CFE Financial Institution Operations & Management 2 — Questions and Answers
Question 1: Under the Bank Secrecy Act (BSA), what is the minimum cash transaction amount that triggers a Currency Transaction Report (CTR) filing requirement?
- $5,000
- $10,000 (Correct answer)
- $25,000
- $50,000
Correct answer: $10,000
Financial institutions must file a CTR for any cash transaction exceeding $10,000 in a single business day.
Question 2: A financial institution's liquidity risk management program should primarily ensure the institution can meet its obligations:
- Only during normal market conditions
- At minimum cost and without incurring unacceptable losses (Correct answer)
- By maintaining 100% of assets in liquid form
- By borrowing exclusively from the Federal Reserve
Correct answer: At minimum cost and without incurring unacceptable losses
Effective liquidity risk management ensures obligations can be met as they come due at minimum cost and without unacceptable losses.
Question 3: Which regulatory body is primarily responsible for supervising federally chartered credit unions in the United States?
- Office of the Comptroller of the Currency (OCC)
- Federal Deposit Insurance Corporation (FDIC)
- National Credit Union Administration (NCUA) (Correct answer)
- Federal Reserve Board
Correct answer: National Credit Union Administration (NCUA)
The NCUA charters, regulates, and supervises federal credit unions and administers the National Credit Union Share Insurance Fund.
Question 4: An institution's asset/liability management (ALM) committee is MOST concerned with managing which type of risk?
- Credit risk from borrower defaults
- Interest rate risk and its effect on net interest margin (Correct answer)
- Operational risk from internal process failures
- Compliance risk from regulatory violations
Correct answer: Interest rate risk and its effect on net interest margin
The ALM committee primarily manages interest rate risk to protect the institution's net interest income and economic value of equity.
Question 5: Under prompt corrective action (PCA) provisions, a bank is classified as 'critically undercapitalized' when its tangible equity capital ratio falls below:
- 8%
- 6%
- 4%
- 2% (Correct answer)
Correct answer: 2%
A bank is critically undercapitalized when its tangible equity to total assets ratio drops to 2% or less, triggering the most severe PCA restrictions.
Question 6: Which document establishes the foundational governance framework for a financial institution by specifying the rules for conducting business and the rights of directors and shareholders?
- Articles of incorporation
- Corporate bylaws (Correct answer)
- Board resolution
- Offering circular
Correct answer: Corporate bylaws
Corporate bylaws govern the internal management of the institution, including board composition, officer duties, and meeting procedures.
Question 7: A bank's 'efficiency ratio' is calculated by dividing non-interest expense by:
- Total assets
- Net interest income only
- Net interest income plus non-interest income (Correct answer)
- Total loans outstanding
Correct answer: Net interest income plus non-interest income
The efficiency ratio divides non-interest expense by total revenue (net interest income plus non-interest income), with lower ratios indicating better operational efficiency.
CFE Financial Institution Operations & Management 2
Under the Bank Secrecy Act (BSA), what is the minimum cash transaction amount that triggers a Currency Transaction Report (CTR) filing requirement?