Banking Exam Retail and Corporate Banking 2 — Questions and Answers
Question 1: A corporate client requests a revolving credit facility. Which feature best describes this product?
- Funds are disbursed once and repaid in fixed installments
- The borrower can draw, repay, and redraw up to an approved limit (Correct answer)
- Interest accrues only at maturity on the full principal
- The facility automatically converts to a term loan after one year
Correct answer: The borrower can draw, repay, and redraw up to an approved limit
A revolving credit facility allows borrowers to draw and repay funds repeatedly up to an approved limit, unlike a term loan.
Question 2: Which deposit account type typically pays the highest interest rate in US retail banking?
- Demand deposit account (DDA)
- Basic savings account
- Certificate of Deposit (CD) (Correct answer)
- NOW account
Correct answer: Certificate of Deposit (CD)
Certificates of Deposit lock funds for a fixed term, so banks offer higher rates to compensate for reduced liquidity.
Question 3: A bank's net interest margin (NIM) is calculated as:
- Total interest income divided by total assets
- Interest income minus interest expense divided by average earning assets (Correct answer)
- Net loans divided by total deposits
- Operating income minus provision for loan losses
Correct answer: Interest income minus interest expense divided by average earning assets
NIM measures profitability by comparing net interest income to the average earning assets generating that income.
Question 4: Under the Community Reinvestment Act (CRA), US banks are primarily evaluated on their:
- Capital adequacy ratios relative to peer institutions
- Lending, investment, and service activities in low- and moderate-income communities (Correct answer)
- Compliance with anti-money laundering reporting thresholds
- Ratio of retail to commercial loan portfolios
Correct answer: Lending, investment, and service activities in low- and moderate-income communities
CRA requires regulators to assess how well banks serve credit needs in low- and moderate-income communities where they operate.
Question 5: A standby letter of credit (SBLC) in corporate banking primarily functions as:
- A direct payment instrument triggered automatically at contract signing
- A guarantee of payment if the applicant defaults on an obligation (Correct answer)
- A short-term borrowing facility secured by accounts receivable
- An insurance product covering foreign exchange losses
Correct answer: A guarantee of payment if the applicant defaults on an obligation
An SBLC is a contingent payment instrument that the bank honors only if the applicant fails to meet their contractual obligation.
Question 6: Which ratio measures a bank's ability to absorb losses and is most closely monitored by US regulators under Basel III?
- Loan-to-deposit ratio
- Common Equity Tier 1 (CET1) capital ratio (Correct answer)
- Net stable funding ratio only
- Return on assets (ROA)
Correct answer: Common Equity Tier 1 (CET1) capital ratio
CET1 is the highest-quality capital measure under Basel III and the primary regulatory focus for loss-absorption capacity.
Question 7: A retail bank customer disputes a debit card transaction under Regulation E. The bank must provisionally credit the customer's account within:
- 24 hours of the dispute
- 5 business days of receiving the notice
- 10 business days of receiving the notice (Correct answer)
- 30 calendar days of receiving the notice
Correct answer: 10 business days of receiving the notice
Regulation E requires banks to provisionally credit the disputed amount within 10 business days while completing their investigation.
