Republic of the Philippines

OCCIDENTAL MINDORO STATE COLLEGE

Mamburao, Occidental Mindoro
Website: www.omsc.edu.ph Email address: cdoffice143@gmail.com
Tele/Fax: (043) 457-0231

College of Business, Administration, and Management

MIDTERM EXAMINATION
BANKING AND FINANCIAL INSTITUTIONS
1st Semester, AY 2022 – 2023

Name: ________________________________ Date: _____________

Program, Year and Section: _______________ Score: ____________

GENERAL DIRECTIONS:
1. Any form of academic dishonesty during the examination will not be tolerated. You are responsible for your
actions.
2. Make sure to read each statement carefully.
3. Use your time wisely to answer the questions.

PART I: MULTIPLE CHOICE. Read each statement carefully and tick in the BEST ANSWER.

1. The following are the economic functions of bank, EXCEPT

a. Banks lend property and equipment to ordinary commercial and personal borrowers (ordinary credit
quality), but are high quality borrowers.
b. Banks act as both collection and paying agents for customers, participating in interbank clearing and
settlement systems to collect, present, be presented with, and pay payment instruments.
c. Issue of money, in the form of banknotes and current accounts subject to check or payment at the
customer's order.
d. Banks borrow and lend back-to-back on their own account as middle men.
2. Which of the following statements always describes the relationship between current yield and yield to
maturity?
a. The current yield is higher.
b. The yield to maturity reflects the total return; the current yield only the cash return.
c. The two yields are the same
d. The yield to maturity should be used in comparing bonds which are to be held to maturity; the current
yield for comparing bonds which are to be sold before maturity.
3. What is the object of fixed exchange rates?
a. To prevent exchange rates from changing
b. To prevent misallocation of economic resources
c. To eliminate the economic fluctuations that result from short-run, self-reversing forces
d. To prevent the effects of one country's inflationary policies from spreading to other countries
4. A bank is solvent as long as it
a. has enough capital to pay off depositors c. does not experience a run on its deposits
b. has mostly good loans d. is able to meet all demands by depositors for payment
5. If a bank has more rate-sensitive assets than rate-sensitive liabilities, then a(n) ________ in interest rates will
________ bank profits.
a. increase; increase c. decline; increase
b. increase; reduce d. decline; not affect
6. Which of the following has accelerated the globalization of financial markets:
a. An expansion of protectionism practices c. The movement toward fixed exchange rates
b. The reduction of government regulations d. A decrease in foreign access to domestic markets
7. Which of the following is not a standard financial statement:
a. Income statement c. Shareholder sheet
b. Balance sheet d. Cash flow statement
8. As opposed to most other debt instruments, mortgage loans tend to
a. charge lower interest rates c. pay interest less frequently
b. be of larger denomination d. be repaid over the life of the loan
9. Mr. John want to make sure that he have something for the inevitable rainy days, this is the best deposit
account for him.
a. Savings Account c. Partnership Account
b. Joint Account d. Calamity Loan
10. It makes it simpler for you to deposit, withdraw, or carry out transactions with huge sums of money while
still requiring a minimal maintenance balance.
a. Savings Account c. ATM Card
b. Checking Account d. Bill Deposits
11. The following are the effect of a greater financial institutions, EXCEPT
a. Greater economic equality in the population, an increase in shared prosperity, and inclusive economic
growth
b. A continuous in poverty and income inequality
c. An increase in employment and the creation of jobs in the productive sector
d. A diversification of activities in small economies: Generation of capabilities to take maximum
advantage of resources, and the rise in income levels, together with a decrease in market imperfections,
contributing to economic stimulation at a local and national level.
12. Which of the following is a vital element of building wealth and securing one's financial future.
a. Savings c. Insurance
b. Deposits d. Checking
13. Which of the following is true of restrictions on branch offices?
a. National banks can establish branches in any state.
b. Unit banking is more common on the West Coast.
c. Branching laws are determined by each individual state.
d. Statewide branching is illegal in almost every state.
14. Choose the best example of a non-depository institution.
a. Credit union c. Insurance Company
b. Commercial bank d. Savings and Loan Bank
15. Choose the best example of a depository institution.
a. Investment bank c. Commercial bank
b. Insurance company d. Finance Company
16. Which of the following has the fiduciary responsibility to make decisions on behalf of a company's
shareholders:
a. The municipal court system c. The industry's professional organization
b. The company's line staff d. The corporation's board of directors
17. How do finance companies commonly raise capital?
a. Investing deposits from savers
b. Investing funds from premium payments
c. Issuing notes, bonds, and other obligations
d. Establishing mutual funds and investment banks
18. Which of the following is a bank, bank and trust company, trust company, savings bank, private bank, or
national banking association that is organized and conducting business in accordance with any state.
a. Banking Institutions c. Financial Intermediaries
b. Non-banking Institutions d. Financial Insurance Company
19. This is the service provided by financial institutions that are typically referred to as banks and that is
primarily concerned with the protection of funds through the acceptance of cash deposits and the provision of
credit through the lending of cash.
a. Banking c. Bond
b. Bank d. Banker
20. Which of the following does not have a lock-in period for your money, allowing it to grow faster than it
would in a different kind of account?
a. Time Deposits c. Bond
b. Maturity Deposits d. Loan
21. Mortgages and government bonds are examples of.
a. Debt instruments. c. Equity products.
b. Unrated investments. d. Interest-free services.
22. A primary factor that has led to the consolidation of financial firms is the desire:
a. for fewer products. c. to lower risks.
b. to lower costs. d. for fewer assets.
23. April is a college student who wants to open a bank account for the first time. She has Php.25, 000.00 cash
to deposit in the account initially. The bank she chooses is not near her dorm, and it's difficult for her to get
there. She has a part-time job and receives a bi-weekly paycheck that will be directly deposited into her account.
Which of the following types of accounts should she ask for at the bank?
 a. Checking c. Savings
b. Money market d. Certificate of Deposits
24. By analyzing a customer's financial information, a finance professional should be able to
a. Protect the security of the customer's financial information.
b. Declare Chapter 11 bankruptcy for the customer.
c. Develop a financial strategy to help the customer.
d. Determine the customer's newest target market.
25. Before approving a loan application, a bank is likely to analyze the applicant's
a. debt ratio. c. Inflation rate
b. brand preferences. d. Performance goals
26. Why is the choice of a risk measure for internal and external risk of great practical importance?
a. It determines the maximum number of clients that can be served effectively by a financial institution.
b. It determines the minimum reserve requirements in financial trading.
c. It identifies the types of risks that the financial institution will encounter.
d. It designates the audience that will receive the resulting financial reports.
27. Which of the following statements always describes the relationship between current yield and yield to
maturity?
a. The current yield is higher.
b. The two yields are the same.
c. The yield to maturity reflects the total return; the current yield only the cash return.
d. The yield to maturity should be used in comparing bonds which are to be held to maturity; the current
yield for comparing bonds which are to be sold before maturity.
28. In the process of deposit deregulation in the early 1980's, banks were allowed to
a. offer checkable deposits that paid implicit interest only
b. pay explicit market rates on savings and time deposits and limited interest on checkable deposits
c. pay below market explicit interest on savings and time deposits
d. pay explicit market rates on checking accounts
29. Which of the following is true of restrictions on branch offices?
a. National banks can establish branches in any state.
b. Unit banking is more common on the West Coast.
c. Branching laws are determined by each individual state.
d. Statewide branching is illegal in almost every state.
30. What is the primary function of large, diversified brokerage firms in the money market?
a. To sell money market securities to the Federal Reserve for its open market operations
b. To buy money market securities from corporations that need liquidity
c. To make a market for money market securities by maintaining an inventory from which to buy or sell
d. To buy T-bills from the U. S. Treasury Department
31. Which of the following is engaged in accumulating savings of depositors and investing them, they also
provide short-term working capital and medium- and long-term financing to businesses engaged in agriculture,
services, industry and housing, and diversified financial and allied services, and to their chosen markets and
constituencies, especially small- and medium- enterprises and individuals.
a. Commercial Bank b. Thrift bank c. Rural Bank d. Universal Bank
32. Foreign individuals and non-bank corporations may owned control up to ___ of the voting stock of a
domestic bank.
a. 50% b. 60% c. 70% d. 40%
33. The general Banking law of 2000 is also known as?
a. Republic Act No. 8971 b. Presidential Decree 8971 c. Republic Act No. 8791 d. Presidential Decree 87912
34. A commercial bank may own up to ____ percent of a thrift bank or a rural bank.
a. 75% b. 100% c. 80% d. 90%
35. The following are the economic functions of banks, EXCEPT
a. Issue of money, in the forms of banknotes and current liabilities subject to check or payment at the
customer’s order.
b. Banks act as both collection and paying agents for customers, participating in interbank clearing and
settlement systems to collect, present, be presented with, and pay payment instruments.
c. Banks borrow and lend back-to-back on their own account as middle men.
d. Banks borrow more on demand debt and short term debt, but provide more long term loans.
36. For Php1,000,000.00, Mr. Tan sold the property and deposited the proceeds in the bank. Why did Mr. Tan
deposit the money in the bank?
a. Mr. Tan do not need to worry about emergencies like switching careers, house repairs, or hospital bills.
b. Mr. Tan assume that when he put money in the bank, it will generate weekly interest.
c. Mr. Tan can rest assured that his money is no longer secure in bank no matter what happen because of the
Philippine Deposit Insurance Corporation.
 d. All of the above.
e. None of the above.
(37 – 41.)
Banking and banks are very important for the functioning of the modern world. Without banks the way
we use money would not work. Banks enable people to save money, borrow money and to pay for things with
ease and security. Each country in the world has its own well known banks that have branches in nearly every
city so that they are convenient for people to use. People often have to visit the local branch of the bank when
they want certain services. There are also some very big multinational banks that have branches in most
countries in the world. As well as the local branches that are in most cities, each bank will also have a head
office. This is where all central tasks are performed that let the local braches function. The people that work in
the branches will be the bank manager, the person in charge, and various tellers who work behind the bank
counter and help the customers. There will also likely be security guards to protect the money, workers and
customers. Most customers will just need to see the tellers when they go to the bank if they are paying money
into their account as either cash or a check. However, they might need to see the bank manager if they want to
open an account or if they have become overdraw, when they have spent more money than there was in the
account. Also if they want to borrow money and get a loan the person will need to see the bank manager who
will have to approve it. As well as being able to use cash or checks to pay for things, banks also offer their
customers the more convenient methods of using either a debit card or credit card. These methods are very
convenient as you just need to carry a small plastic card to be able to pay for anything. When paying with
plastic you will need to either sign a receipt or enter a PIN number to conform the purchase and that you are
authorized to use the card.
37. According to the text, what do banks enable people to do?
a. Buy Products
b. Save money for the future
c. Get money now that pay have to pay back later
d. All of the above
38. What is the purpose of the head office of the bank?
a. To support the local branches to work properly
b. To offer services to the local customers
c. To work with other banks
d. To look impressive.
39. What do bank tellers do?
a. They protect the money
b. They help the customers.
c. They arrange loans for customers.
d. They are in charge in the bank branch.
40. What happens when a bank customer spend more money than they have in their account?
a. They will need to see the security guard
b. They will have to go to the Police Station
c. They will have to have a meeting with the bank manager
d. They will have to borrow money from the bank
41. Which of the following methods is more convenient when paying for something than using a check?
a. Using a plastic card
b. Using cash
c. There is not a more convenient method
d. With an exchange of products.
42. The following are reasons for branch banking system, EXCEPT
a. Lack of capital
b. For the convenience of its customers
c. The is more overhead expense to run a branch than to organize a new bank
d. The is less overhead expense to run a branch than to organize a new bank
43. It was established in 1946, to provide loans to the agricultural sector, commercial sector, and the industrial
sector.
a. Land Bank of the Philippines c. Philippine National Bank
b. Development Bank of the Philippines d. Bank of the Philippine Islands
44. The important advantages of a current account are as follows, except;
a. In this type of account, the customer can deposit and withdraw money as many times as he wants in a day.
b. The customer of this account gets the benefit of a bank overdraft without collateral.
c. Such accountants get additional benefits in case of transfer of money, collection of checks, and payment of
various bills.
d. None of the above
45. The main advantages of a savings account are as follows, except;
 a. This account can be opened by depositing a small amount of money so that anyone can open such an
account.
b. By opening such an account a customer gets a banking facility as well as satisfactory interest or profit on
the accumulated deposit.
c. Such accounts decrease the savings tendency among the people of the country which helps in capital
formation.
d. None of the above
46. Which of the following statements is not correct?
a. Deposits made in savings bank account serve to meet present as well as future needs.
b. A fixed amount is required to be deposited in a Fixed Deposit Account every month.
c. The rate of interest on deposits made in a Recurring Deposit Account is relatively higher than on savings
bank deposits.
d. Home Construction Saving Deposit Account is a type of recurring deposit account.
47. Choose the best answer that describes interest.
a. interest is the amount you pay to withdraw money.
b. Interest is an amount given to you for depositing your money in the bank.
c. Interest is the same for all accounts.
d. Interest is a fee for referring customers to the bank.
48. Bank accept deposits from the public and make these funds available for lending to those that need the
funds, they also accept deposits from the general public subject to withdrawals in a future time. Deposits may
enter a bank, in any of the following, except;
a. Cash money
b. Checks from other banks
c. Bill of Exchange
d. Bouncing Check
49. Ana is a college student and lives overseas with her mother. For the purpose of sending money, Ana opened
a bank account using a debit card. If you’re Ana, what will you do to protect the security of his/her bank card?
a. Don't give out bank account information over the phone or the Internet unless you have initiated the
contact or you know the person is who he or she claims to be.
b. Never write the PIN on or near your card. Memorize it instead.
c. Don't share your debit card PIN, security code and other account information with friends or relatives who
aren't co-owners of your account.
d. All of the above.
50. The following are the advantages of using checks, EXCEPT
a. They are convenient to use for large payments, odd, and exact amount
b. They are easy and safe means of paying.
c. They are not readily accepted for payment especially if the drawer does not know the payee or the payee
does not trust the drawer
d. Checks cancelled by the bank may serve as receipts for payment made.

PART II. MODIFIED TRUE OR FALSE. Read each statement carefully and write the answer on the space
provided. Write TRUE if the sentence is correct, write FALSE if the sentence is incorrect and WRITE the
incorrect word or phrase in the underlined word.
_____51. Commercial banks constitute the bulk of the banking system. These are institutions that accept or
create demand deposits which are subject to withdrawal by means of checks.
_____52. The Thrift Bank Act of 1985 provided for the establishment, operation and supervision of thrift
banks to include savings and mortgage banks, private development banks, and stock savings and loan
associations.
_____53. The Bank of France was organized 1800 by Leonardo Bonaparte and became the dominant financial
institution in France in 1848, when it obtained the sole note issue privilege.
_____54. During the Spanish period, prior to the establishment of formal banking in 1851, the Obras Pias was
organized by Father Juan Fernandez de Leon in 1594 and became the sole source of commercial credit.
_____55. In 1930 Rodulfo Rodriguez organized the Rodriguez Bank which operated more as a loan
association rather than a regular bank.

TEST II. ESSAY (20 Points)

56-60. If you experienced a situation where a co-worker behaved inappropriately with bank funds? What did
you do in response to the situation? (5 points)
61-65. Discuss the difference between credit card and debit card. (5 points)
66-70. Discuss the advantages of depositing/saving/keeping your money in the bank. (5 points)
71-75. Explain the key roles of the financial system. Why is it so important to the broader economy to have an
efficient and effective financial system? (5 points)

RUBRICS:

5 POINTS 4 POINTS 3 POINTS 2 POINTS 1 POINTS

Knowledge of The concept is The concept is The concept is There is no
the concept is accurately explained with explained with evidence of
accurate and explained. accuracy. little accuracy. information of the
explained clearly concept.
and effectively.

Prepared by:

ARIEL A. MANALO
Part-time Instructor

Certified true and correct:

RUBY JANNE S. DUMALAOG, MBA

Program Head, BSBA FM

Noted by:

LADY BIRD C. REGUDO, DBM-HM

Director for Instruction