No time to read the whole book of foundations of financial risk for the risk management in banking exam? No worries i got you. I made some multiple choice question on chapter 1 till 8 covering all the important topics you need to know
1.1.1 Core Bank Services
1. What are the core services traditionally provided by
banks?
a) Investment advisory services
b) Deposit collection, payment services, and loan underwriting
c) Real estate brokerage
d) Healthcare insurance
Answer: b) Deposit collection, payment services, and loan
underwriting
2. How has the process of deposit collection and payments
evolved over time?
a) It has become more cumbersome with the introduction of
passbooks.
b) It has become less secure with the use of electronic fund
transfers.
c) It has become more convenient with the use of debit cards and
electronic fund transfers.
d) It has remained the same since the early days of banking.
Answer: c) It has become more convenient with the use of debit
cards and electronic fund transfers.
3. What is the first step in the loan underwriting process
mentioned in the text?
a) Extending credit to the customer
b) Analyzing the borrower's financial capacity
c) Making payments to the borrower
d) Issuing a deposit certificate
Answer: b) Analyzing the borrower's financial capacity
4. What is required for an institution to be considered a
,bank in a modern economy?
a) Offering a wide range of investment products
b) Having a large number of branches
c) Holding a banking license and being subject to regulation and
supervision by a banking regulator
d) Providing insurance services
Answer: c) Holding a banking license and being subject to
regulation and supervision by a banking regulator
5. What is the primary purpose of deposit collection by
banks?
a) To invest the collected funds in the stock market
b) To safeguard the deposited money for future use by
individuals and businesses
c) To use the funds for the bank's daily operations
d) To distribute the funds among various depositors
Answer: b) To safeguard the deposited money for future use by
individuals and businesses
6. In modern banking, how are withdrawals and payments
typically made?
a) Through the use of passbooks
b) By issuing deposit certificates
c) Instantaneously through debit cards and electronic fund
transfers (EFTs)
d) By writing and cashing checks
Answer: c) Instantaneously through debit cards and electronic
fund transfers (EFTs)
7. What is the main focus of underwriting in the context of
banking?
a) Assessing the risk of investment opportunities
b) Analyzing the stock market trends
c) Evaluating a borrower's eligibility for credit and extending
loans
,d) Managing a bank's financial assets
Answer: c) Evaluating a borrower's eligibility for credit and
extending loans
8. What are deposit certificates typically used for in early
banking?
a) To make payments
b) To analyze stock market trends
c) To assess the borrower's financial capacity
d) To invest the collected funds
Answer: a) To make payments
9. How have payments and withdrawals evolved from the
use of checks and passbooks in modern banking?
a) They are now only possible through debit cards.
b) They have become less secure and more cumbersome.
c) They have become more instantaneous and convenient.
d) They have remained unchanged since the early days of
banking.
Answer: c) They have become more instantaneous and
convenient.
10. What is the final step in the loan underwriting process as
described in the text?
a) Analyzing the borrower's financial capacity
b) Extending credit to the customer
c) Making payments to the borrower
d) Issuing deposit certificates
Answer: b) Extending credit to the customer
11. Why is a banking license and regulation necessary for a
modern bank?
a) To maximize shareholder profits
b) To ensure the bank has a large number of branches
,c) To maintain the secrecy of customer transactions
d) To ensure the safety and soundness of banking operations and
protect depositors
Answer: d) To ensure the safety and soundness of banking
operations and protect depositors
12. What is the purpose of payment services offered by
banks?
a) To increase the bank's profits
b) To facilitate international trade
c) To accept and make payments on behalf of customers using
their bank accounts
d) To provide investment advice to customers
Answer: c) To accept and make payments on behalf of
customers using their bank accounts
1.1.2 Banks in the Economy
13. What is the primary function of banks when it comes to
economic activity?
a) Generating revenue through investments
b) Providing investment advice to depositors
c) Channeling savings from depositors to borrowers
d) Creating savings accounts for depositors
Answer: c) Channeling savings from depositors to borrowers
14. How do banks create income?
a) By charging depositors for using their services
b) By investing in the stock market
c) By generating revenue through investment advisory services
d) By charging interest on loans and paying interest to
depositors
Answer: d) By charging interest on loans and paying interest to
depositors
,15. What is the main source of revenue and profit for a
bank?
a) Income generated from investing in real estate
b) Service fees charged to depositors
c) The difference between interest received from borrowers and
interest paid to depositors
d) Government grants and subsidies
Answer: c) The difference between interest received from
borrowers and interest paid to depositors
16. What is the role of deposit insurance in protecting
depositors?
a) It guarantees unlimited protection for all deposits.
b) It ensures that depositors receive higher interest rates on their
deposits.
c) It safeguards depositors in case a bank defaults and is unable
to repay deposits in full.
d) It primarily benefits the bank's profit margins.
Answer: c) It safeguards depositors in case a bank defaults and
is unable to repay deposits in full
17. What is the process of creating a new asset (loan) from
liabilities (deposits) with different characteristics called?
a) Asset transfer
b) Liabilities transformation
c) Deposit conversion
d) Asset transformation
Answer: d) Asset transformation
18. What does financial intermediation involve in the context
of banking?
a) Generating income through stock market investments
b) Safeguarding deposits for customers
c) Channeling savings from depositors to borrowers
,d) Extending loans to depositors
Answer: c) Channeling savings from depositors to borrowers
19. What differentiates bank deposits from bank loans in
terms of their characteristics?
a) Bank deposits are typically smaller and riskier than bank
loans.
b) Bank deposits have longer maturities compared to bank loans.
c) Bank deposits consist of money entrusted to the bank, while
bank loans are for safekeeping.
d) Bank deposits can be withdrawn at any time, while bank
loans are permanent.
Answer: d) Bank deposits can be withdrawn at any time, while
bank loans have longer maturities.
20. What is the unique role of banks among financial
intermediaries?
a) Banks primarily invest in stock markets.
b) Banks are the only institutions that channel deposits from
depositors to borrowers.
c) Banks solely focus on home mortgage loans.
d) Banks offer the highest interest rates on savings accounts.
Answer: b) Banks are the only institutions that channel deposits
from depositors to borrowers.
21. What term is used to describe the process of generating
loans (assets) from deposits (liabilities) with different
characteristics?
a) Asset diversification
b) Deposit reallocation
c) Asset transformation
d) Liabilities integration
Answer: c) Asset transformation
,22. What is the primary source of revenue for banks when
they extend loans to borrowers?
a) Fees charged to depositors for keeping their money safe
b) Interest paid by borrowers on the loans
c) Income generated from stock market investments
d) Government grants for financial stability
Answer: b) Interest paid by borrowers on the loans
1.1.3 Money Creation
23. What is the primary way banks earn revenues in the
financial intermediation process?
a) By charging high fees for account maintenance
b) By investing heavily in stock markets
c) By ensuring the rate of interest earned on loans exceeds the
rate paid on deposits
d) By collecting government grants
Answer: c) By ensuring the rate of interest earned on loans
exceeds the rate paid on deposits
24. What do banks reserve to meet depositor demand for
withdrawals?
a) A significant portion of deposit funds
b) The entirety of the deposited funds
c) A relatively small fraction of deposit funds
d) Only the interest earned on deposits
Answer: c) A relatively small fraction of deposit funds
25. What is the term for the practice of keeping only a small
fraction of deposit funds available for withdrawal?
a) Complete reserve banking
b) Total asset transformation
c) Fractional reserve banking
d) Residual deposit system
,Answer: c) Fractional reserve banking
26. How is money created through the fractional reserve
banking system?
a) By continuously investing deposits in the stock market
b) By increasing reserve requirements
c) By lending an original deposit repeatedly
d) By maintaining high interest rates on loans
Answer: c) By lending an original deposit repeatedly
27. What is the term for the formula used to determine how
much new money each unit of currency can create?
a) Money divisor
b) Interest rate multiplier
c) Deposit expansion factor
d) Money multiplier
Answer: d) Money multiplier
28. How does the reserve requirement affect the money
multiplier?
a) The higher the reserve requirement, the larger the money
multiplier.
b) The reserve requirement does not impact the money
multiplier.
c) The lower the reserve requirement, the larger the money
multiplier.
d) The reserve requirement has no relationship with the money
multiplier.
Answer: a) The higher the reserve requirement, the larger the
money multiplier.
29. In terms of economic development, why are banks
considered critical to businesses?
a) Banks provide consulting services to businesses.
,b) Banks buy bonds on behalf of businesses.
c) Banks provide financing and help businesses secure funding.
d) Banks engage in direct ownership of businesses.
Answer: c) Banks provide financing and help businesses secure
funding.
30. What are the two primary types of financing provided by
banks?
a) Investment financing and credit financing
b) Debt and equity financing
c) Investment banking and consumer loans
d) Mortgage loans and bond financing
Answer: b) Debt and equity financing
31. How do banks facilitate consumer financing?
a) By offering low-interest savings accounts
b) By investing in the stock market
c) By extending loans for purchases like cars and houses
d) By providing free financial education
Answer: c) By extending loans for purchases like cars and
houses
32. What were some consequences of the global financial
crisis of 2007–2009 as mentioned in the text?
a) An increase in credit availability for businesses
b) A significant boost in deposit flows to banks
c) A substantial reduction in credit availability and reduced
demand for goods and services
d) An expansion of global stock markets
Answer: c) A substantial reduction in credit availability and
reduced demand for goods and services
1.1.4 Payment Services
, 33. What do depositors primarily use their deposit accounts
at banks for?
a) Earning interest on their deposits
b) Making and receiving payments between depositors and
banks
c) Securing loans for business ventures
d) Investing in the stock market
Answer: b) Making and receiving payments between depositors
and banks
34. What are payments in the context of financial
transactions?
a) Physical goods exchanged between parties
b) The transfer of funds between parties to settle financial
transactions
c) Investment opportunities offered by banks
d) Personal savings accounts
Answer: b) The transfer of funds between parties to settle
financial transactions
35. What are some examples of payment systems mentioned
in the text?
a) Online shopping platforms
b) Social media networks
c) Checks, payment orders, bill payments, and electronic
payments
d) Health insurance services
Answer: c) Checks, payment orders, bill payments, and
electronic payments
36. How can banks assist large corporations and government
organizations with payments for goods and services?
a) By offering high-interest savings accounts
b) By providing investment advisory services
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