MINISTRY OF EDUCATION AND TRAINING FINAL EXAM

NATIONAL ECONOMICS UNIVERSITY

MANAGEMENT IN FINANCIAL INSTITUTIONS

Mode of study: Full time. Intake: 61

Exam place: MS Teams

School of Advanced Education Programs
Exam date: 04/10/2021 Exam time: 2

Version: No.1 Allowed time: 90 minutes

I: Multiple choice (30 points): These statements are True or False? (25 points/correct answer)

1. Demand deposits are among the most volatile and least predictable of a bank's sources of funds with
the shortest potential maturity

2. Loans from the Fed Funds market (interbank market) must be backed by collateral

3. The borrower X has asked for a type of loan its lender normally refuses to make. This is Capacity in
6Cs when analyzing clients

4. The borrower Y has achieved higher earnings each year for the past six years. This is Cash in 6Cs
when analyzing clients

5. The borrower Z has an excellent credit rating. This is Character in 6Cs when analyzing clients

6. On a bank's income statement (Report of Income) deposit costs are financial outputs

7. Loans and leases are financial inputs on a financial institution's balance sheet or Report of Condition

8. Recoveries on loans previously charged off are added to the Allowance for Loan Losses (ALL) account
on a bank's balance sheet

9. Off-balance-sheet items for a bank are fee generating transactions which are recorded on their balance
sheet

10. The number one source of revenue for a bank based on dollar volume is interest and non-interest
income from investment

11. The letter “C” in the CAMELS rating system for banks refers to the “Character” of a bank

12. Retail credit in banking refers to such loans as residential mortgages and installment loans to
individuals

PART II: Assignments (30 points)

Assignment 1: What is the customer relationship doctrine, and what are the implications for fund-raising
by lending institutions? (10 points)

Assignment 2: What are external and internal credit rating? What are the main differences? How can
credit rating help commercial banks in lending activities? (20 points)

PART III: Exercises (40 points)

Exercise 1: (10 points) Suppose that a customer holds a savings deposit in a savings bank for a year. The
balance in the account stood at $5,000 for 150 days and $200 for the remaining days in the year. If the
Savings bank paid this depositor $40.50 in interest earnings for the year, what APY did this customer
receive?

Exercise 2: (30 points) This is the 201X Balance Sheet of the Bank B with annually average figures

Amoun
Interest Risk Amount
t Interest
Assets rate weight Liabilities & Equity
(USD (USD rate (%)
(%) (%)
mil) mil)
Cash and deposits due 150   1,500 1
0 Demand deposit
from banks
3-month Treasury 550 1 3-month bank 800 5
100
Bills deposits

5-year fixed-rate 450 3 6-month corporate 2,750 11

0
Government Bonds deposits

12-month floating-rate 2,950 12 Non-deposit 1450 16

100
corporate loans borrowings

10 year fixed-rate 2,500 17 650  

50 Equity
mortgage loans
550  
Fixed assets 100      

This Bank earned USD 550 mil in fees and commissions and USD 20 mil in securities gain; paid USD
250 mil in overhead costs; USD 950 in loan loss provision. Tier 1 capital was equal to 35% of equity and
Tier 2 capital was equal to 10% of non-deposit borrowings, deduction is USD 15 mil. Corporate income
tax rate is 18%.

a. How much are: Net interest margin, ROE, CAR (20 points).
b. Assessing the capital adequacy level of the bank if minimum CAR should be 8%. How could the
bank improve its capital adequacy level (10 points).
Note: Closed book - one page of formulas is allowed