Chapter15TheManagementofCapitalFillintheBlankQuestions1. TheriskthathastodowithbankstradinginforeigncurrenciesiscalledAnswer:exchangerisk2. Theriskthathastodowithfraud,embezzlementandbankrobberiesiscalledAnswer:crimerisk3.ismeasuredbytheparvalueofthesharesofcommonequityoutstanding.Answer:Commonstock4.istheamountinexcessofparvaluepaidbythebank'sshareholders.Answer:Surplus5.arethenetearningsofthebankwhichhavebeenkeptbythebankratherthandistributedasdividendstostockholders.Answer:UndividedProfits(orretainedearnings)6. Corecapitalsuchascommonstock,surplus,undividedprofits,qualifyingnoncumulativepreferredstock,etc.isreferredtoascapitalasdefinedbytheBaselagreement.Answer:Tier17. TheinternationaltreatyinvolvingtheU.S.and11otherleadingindustrializedcountriestoimposecommoncapitalrequirementsonallbanksisknownastheAnswer:BaselAgreement8. Supplementalcapitalsuchastheallowanceforloanlosses,subordinateddebt,mandatoryconvertibledebt,intermediate-termpreferredstock,cumulativepreferredperpetualstockandequitynotesismorecommonlyknownasAnswer:Tier2capital9. Whenitemsonabank'sbalancesheetaremultipliedbytheappropriaterisk-weightingfactortheyareoftencalled.Answer:risk-weightedassets10. Thefactthatabankmaysufferdeficienciesinqualitycontrol,inefficienciesinproducinganddeliveringofservices,weatherdamage,agingorfaultycomputersystems,errorsinjudgmentbymanagementandfluctuationsineconomythatcouldadverselyaffectthebank'sperformanceisknownasrisk.Answer:operational11. Onedefenseagainstriskforthebankistospreadoutabank'screditaccountsanddepositsamongawidevarietyofcustomers,includinglargeandsmallaccountsdifferentindustries,etc.Thisdefenseisknownas.Answer:portfoliodiversification12. Onedefenseagainstriskisforthebanktoseekoutcustomerslocatedindifferentcommunitiesorindifferentcountries.ThisdefenseisknownasAnswer:geographicdiversification13. Whenallelsefails,theultimatedefenseagainstriskinbankingisAnswer:owners'capital(networth)14. ThelargestcomponentofcapitalamongthriftinstitutionsisAnswer:r...
