Free CTE Practice Questions

Question 1

A trust department receives UITRS component ratings of Management 2, Operations/Internal Controls and Auditing 2, Earnings 3, Compliance 2, and Asset Management 2. In assigning the composite rating, the examiner should:

Accepted Answer

Exercise qualitative judgment, giving special consideration to the Management component

Answer

Assign a composite 3, because the composite may not be higher than the weakest component rating

Answer

Assign a composite 2, because the arithmetic average of the five component ratings rounds to 2

Answer

Assign a composite 2, because a majority of the component ratings are 2

Question 2

The 1998 revision to the UITRS, effective January 1, 1999, reduced the number of component rating categories from six to five. Which change produced this reduction?

Accepted Answer

Account Administration and Conflicts of Interest were combined into a Compliance component

Answer

Management of Fiduciary Assets and Account Administration were combined into an Asset Management component

Answer

Operations and Controls & Audits were combined into a single Operations, Internal Controls and Auditing component

Answer

Earnings was eliminated as a separate component and folded into Management

Question 3

At the time of examination, a state-chartered bank's trust department holds $85 million in total trust assets. Regarding earnings under the UITRS, the examiner must:

Accepted Answer

Perform an earnings evaluation, though assignment of an earnings rating is not required at this asset level

Answer

Omit both the earnings evaluation and the earnings rating, as the department falls below the threshold

Answer

Assign an earnings rating only if the trust department operated at a loss during the review period

Answer

Perform an earnings evaluation and assign an earnings rating, as both are required at every examination

Question 4

A non-deposit trust company holds $40 million in total trust assets at the time of examination. Under the UITRS, an earnings rating is:

Accepted Answer

Required, because the institution is a non-deposit trust company regardless of asset size

Answer

Not required, because total trust assets do not exceed the $100 million threshold

Answer

Not required, because non-deposit trust companies are evaluated under the Management component instead

Answer

Required only at the option of the chartering state, as no federal standard reaches these entities

Question 5

Under 12 CFR 9, a national bank must review the assets of a fiduciary account at least once during every calendar year. This annual review requirement applies to:

Accepted Answer

All fiduciary accounts for which the bank has investment discretion

Answer

All fiduciary accounts administered by the bank

Answer

All fiduciary accounts holding assets other than cash equivalents

Answer

All fiduciary accounts with a market value exceeding the bank's stated de minimis threshold

Question 6

A bank maintains a collective investment fund under 12 CFR 9.18(a)(2) for the assets of tax-exempt retirement and profit-sharing trusts. The tax-exempt status of this fund rests on:

Accepted Answer

IRS Revenue Ruling 81-100, governing group trusts for tax-exempt plans

Answer

Internal Revenue Code Section 584, governing common trust funds

Answer

Internal Revenue Code Section 401(a), governing qualified plan trusts

Answer

IRS Revenue Ruling 59-60, governing valuation of closely held interests

Question 7

A bank proposes to invest the assets of a corporate profit-sharing plan alongside the assets of several personal trust accounts in a single common trust fund maintained under 12 CFR 9.18(a)(1). This proposal is:

Accepted Answer

Not permissible, as employee benefit accounts may not be commingled with personal trust accounts

Answer

Permissible, provided the profit-sharing plan is qualified and tax-exempt

Answer

Permissible, provided the governing instruments of the personal trusts authorize collective investment

Answer

Permissible, provided the fund's written plan discloses the mixed participation to all participants

Question 8

A bank's trust department opens an account for an irrevocable trust with three named beneficiaries. For Customer Identification Program (CIP) purposes, the "customer" is:

Accepted Answer

The trust itself, as the legal entity opening the account

Answer

Each named beneficiary, as the parties with an interest in the assets

Answer

The grantor, as the party who funded the trust relationship

Answer

The trustee individually, as the party exercising control over the account

Question 9

A discretionary trust portfolio includes a single high-volatility security that, viewed on its own, would be considered speculative. Under the Uniform Prudent Investor Act, the trustee's retention of that security is evaluated:

Accepted Answer

By reference to the security's contribution to the risk and return of the portfolio as a whole

Answer

By reference to the security's own risk characteristics, since speculative assets are imprudent per se

Answer

By reference to whether the security appears on the bank's approved security list

Answer

By reference to the security's performance relative to its benchmark over the trailing year

Question 10

A national bank's board of directors assigns the administration of the bank's fiduciary powers to a trust committee composed of qualified officers. Under 12 CFR 9.4, responsibility for the proper exercise of those fiduciary powers:

Accepted Answer

Remains with the board of directors notwithstanding the assignment

Answer

Transfers to the trust committee upon the board's formal written delegation

Answer

Is shared between the board and the committee in proportion to their respective authority

Answer

Transfers to the individual officers to whom specific accounts are assigned

Free CTE Practice Questions

Domain 1: Technical

Question 1

Question 2

Question 3

Domain 3: Legal/Compliance

Question 4

Question 5

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