Question

QUESTION 31

A bank that funds a portfolio of assets with higher credit risk than another bank has to have more equity capital if creditors are to be indifferent between lending to either bank.

True

False

QUESTION 32

Subprime assets lost value rapidly between 2007 and 2009. This lowered the value of banks that had exposure to these assets and financial institutions that had exposure to banks that were exposed to subprime risk. Since the assets were hard to value they were not acceptable as collateral. This made banks illiquid and this scared away the suppliers of bank capital. A liquidity crisis turned into a credit crisis for many financial institutions such as WAMU, Wachovia, Lehman and others.

True

False

QUESTION 33

If the yield curve shifts up in (interest rates along the curve all change by the same number of basis points) and the bank is funded with liabilities that have shorter maturities than its assets; the value of the bank will decline.

True

False

QUESTION 34

Use the following data about a fixed coupon corporate bond to answer the following question.

The yield to maturity of the bond is greater than 8%        

settlement		11/14/2016
maturity		11/14/2026
rate	10%
price	101
redemption	100
frequency	2
basis	0

True

False

QUESTION 35

Base your answer to the following question on this document:

https://www.fdic.gov/regulations/safety/manual/section2-1.pdf

Bank capital performs several very important functions. It absorbs losses, promotes public confidence, helps restrict excessive asset growth, and provides protection to depositors and the deposit insurance funds.

True

False

Answer 1