Banking Exam Retail and Corporate Banking 5

Question 1

A retail bank customer applies for a mortgage and the bank's underwriter calculates a debt-to-income (DTI) ratio of 46%. Under conventional lending standards, this result most likely means:

Accepted Answer

The application may face challenges, as most conventional guidelines prefer DTI at or below 43–45%

Answer

Conventional guidelines from Fannie Mae typically cap DTI around 45% (with strong compensating factors up to 50%), so 46% puts this borrower at or beyond the limit.

Question 2

What is the primary difference between a commercial bank and an investment bank?

Accepted Answer

Commercial banks accept deposits and make loans; investment banks primarily raise capital and advise on transactions

Answer

Commercial banks take deposits and extend credit; investment banks focus on underwriting securities, M&A advisory, and capital markets activities.

Question 3

A corporate bank's 'middle market' segment typically refers to companies with:

Accepted Answer

Annual revenues between $10 million and $1 billion

Answer

Middle-market companies are generally defined as those with revenues roughly between $10 million and $1 billion, requiring more sophisticated banking than small business but less than large corporate clients.

Question 4

Under the Equal Credit Opportunity Act (ECOA), a bank must notify an applicant of an adverse action within how many days of a completed credit application?

Accepted Answer

30 calendar days

Answer

ECOA and Regulation B require lenders to provide adverse action notices within 30 days of receiving a completed application.

Question 5

A bank's 'funds transfer pricing' (FTP) mechanism is primarily used to:

Accepted Answer

Allocate the cost and benefit of funds internally between business units

Answer

FTP assigns a cost to funding-consuming units (lending) and a credit to funding-generating units (deposits), enabling true profitability measurement by business line.

Banking Exam Practice Test

Banking Exam Practice Test

Banking Exam Retail and Corporate Banking 5