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What type of agreement involves a financial institution guaranteeing repayment for a loan from a third party?
What type of agreement involves a financial institution guaranteeing repayment for a loan from a third party?
Which of the following is a short-term collateralized loan typically involving T-Bills?
Which of the following is a short-term collateralized loan typically involving T-Bills?
What type of account is designed to pay an interest rate competitive with money market mutual funds?
What type of account is designed to pay an interest rate competitive with money market mutual funds?
How do financial institutions typically record the value of their assets and liabilities?
How do financial institutions typically record the value of their assets and liabilities?
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Which of the following is NOT a type of noninterest income?
Which of the following is NOT a type of noninterest income?
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What document shows the revenues received and expenses incurred over a specific period?
What document shows the revenues received and expenses incurred over a specific period?
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What term refers to the activity of temporarily buying and selling securities to influence the price?
What term refers to the activity of temporarily buying and selling securities to influence the price?
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What generates the largest portion of income for banks?
What generates the largest portion of income for banks?
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What type of income arises from fees charged for ATM and POS transactions?
What type of income arises from fees charged for ATM and POS transactions?
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Which of the following does not typically fall into the category of loans?
Which of the following does not typically fall into the category of loans?
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To obtain net loans and leases, which adjustment is necessary?
To obtain net loans and leases, which adjustment is necessary?
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What term describes the practice of banks relying on borrowed funds with minimal owners' capital?
What term describes the practice of banks relying on borrowed funds with minimal owners' capital?
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What is an example of a contra-asset account?
What is an example of a contra-asset account?
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What is the term for the practice of selling appreciated investment securities for profit while holding depreciated ones?
What is the term for the practice of selling appreciated investment securities for profit while holding depreciated ones?
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What is the term for the noncash expense designed to protect a bank's earnings from taxes?
What is the term for the noncash expense designed to protect a bank's earnings from taxes?
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The bad-debt reserve reported on a financial institution's balance sheet is known as what?
The bad-debt reserve reported on a financial institution's balance sheet is known as what?
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What are noninterest revenue sources for a bank commonly referred to as?
What are noninterest revenue sources for a bank commonly referred to as?
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When a bank acts as a security dealer, where are the securities typically recorded?
When a bank acts as a security dealer, where are the securities typically recorded?
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Which method must large U.S. banks employ to assess their provision for loan loss expense?
Which method must large U.S. banks employ to assess their provision for loan loss expense?
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Which of the following most accurately describes bank noninterest income?
Which of the following most accurately describes bank noninterest income?
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Credits on which scheduled repayments and interest payments are overdue for more than 90 days are classified as?
Credits on which scheduled repayments and interest payments are overdue for more than 90 days are classified as?
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How is a bank's temporary lending of excess reserves to other banks labeled on the balance sheet?
How is a bank's temporary lending of excess reserves to other banks labeled on the balance sheet?
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What is typically the largest expense item observed in banks' financial statements?
What is typically the largest expense item observed in banks' financial statements?
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What accounts are affected when a bank sells common stock with a par value greater than its market value?
What accounts are affected when a bank sells common stock with a par value greater than its market value?
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What amount will Synopsis Bank report as adjusted allowance for loan losses after a $2 million charge?
What amount will Synopsis Bank report as adjusted allowance for loan losses after a $2 million charge?
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Which financial statement depicts a bank's revenues and expenses over a specified time period?
Which financial statement depicts a bank's revenues and expenses over a specified time period?
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Which asset item may include deposits placed with correspondent banks?
Which asset item may include deposits placed with correspondent banks?
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Which accounts are also known as the bank's primary reserves?
Which accounts are also known as the bank's primary reserves?
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Securities purchased for short-term profits from price movements are classified as:
Securities purchased for short-term profits from price movements are classified as:
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Which of the following is NOT typically classified as a category of loans?
Which of the following is NOT typically classified as a category of loans?
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What must be subtracted from gross loans to obtain net loans and leases?
What must be subtracted from gross loans to obtain net loans and leases?
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Which of the following is an example of a contra-asset account?
Which of the following is an example of a contra-asset account?
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What is the purpose of the provision for possible loan losses on a bank's income report?
What is the purpose of the provision for possible loan losses on a bank's income report?
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What is the term for a financial institution's reserve for bad debts as shown on its balance sheet?
What is the term for a financial institution's reserve for bad debts as shown on its balance sheet?
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If a bank acts as a security dealer, where are the recorded values of these securities typically found?
If a bank acts as a security dealer, where are the recorded values of these securities typically found?
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What duration classifies a loan as nonperforming regarding overdue payments?
What duration classifies a loan as nonperforming regarding overdue payments?
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Which term refers to using fixed assets instead of financial assets to boost operating earnings?
Which term refers to using fixed assets instead of financial assets to boost operating earnings?
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What term describes the heavy usage of borrowed funds by banks with little owners' capital invested?
What term describes the heavy usage of borrowed funds by banks with little owners' capital invested?
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The practice of selling appreciated investment securities to realize gains and holding onto depreciated securities is known as what?
The practice of selling appreciated investment securities to realize gains and holding onto depreciated securities is known as what?
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What are noninterest revenue sources for a bank typically referred to as?
What are noninterest revenue sources for a bank typically referred to as?
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Which of the following methods must large U.S. banks use to determine their provision for loan loss expense?
Which of the following methods must large U.S. banks use to determine their provision for loan loss expense?
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When a bank sells shares of its common stock with a par value of $100 for $200, which accounts are affected?
When a bank sells shares of its common stock with a par value of $100 for $200, which accounts are affected?
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Which financial statement shows the revenues and expenses of a bank over a specified time period?
Which financial statement shows the revenues and expenses of a bank over a specified time period?
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What accounts are referred to as the bank's primary reserves?
What accounts are referred to as the bank's primary reserves?
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Study Notes
Financial Statements of Banks and Competitors
- Fed funds purchased is an example of nondeposit borrowings along with Eurodollar borrowings.
- Short-term securities of a bank, such as T-Bills and commercial paper, are often called secondary reserves. They act as a second line of defense to meet demands for cash.
- Provision for loan losses is a noncash expense on a bank's income statement. It allows the bank to account for future bad loans.
- Net interest income is the difference between total interest income and total interest expenses for a financial institution.
- Subordinated notes and debentures are the primary long-term liabilities of a bank.
- Standby credit agreement is where a financial institution guarantees repayment of a customer's loan from a third party.
- Repurchase agreement (repo) is a short-term collateralized loan. T-Bills are a common collateral.
- Money market deposit account is a deposit account with an interest rate competitive with money market mutual funds. It has limited check writing ability.
- Original cost is the value at which a financial institution records its assets and liabilities.
- Principal types of fiduciary activities and service charges include fee income and income from fiduciary activities.
- Report of Income (income statement) shows the revenues and expenses over a specific time period.
- Report of Condition (balance sheet) lists assets, liabilities, and equity capital held by the bank on a given date.
- Painting the tape is the activity of manipulating financial statements to artificially enhance a bank's financial strength.
- Unearned income is interest income that has not yet been earned, according to accrual accounting methods.
- NOW accounts allow for individuals and nonprofit institutions to hold money, bear interest, and permit drafts to be paid to a third party.
- Noninterest income includes fees from ATM and POS transactions and checking account maintenance fees and overdraft fees.
Bank Assets and Liabilities
- Loans are a significant source of income for banks.
- Investment securities are bank assets.
- Demand deposits are bank assets.
- Cash and due from banks are bank assets.
- Securities are the largest asset item on a bank's balance sheet.
- Loan and lease loss allowance is subtracted from gross loans and investment income.
Bank Expenses
- Provision for loan losses is a significant expense, to cover potentially bad loans.
- Personnel costs are a large expense.
- Premises and equipment cost is often a large expense.
- Interest on borrowed funds is a large expense.
- Employee benefits are a large expense.
- Noninterest expense is the largest expense item observed on a bank's income statement; covering items like noncash expenses and provision for bad loans
Other Topics
- Nonperforming loans are credits that are past due for more than a set period (usually 30 to 180 days).
- Financial leverage is when banks use borrowed funds to make heavy use.
- Gains trading is a practice of selling securities that have appreciated in value and holding onto those that have declined.
- Noninterest revenue includes supplemental income and noninterest margin.
- Loan loss expense is calculated using different methods.
- Fed funds purchased is a bank's temporary lending of excess reserves to other banks. It is recorded on the balance sheet.
- Allowance for possible loan losses is a bad debt reserve that shows up on a bank's balance sheet.
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Description
This quiz covers key concepts related to financial statements of banks and their competitors. It includes topics such as nondeposit borrowings, provisions for loan losses, and net interest income. Test your knowledge on the essential elements of bank financial management and reporting.
