MINISTRY OF EDUCATION AND TRAINING

FIN 460: MANAGEMENT IN FINANCIAL

NATIONAL ECONOMICS UNIVERSITY
INSTITUTIONS

School of Advanced Education Programs

Allowed time: 90 minutes
MOCK EXAM

I: Multiple choice (30 points) These statements are True or False? (2.5 points/correct answer)

1. Commercial banks can not provide demand deposit accounts to clients.

2. Loans and leases are financial outputs on a financial institution's Income Statement.

3. Charged off are deducted from the Provision for Loan Losses (PLL) account on a bank's income
statement.

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

5. The role performed by banks in which they stand behind their customers when those customers are
unable to pay a debt obligation is known as the guarantor role.

6. The letter “A” in the CAMELS rating system for banks refers to the “Asset quantity” of a bank.

7. Consumer loans appear to have strong sensitivity to the business cycle, change significantly through
both recessions and expansions.

8. Increased competition, following deregulation, has led to a decline in bank’s net interest margin

9. Relative to larger banks, smaller banks rely less on non-interest income as a source of revenue.

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

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

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

PART II: Assignments (30 points)

Assignment II.1: Should a loan officer ever say “no” to a business firm requesting a loan? Please explain
when and where? If you got the loan application from a very potential firm but lack collateral, what
should you do? (10 points)

Assignment II.2: “Financial institutions play a facilitating role in the economic process”. Do you agree
with this statement? Why? (20 points)

PART III: Exercises (40 points)

Exercise III.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 $5,500 for 160 days, $ 2,200 for 80 days, and $1550 for the remaining days in the year. If the
Savings bank paid this depositor $180 in interest earnings for the year, what APY did this customer
receive?

Exercise III.2: (30 points)

ABBank has experienced the following trends over the past five years (all figures in millions of dollars):

Year Net Income Total Operating Total average Total average

Revenues Assets Equity

202X 10 50 5,000 200

202X+1 22 60 6,000 300

202X+2 24 80 8,000 220

202X+3 26 90 6,000 400

202X+4 30 100 10,000 410

Determine the figures for ROA, ROE, profit margin, asset utilization, and equity multiplier for this bank.
Are any adverse trends evident? Where would you recommend that management look to deal with the
bank’s emerging problem(s)?
Exercise III.1.2: (10 points):

Banks and other lending affiliates within the holding company of A are reporting heavy loan demand this
week from companies in the region B that are planning a significant expansion of inventories and
facilities before the beginning of the fall season. The holding company plans to raise $2800 million in
short-term funds this week, of which about $2850 million will be used to meet these new loan requests.
Interbank funds are currently trading at 3%, negotiable CDs are trading in the stock market at 3.5%, and
foreign borrowings are available at all maturities under one year at 4.5%. Noninterest costs are estimated
at 0.5 % for interbank, 1 % for CDs; 1.5 % for foreign borrowings.

Calculate the effective cost rate of each of these sources of funds and make a management decision on
what sources to use. Be prepared to defend your decision.

Exercise III.2.2: (30 points)

This is the 202X Balance Sheet of the Bank B with annually average figures

Amoun
Interest Amount
t Interest
Assets rate Liabilities & Equity
(USD (USD rate (%)
(%)
mil) mil)
Cash and deposits due 450 1,700 0.5
Demand deposit
from banks
3-month Treasury 650 1 3-month bank 800 5.5
Bills deposits

5-year fixed-rate 650 2.5 6-month corporate 3,150 8.5

Government Bonds deposits

12-month floating-rate 2,950 12.5 Non-deposit 1450 10

corporate loans borrowings

10 year fixed-rate 2,500 15.5 650

Equity
mortgage loans
550
Fixed assets

This Bank earned USD 165 mil in fees and commissions and USD 120 mil in securities gain; paid USD
425 mil in overhead costs; USD 190 in loan loss provision. Corporate income tax rate is 17%.

a. How much are: Net interest margin, net non-interest margin, ROE (20 points).
b. How can the bank reach ROE at 8% (two options: increasing average lending rates or reducing
average deposit rates) (10 points).

Note: Students are allowed to bring hand-writing papers and the calculator in the exam room