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Questions and Answers of Banking

Are there any significant disadvantages to a credit-scoring system?
In the credit-scoring system presented in this chapter, would a loan applicant who is a skilled worker, lives with a relative, has an average credit rating, has been in his or her present job and at
What is FICO and what does it do for lenders? Why is this credit-scoring system so popular today?
What laws exist today to give consumers fuller disclosure about the terms and risks of taking on credit?
What legal protections are available today to protect borrowers against discrimination? Against predatory lending?
In your opinion, are any additional laws needed in these areas?
In what ways is a real estate loan unique compared to other kinds of bank loans?
What factors should a lender consider in evaluating real estate loan applications?
What is home equity lending, and what are its advantages and disadvantages for banks and other consumer lending institutions?
How is the changing age structure of the population likely to affect consumer loan programs? What other forces are reshaping household lending today?
What challenges have U.S. bankruptcy laws provided for consumers and those lending money to them?
What options does a loan officer have in pricing consumer loans?
Suppose a customer is offered a loan at a discount rate of 8 percent and pays $75 in interest at the beginning of the term of the loan. What net amount of credit did this customer receive? Suppose
See if you can determine what APR you are charging a consumer loan customer if you grant the customer a loan for five years payable in monthly installments, and the customer must pay a finance charge
If you quote a consumer loan customer an APR of 16 percent on a $10,000 loan with a term of four years that requires monthly installment payments, what finance charge must this customer pay?
How is the loan rate figured on a home mortgage loan? What are the key factors or variables?
Why do interest rates on consumer loans typically average higher than on most other kinds of loans?
What features of a consumer loan application should a loan officer examine most carefully?
What are the principal advantages to a lending institution of using a credit-scoring system?
What differences exist between ARMs and FRMs?
What are points? What is their function?
The Childress family has applied for a $5,000 loan for home improvements, especially to install a new roof and add new carpeting. Bob Childress is a welder at Ford Motor Co., the first year he has
Mr. and Mrs. Napper are interested in funding their children's college education by taking out a home equity loan in the amount of $24,000. Eldridge National Bank is willing to extend a loan, using
Greg Lance has just been informed by a finance company that he can access a line of credit of no more than $75,000 based upon the equity value in his home. Lance still owes $180,000 on a first
What term in the consumer lending field does each of the following statements describe?
Which federal law or laws apply to each of the situations described below?
James Smithern has asked for a $3,500 loan from Beard Center National Bank to repay some personal expenses. The bank uses a credit-scoring system to evaluate such requests, which contains the
Yorktown Savings Bank, in reviewing its credit card customers, finds that of those customers who scored 40 points or less on its credit-scoring system, 30 percent (or a total of 7,665 credit
The Lathrop family needs some extra funds to put their two children through college starting this coming fall and to buy a new computer system for a part-time home business. They are not sure of the
San Carlos Bank and Trust Company uses a credit-scoring system to evaluate most consumer loans that amount to more than $2,500. The key factors used in its scoring system are found at the conclusion
Clyde Cook wants to start his own business. He has asked his bank for a $50,000 new-venture loan. The bank has a policy of making discount-rate loans in these cases if the venture looks good, but at
The Michael family has asked for a 30-year mortgage in the amount of $325,000 to purchase a home. At a 5.25 percent loan rate, what is the required monthly payment?
Barb Jones received a $5,000 loan last month with the intention of repaying the loan in 12 months. However, Jones now discovers she has cash to repay the loan after making just three payments. What
The Bender family has been planning a vacation to Europe for the past two years. Tabb Savings agrees to advance a loan of $8,000 to finance the trip provided the Benders pay the loan back in 12 equal
Jane Zahrley’s request for a five-year automobile loan for $39,000 has been approved. Reston Bank will require equal monthly installment payments for 60 months. The bank tells Jane that she must
Susie Que has asked for a 25-year mortgage to purchase a home at Nag’s Head. The purchase price is $465,000, of which Susie must borrow $395,000 to be repaid in monthly installments. If Susie can
Mary Contrary is offered a $1,600 loan for a year to be paid back in equal quarterly principal installments of $400 each. If Mary is offered the loan at 6 percent simple interest, how much in total
Buck and Marie Rogers are negotiating with their local bank to secure a mortgage loan in order to buy their first home. With only a limited down payment available to them, Buck and Marie must borrow
Dryden Bank’s personal loan department quotes Lance Greg a finance charge of $3.75 for each $100 in credit the bank is willing to extend to him for a year (assuming the balance of the loan is to be
Exactly what is a merger?
Why are there so many mergers each year in the financial-services industries?
What factors seem to motivate most mergers?
What factors should a financial firm consider when choosing a good merger partner?
What factors must the regulatory authorities consider when deciding whether to approve or deny a merger?
When is a market too concentrated to allow a merger to proceed? What could happen if a merger were approved in an excessively concentrated market area?
What steps that management can take appear to contribute to the success of a merger? Why do you think many mergers produce disappointing results?
What does recent research evidence tell us about the impact of most mergers in the financial sector?
Does it appear that most mergers serve the public interest?
Evaluate the impact of the following proposed mergers upon the postmerger earnings per share of the combined organization:a. An acquiring bank reports that the current price of its stock is $25 per
Under the following scenarios, calculate the merger premium and the exchange ratio:a. The acquired financial firm’s stock is selling in the market today at $14 per share, while the acquiring
The Goldford metropolitan area is presently served by five depository institutions with total deposits as follows:Current DepositsGoldford National Bank....... $750 millionGoldford County Merchants
Gregory Savings Association has just received an offer to merge from Courthouse County Bank. Gregory’s stock is currently selling for $60 per share. The shareholders of Courthouse County agree to
The city of Dryden is served by three banks, which recently reported deposits of $250 million, $200 million, and $45 million, respectively. Calculate the Herfindahl index for the Dryden market area.
In which of the situations described in the accompanying table do stockholders of both acquiring and acquired firms experience a gain in earnings per share as a result of a merger?
Please list the steps you believe should contribute positively to success in a merger transaction in the financial-services sector. What management decisions and goals should be pursued? On average,
What organizational forms do international banks use to reach their customers?
Why are there so many different types of international organizations in the financial institutions’ sector?
What are the principal goals of international banking regulation?
What were the key provisions of the U.S International Banking Act of 1978 and the International Lending and Supervision Act of 1983?
Explain what the Basel Agreement is and why it is so important.
Describe the principal customer services supplied by international banks serving foreign markets.
What is an NIF? A DR?
What do the terms Europaper and Eurobonds refer to? Why are these instruments important to international banks and to their customers?
What types of tools have international banks developed to help protect themselves and their customers against currency and interest rate risk? How does each tool accomplish its purpose?
This chapter focuses on several major problem areas that international banks must deal with in the future. What are these problem areas?
What different approaches to country-risk evaluation have international banks developed in recent years?
What different regions around the globe today appear to offer the greatest opportunities for expansion for international banks? Why do you think this is so?
In looking at the future of the banking and financial-services industry, does it appear likely that the powerful trends of convergence and consolidation will continue into the future? Why or why not?
What appears to be the future of community banking? What significant threats does community banking seem to face?
Are banking and commerce—financial and nonfinancial firms—on a collision course for the future? What challenges do companies like Wal-Mart pose for small community banks? For the largest
Of what benefit might NIFs and DRs be to international banks and their customers?
What are ETCs? What services do they provide, and what problems have they encountered inside the United States?
Pacific Trading Company purchased Canadian dollars yesterday in anticipation of a purchase of electric equipment through a Canadian supply house. However, Pacific was contacted this morning by a
Pinochio Corporation will import new wooden toys from a French manufacturer this week at a price of 200 Euros per item for eventual distribution to retail stores. The current Euro-dollar exchange
Watson Hardware Corporation regularly ships tools to the United States to retail outlets from its warehouse in Stuttgart, Germany. Its normal credit terms call for full payment in U.S. dollars for
Johanna International Mercantile Corporation has made a $15 million investment in a stamping mill located in northern Germany and fears a substantial decline in the Euro's spot price from $1.56 to
Ebi International Bank of Japan holds U.S dollar denominated assets of $475 million and dollar-denominated liabilities of $469 million, has purchased U.S. dollars in the currency markets amounting to
Suppose that Canterbury Bank has a net long position in U.S. dollars of $12 million, dollar denominated liabilities of $125 million, U.S dollar purchases of $300 million, and dollar sales of $220
How does the location of money markets differ from that of capital markets?
What are the different types of financial institutions? Include a description of the main services offered by each. Discuss.
How do financial institutions help individuals to diversify their portfolio risks? Which financial institution is best able to achieve this goal?
What is meant by maturity intermediation?
What is meant by denomination intermediation?
What other services do FIs provide to the financial system?
What types of risks do FIs face?
Why are FIs regulated?
What events resulted in banks’ shift from the traditional banking model of “originate and hold” to a model of “originate and distribute”?
How did the boom in the housing market in the early and mid-2000s exacerbate FIs’ transition away from their role as specialists in risk measurement and management?
Who are the suppliers of loanable funds?
Who are the demanders of loanable funds?
What factors cause the supply of funds curve to shift?
What factors cause the demand for funds curve to shift?
How does the liquidity premium theory of the term structure of interest rates differ from the unbiased expectations theory? In a normal economic environment, that is, an upward-sloping yield curve,
What is the relationship between present values and interest rates as interest rates increase?
What should happen to a security’s nominal interest rate as the security’s liquidity risk increases?
A particular security’s equilibrium rate of return is 8 percent. For all securities, the inflation risk premium is 1.75 percent and the real risk-free rate is 3.5 percent. The security’s
You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The Wall Street Journal reports that one-year T-bills are currently earning 3.25
The Wall Street Journal reports that the rate on four-year Treasury securities is 5.60 percent and the rate on five-year Treasury securities is 6.15 percent. According to the unbiased expectations
Suppose we observe the following rates: 1R1 = 10%, 1R2 = 14% and E(2r1) = 10%. If the liquidity premium theory of the term structure of interest rates holds, what is the liquidity premium for year 2?
A recent edition of The Wall Street Journal reported interest rates of 2.25 percent, 2.60 percent, 2.98 percent, and 3.25 percent for three-year, four-year, five-year, and six-year Treasury notes,

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