Mixed Deck — All Banking Exam Topics Flashcards

What is market capitalization?

Answer: The total market value of a company's outstanding shares

Market capitalization is calculated by multiplying a company's total outstanding shares by the current market price per share.

What is 'subprime lending'?

Answer: Extending credit to borrowers with poor or limited credit histories at higher rates

Subprime lending targets borrowers with low credit scores or limited credit history, typically charging higher interest rates to offset greater default risk.

The simple interest on a sum for 4 years at 5% p.a. is $400. What is the principal?

Answer: $2,000

P = (SI × 100) / (R × T) = (400 × 100) / (5 × 4) = $2,000.

What is 'credit scoring' used for in commercial bank retail lending?

Answer: Statistically quantifying an individual borrower's creditworthiness to predict the likelihood of loan repayment

Credit scoring uses statistical models (like FICO scores) to evaluate a retail borrower's credit history and predict repayment probability.

A bank that is found to have an 'unsatisfactory' CRA rating may face which consequence?

Answer: Denial of applications for mergers, acquisitions, or new branches

Regulators may deny or condition approval of a bank's application to merge, open new branches, or expand if the bank has an unsatisfactory CRA rating.

What is the purpose of the Home Mortgage Disclosure Act (HMDA)?

Answer: To require lenders to collect and report data on mortgage applications to detect discriminatory patterns

HMDA requires financial institutions to publicly disclose mortgage loan data, enabling regulators and the public to identify potential lending discrimination.

A man bought two different types of alcoholic beverages. The alcohol to water ratio in the first mixture is 4:5, whereas it is 6:7 in the second. If he combines the two provided mixtures to create a third combination of 22 litres with a 5:6 alcohol to water ratio, the amount of the first mixture needed to create the third kind of mixture is.

Answer: 9 litres

Step 1: Write down the ratios for each mixture: Mixture 1 (4:5) contains x liters of alcohol and (x + 22) liters of water. Mixture 2 (6:7) contains (22 - x) liters of alcohol and [(22 - x) + 22] liters of water. Step 2: Write down the ratio for the desired mixture (5:6): Desired Mixture (5:6) contains 5 liters of alcohol and 6 liters of water. Step 3: Set up the equation based on the alcohol content: Total alcohol in Mixture 1 + Total alcohol in Mixture 2 = Total alcohol in Desired Mixture [(4/9) * x] + [(6/13) * (22 - x)] = 5 Step 4: Solve for x: [(4/9) * x] + [(6/13) * (22 - x)] = 5 Multiply both sides by 117 to eliminate fractions: (13 * 4 * x) + (9 * 6 * (22 - x)) = 585 52x + 594 - 54x = 585 -2x = 585 - 594 -2x = -9 x = 9 So, 9 liters of the first mixture (with the alcohol to water ratio of 4:5) are needed to create the third combination. Therefore, the correct answer is 9 liters.

When was the first publication of OMBUDS MEN SCHEME?

Answer: Thu Jun 01 00:00:00 UTC 1995

The year 1995 saw the introduction of this program.

Which document establishes the terms, interest rate, and repayment schedule for a bank loan?

Answer: Promissory note

A promissory note is a legally binding written promise to repay a loan under specified terms including interest rate and schedule.

Which of the following best describes 'concentration risk' in a loan portfolio?

Answer: Excessive exposure to a single borrower, sector, or geography

Concentration risk arises when a bank has excessive exposure to a single counterparty, industry, or region, making losses highly correlated.

What is the Glass-Steagall Act in US banking history?

Answer: A 1933 law that separated commercial banking from investment banking activities

The Glass-Steagall Act of 1933 separated commercial banking from investment banking to reduce conflicts of interest, and was largely repealed by the Gramm-Leach-Bliley Act in 1999.

A customer presents a valid government ID but the address does not match records in a credit bureau database. Under CIP requirements, the bank should:

Answer: Use additional identity verification methods to resolve the discrepancy

CIP requires institutions to use additional methods, such as documentary or non-documentary verification, to resolve discrepancies in customer identity information.

A corporate treasurer asks about a banker's acceptance (BA). This instrument is best described as:

Answer: A time draft drawn on and accepted by a bank, creating a short-term money market instrument

A banker's acceptance is a time draft that a bank 'accepts' (guarantees), making it a tradeable, highly liquid money market instrument.

Which risk management approach involves identifying the scenarios that would cause a bank to fail and then assessing their likelihood?

Answer: Reverse stress testing

Reverse stress testing starts from a defined failure outcome and works backward to identify plausible scenarios that could cause it.

A regional bank has a significant portion of its loan portfolio concentrated in fixed-rate commercial mortgages with 5 to 7-year terms. The bank funds these loans primarily through short-term certificates of deposit (CDs) with maturities of 1 year or less. If the central bank raises interest rates significantly, this bank is most exposed to what type of risk?

Answer: Repricing Risk

Repricing risk, a key component of interest rate risk, arises from timing differences in the maturity and repricing of a bank's assets and liabilities. In this scenario, the bank's cost of funds (liabilities) will increase as the short-term CDs mature and are renewed at higher rates, while the income from its fixed-rate loan portfolio (assets) will remain unchanged. This mismatch compresses the bank's net interest margin.

A bank experiences unexpected large cash withdrawals that it cannot immediately fund. This scenario describes which type of risk?

Answer: Liquidity risk

Liquidity risk is the risk that a bank cannot meet its short-term financial obligations due to inability to convert assets to cash quickly.

What is a 'standby letter of credit' issued by a commercial bank?

Answer: A guarantee that the bank will pay a beneficiary if the bank's customer fails to meet a contractual obligation

A standby letter of credit is a payment guarantee; the bank pays the beneficiary only if the applicant (customer) defaults on an obligation.

If x + y = 10 and xy = 21, what is the value of x² + y²?

Answer: 58

x² + y² = (x+y)² − 2xy = 100 − 42 = 58.

When evaluating commercial loan applications, what does the acronym 'CAMELS' refer to in bank regulatory examinations?

Answer: Capital, Assets, Management, Earnings, Liquidity, Sensitivity

CAMELS stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity to market risk—the six components used by regulators to rate bank health.

What is the name of the savings bank account that is inactive for more than 24 months?

Answer: Dormat account

A savings bank account that remains inactive for more than 24 months (i.e., no customer-initiated transactions like deposits or withdrawals) is typically classified as a dormant account. Banks classify such accounts to protect customers from potential fraud and to manage their operational risks. To reactivate a dormant account, customers usually need to complete KYC formalities.