact shareholders have on management decisions.
b.) To increase the influence of bank regulators.
c.) To increase a bank's return on equity.
d.) To increase depositor protection.
e.) To maximize operating leverage.
Answer: C
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Bank Management
- Which of the following would not be considered a bank qualified municipal security?
- Banks can effectively improve their portfolios by:
- An investor can invest in either a tax-exempt security that pays 5% or a taxable corporate security of comparable risk and maturity that pays 8%. At what marginal tax rate will the investor be indifferent between these two securities?
- Securities with embedded options:
- The static spread is:
- As market rates rise, prepayment speed _______, while modified duration _________.
- A security might exhibit negative convexity because:
- Which of the following is not true regarding prepayments?
- A bond that has positive convexity:
- Which of the following is/are true?
- A bank owns a zero coupon bond with 5 years to maturity and a face value of $10,000. If interest rates increase from 6% to 7%, what is the approximate change in price, using Macaulay's duration?
- If the economy is entering into a recessionary period, you would expect the yield curve to be:
- If the Federal reserve is easing monetary policy at the end of a recession, you would expect the yield curve to be:
- Long-term interest rates tend to be higher than short-term interest rates:
- The yield curve tends to be inverted:
- A bank has a planned 2-year investment horizon. It is considering investing in a 2-year bond that pays 6% annually versus investing in a 4-year bond that pays 6.5% annually and then selling it after two years. The annual coupon payments can be reinvested at 4%.
- Riding the yield curve:
- Which of the following is considered an active investment strategy?
- A portfolio is equally invested in securities with 1-, 2-, and 3-years to maturity. Each year as the 1-year securities mature, the funds are reinvested in 3-year securities. This is an example of which investment strategy?
- Which passive investment strategy differentiates between bonds that have been purchased for liquidity versus income purposes?
- Municipal bonds whose primary source of repayment are the revenues from the underlying financed project are known as:
- Mortgage prepayment risk:
- Which of the following is not true regarding collateralized mortgage obligations (CMOs)?
- The underlying mortgages in Ginnie Mae mortgage pools include:
- Which of the following U.S. government agencies can borrow directly from the U.S. Treasury?