QUESTION 6

1. Which of the following would not be considered a bank qualified municipal security?

   	A.	A Treasury bond to finance government debt.
   	B.	A City of San Marcos general obligation bond to pay for street repairs.
   	C.	A City of Chicopee general obligation bond to pay for a new city jail.
   	D.	A Columbia County general obligation bond to modernize the county fire department.
   	E.	A Bucks County general obligation bond to build a new sewer plant.

8 points

QUESTION 7

1. Which of the following is not one of the Capital Market instruments in which banks invest?

   	A.	Municipal bonds
   	B.	Corporate notes and bonds
   	C.	U.S. Treasury notes
   	D.	U.S. Treasury bonds
   	E.	Commercial paper

8 points

QUESTION 8

1. The most aggressive investment maturity strategy that calls for the bank to continually shift the maturities of its securities in response to its forecasts of changes in interest rates and other economic conditions is the:

   	A.	None of the other responses are correct.
   	B.	Front-end-loaded policy
   	C.	Ladder approach
   	D.	Rate expectations approach
   	E.	Barbell strategy

8 points

QUESTION 9

1. A security where the interest payments and the principal payments are sold separately is called:

   	A.	A Treasury note
   	B.	An accretion
   	C.	A structured note
   	D.	A stripped security
   	E.	None of the other responses are correct.

8 points

QUESTION 10

1. A security which was created by the U.S. Treasury to protect investors against inflation risk is called a(n):

   	A.	FNMA
   	B.	TIPS
   	C.	CD
   	D.	GNMA
   	E.	CMO

8 points

QUESTION 11

1. The Carey State Bank has purchased a bank-qualified municipal bond with a yield of 6%. This bank has had to borrow funds to make this purchase at a cost of 5.25%. This bank is in the 40% tax bracket. What is the net after-tax return on this bank-qualified municipal bond? Under IRS rules if a muni bond is bank qualified then 80% of the interest expense associated with funding the investment is tax deductible.

   	A.	None of the other responses are correct.
   	B.	2.85%
   	C.	2.43%
   	D.	0.75%
   	E.	6.00%

8 points

QUESTION 12

1. A bank that is concerned that the economic conditions of the market area they serve may take a downturn with falling demand for loans and higher bankruptcies in the areas is concerned about which of the following things?

   	A.	Liquidity risk
   	B.	Inflation risk
   	C.	Tax exposure
   	D.	Business risk
   	E.	Credit risk

8 points

QUESTION 13

1. Which of the following statements is (are) correct regarding duration?

   	A.	In comparing two bonds with the same yield to maturity and the same maturity, a bond with a higher coupon rate will have a longer duration.
   	B.	In comparing two loans with the same maturity and the same interest rate, a fully amortized loan will have a shorter duration than a loan with a balloon payment.
   	C.	The duration will always be shorter than the maturity for all debt instruments.
   	D.	All of the above
   	E.	B and C