Mock Exam Banking and Finance

2019-2020 SEM1

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1. Read the following statements and indicate the correct answer:

1.For a given amount, the lower the discount rate, the lower the present value.
2.Comparing the values of discounted cash flows is similar to comparing apples
to
oranges.
(1 punt)

Both statements are false

Both statements are true

Statement 1 is true and statement 2 is false

Statement 1 is false and statement 2 is true

2. When we investigate the balance sheet of a bank we notice that:

(1 punt)

Government bonds are debt on the passive side

ECB Marginal lending facilities are on the active side

Loans to corporations are on the passive side

Mortgages to retail customers are on the active side

3. Which of the following statements more accurately describes the treasurer than
the controller
(1 punt)

Monitors capex decisions to make sure they are not misappropriated

 Responsible for investing the firm's spare cash

Responsible for checking the annual accounts

Responsible for the company's tax affairs

4. Suppose a bank has $100.000,00 in deposits and a required (minimum) reserve

ratio of 10 percent. But at this moment, the bank’s cash reserves amount to
$25.000,00. How much extra depositis can the bank attract if you suppose they
lend out the full amount of these extra deposits.
(1 punt)

$ 10.000,00

$ 15.000,00

$ 150.000,00

$ 250.000,00

5. Which of the following statements always applies to a corporation

(1 punt)

Unlimited liability

Limited life

Transfer of ownership impacts the operations

Managers can be fired wit no effect on ownership

6. The British Banker's Association average of interbank rates for Sterling short
term loans & deposits in the London money market is called the
(1 punt)

Fed funds rate

Libor rate

Euribor rate

Interbank marginal lending rate

7. A student makes the following observation:
This month, the euro depreciated sharply against the U.S. dollar. That was good
news for attendance at Disneyland Paris (France) and bad news for attendance
at
Walt Disney World in Orlando, Florida (United States). Do you agree with the
student
(all other things being equal)?
(1 punt)

No, the depreciation of the euro would have no impact on attendance at Walt
Disney World

No, as the euro depreciates, it becomes more expensive for U.S. citizens to travel to
Disneyland Paris.

Yes, as the euro depreciates, it becomes less expensive for U.S. citizens to travel to
Disneyland Paris.

Uncertain, as more information is required to determine the effect of the

depreciated euro on park attendance

8. Which financial instrument below is NOT an example of securitization?

(1 punt)

MBS

ABS

CDS

CDO

9. Company "A" comes across an average-risk investment project that offers a rate
of return of 9.5%. This is less than the company's normal rate of return, but one
of the director's notes that the company can easily borrow the required
investment with the bank at 7%.
Read the follwing statements and indicate the correct answer:
1.The opportunity cost of capital equals 7%
2.When comparing the opportunity cost of capital we should always take into
account the level of risk
(1 punt)

Both statements are false

Both statements are true

 1 is true and 2 is false

2 is true and 1 is false

10. I want to have $10000 in savings in exactly 5 years. How much money should I
put aside on a monthly basis, if the interest rate is 0.5% per month
(1 punt)

166.67

153.46

143.33

138,42

11. Which of the below financial markets does NOT exist

(1 punt)

Capital debt market

Primary Equity market on an exchange

Equity money market

OTC Secondary debt market

12. Imagine the following situation:

Interest rates on investment products have gone up in recent years and are
positive but at the same time real goods have also increased in price. People
find that life has actually become more expensive in general and are able to
buy less physical goods than before with the money they make from investing.
Which statement is true for the above situation:
(1 punt)

real interest > inflation > nominal interest

inflation > real interest > nominal interest

nominal interest > inflation > real interest

inflation > nominal interest > real interest

13. Which of the following can be described as involving direct finance
(1 punt)

pension fund manager buys a short term corporate security in the secondary market

Individual investors buy bonds just before maturity

A corporation issues new shares of stock

An insurance company buys shares of common stock in the over the counter
markets.

14. If I have $1000 today, how much will this amount be worth in 10 years time at
an interest of 2% per year.
(1 punt)

1200.00

1218.99

1195.09

1243.37

15. What is a subprime mortgage?

(1 punt)

A mortgage lend out by a credit institution with a bad reputation

A mortgage where the borrower represents a low risk of default

A mortgage with very low premiums paid

A type of mortgage that is normally made out to borrowers with lower credit

16. Coca cola is issueing a perpetual debt instrument that will pay investors a yearly
amount of $3000 forever.
What will be the price of such a product if you suppose a constant interest rate
of 2% per year if payment starts exactly 2 years from now
(1 punt)

150000.0
 147058.8

153000.0

152889.3

17. In case of a corporation going bankrupt. Which stakeholder is least likely to

recover his money.
(1 punt)

People working at the company who have outstanding wages

Shareholders

Banks that lend money to the company

Government taxes that are due

18. An APR of 3% paid monthly corresponds to an effective annual rate of:

(1 punt)

3.02%

3.03%

3.04%

3.05%

19. In 2007, right before the crisis hedge fund manager John Paulson was short-
selling a huge amount of mortgage backed securities on US markets. Which
statement is true:
(1 punt)

He was fined by the SEC as short-selling is prohibited

He was fined by the SEC as short-selling is unethical

He made a loss due to the financial crisis

He made a huge profit thanks to the financial crisis

20. Company Exxon has an outstanding loan on which it will have to pay $1500 at
the end of next year and $8000 in exactly 8 years time. Imagine the bank allows
them to pay the loan back today at the present value of the outstanding
amounts. What would be the value if the interest rate for the next years is 2%
and for the subsequent years only 1%
(1 punt)

8780.26

8782.06

8782.60

8786.02

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