Briefly explain the financial reporting required when a company changes to or from the LIFO inventory
A change to the LIFO method simply requires note disclosure in the year of the change and use of
LIFO from that point onward. The opening in
41. Which of the following is an example of a prevention cost?
42. Which of the following is an example of an internal failure cost?
Training employees to improve qu
Briefly outline the steps in the gross profit method of estimating ending inventory and indicate when the
method might be used.
The gross profit method estimates cost of goods sold based on the historical gross profit percentage.
The estimated cost o
19. What is Second National Bank's total net liquidity?
Answer: A Page: 579-580 Level: Medium
Response: $2,300 + $5,000 + $900 $2,600 $300
20. If a bank relies solely on purchased liquidity the bank will
35. A FI with DA > kDL could do which of the following to reduce the duration gap?
A) Engage in a swap and pay a variable rate and receive a fixed rate of interest
B) Sell bond futures contracts
C) Buy bonds forward
D) Buy bond call options
E) None of the
31. If interest rates fall 50 basis points the predicted dollar change in equity value will equal
Answer: C Page: 606 Level: Medium
Response: [2.5 (740/820)*1.2)]*0.0050/1.10*$820,000,0
Multiple Choice Questions
16. A bank has a negative repricing gap using a 6 month maturity bucket. Which one of the following
statements is most correct if MMDAs are rate sensitive liabilities?
A) If all interest rates are projected to increase, to limit
8. Futures contracts are not subject to capital requirements for banks but many forward contracts are.
Answer: True Page: 625 Level: Easy
9. Swaps are usually the bets hedging tool to use to hedge long term risks of four or five years or more.
28. Weaknesses of the repricing model include:
I. It ignores changes in present values caused by changes in interest rates
II. It ignores different cash flow sensitivities within a maturity bucket.
III. It fails to account for runoffs and prepayments.
35. After an interest rate increase, a bank's market value of assets fell $8 million and the market value of its
liabilities fell $6 million dollars. The book value of equity _ and the market value of
A) Rose $2 million; was unchanged
B) Fell $2
21. A bank has a negative duration gap. Interest rates decline. Which one of the following best describes
the effects of the interest rate change?
A) The bank's market value of equity is unchanged since the market value of its assets and liabilities
18. The structure of a bank's balance sheet as evidenced by its repricing gap and its duration gap affects a
bank's sensitivity to interest rate changes. Which one of the following statements about the two types of
gaps is true?
A) The repricing gap immun
24. A bank has a positive repricing gap. This implies that
A) Some RSAs are financed by fixed rate liabilities
B) Some RSLs are financing fixed rate assets
C) Some RSAs are financing equity
D) The bank has no fixed rate assets
Answer: A Page: 600 Level: M
Use the following to answer questions 25-26:
Mortgage Gross Annual
GDS cutoff: 30%
TDS cutoff: 35%
8. The "runoff" of fixed income contracts is itself rate sensitive.
Answer: True Page: 604 Level: Medium
9. For a one year maturity bucket, the repricing model assumes that a 9 month loan is as equally rate
sensitive as a 3 month loan.
Answer: True Page:
32. Altman's Z-score model is Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5
X1 = Working Capital/Total Assets
X2 = Retained Earnings/Total Assets
X3 = EBIT/Total Assets
X4 = Market Value Equity/Book Value Long Term Debt
X5 = Sales/Total Assets
Using the Altma
38. The conditions specified in a credit agreement that must be fulfilled before a drawdown is allowed are
A) collateral perfection
B) power of sale conditions
C) conditions precedent
D) foreclosure agreements
E) audit review terms
Answer: C Page:
1. Pension funds generally have greater liquidity risk than banks.
Answer: False Page: 572 Level: Easy
2. When a customer executes a draw down on a bank line of credit, that portion of the off balance sheet
12. If FNBNA is expecting a $20 million deposit drain, and the securities liquidity index is 0.97 how many
securities would have to be liquidated if the bank used only its securities to fund the expected deposit
35. In analyzing credit risk for a loan to a major diversified corporation the bank typically has which of the
I. Market based models to analyze credit risk
II. Greater negotiating power due to the size of the loan required.
8. When open market interest rates are higher, using purchased liquidity to replace deposit drains can
reduce a bank's profit margin.
Answer: True Page: 576-577 Level: Easy
9. Using stored liquidity to offset a deposit drain will reduce the size of the ba
16. Which one of the following is not an example of purchased liquidity management?
A) Reduction in vault cash
B) Increase in Euro dollar deposits
C) Repurchase agreement
D) Fed funds borrowed
E) Issuance of a negotiable CD
Answer: A Page: 577 Level: Medi
23. Core deposits include all but which one of the following?
A) Retail demand deposits
B) NOW accounts
D) Savings accounts
E) Negotiable CDs
Answer: E Page: 582 Level: Medium
24. The BIS recommends that DIs do which of the following to realistic
26. When calculating the liquidity index, the larger the discount from fair value, the _ the liquidity
index and the _ the liquidity risk the FI faces.
A) Larger; greater
B) Smaller; greater
C) Larger; lower
D) Smaller; lower
Answer: B Page: 582-583 Level
34. In the absence of deposit insurance, a deposit is a _ to the bank's assets.
A) Pro rata claim
B) First come/first serve claim
C) Full pay or no pay claim
D) Both A and B
E) Both B and C
Answer: E Page: 586 Level: Medium
30. A married couple each have an IRA. The couple also has two children. What is the total amount of
deposits that could be insured at one bank?
Answer: D Page: 587 Level: Medium
31. Which of the
22. A macro hedge is a
A) Hedge of a particular asset or liability
B) Hedge of an entire balance sheet
C) Hedge using options
D) Hedge without basis risk
E) None of the above
Answer: B Page: 624 Level: Easy
23. A micro hedge is a
A) Hedge of a particular
16. The maximum gain (ignoring commissions and taxes) from buying an at the money bond put option is
the bond price at time of option purchase less the put premium. The maximum loss is the put premium.
Answer: True Page: 630 Level: Medium
17. A fixed-floa
ECO 2023 MICROECONOMICS LECTURE NOTES
How economists model consumer behavior
o Model that predicts that consumers will choose to buy the
combo of goods/services that makes them as well off as
possible, among the combos that are affordable
ECO 2023 MICROECONOMICS LECTURE NOTES
Price elasticity of demand:
o Abbreviated as e
o e = percentage change in quantity demanded versus
percentage change in price demanded
o Demand curve with elasticity less than 1j
GDP Deflator and CPI practice problems
1) Calculate the GDP Deflator for 1991.
To calculate the GDP Deflator we need to take nominal GDP/ Real GDP *
To get nominal GDP you multiply the current price and the current
quantity of each good (in
Supply and demand practice problems: Answers
1) The announcement from the scientists would increase the demand for beef. This is
due to a positive shift in consumer tastes and preferences. The demand curve
would shift outward/to the right. At the same tim
Supply and demand practice problems:
1) Scientists discover there is a special nutrient in beef that makes people live longer. At the same
time, there is a cow disease that wipes out most of the cow population. Show what happens in
the beef market.