Question 1

Which of the following are transaction deposits?

Accepted Answer

A)   Savings accounts
B)   Small-denomination time deposits
C)   Negotiable order of withdraw accounts
D)   Certificates of depositE) A) and B)
F) A) and C)

Question 2

For banks,

Accepted Answer

A)   return on assets exceeds return on equity.
B)   return on assets equals return on equity.
C)   return on equity exceeds return on assets.
D)   return on equity is another name for net interest margin.E) All of the above
F) A) and B)

Question 3

Traders working for banks are subject to the

Accepted Answer

A)   principal-agent problem.
B)   free-rider problem.
C)   double-jeopardy problem.
D)   exchange-risk problem.E) A) and C)
F) A) and B)

Question 4

With a 10% reserve requirement ratio, a $100 deposit into New Bank means that the maximum amount New Bank could lend is

Accepted Answer

A)   $90.
B)   $100.
C)   $10.
D)   $110.E) A) and C)
F) B) and D)

Question 5

Which of the following are reported as liabilities on a bank's balance sheet?

Accepted Answer

A)   Reserves
B)   Checkable deposits
C)   Loans
D)   Deposits with other banksE) B) and D)
F) None of the above

Question 6

If a bank has $10 million of checkable deposits, a required reserve ratio of 10 percent, and it holds $2 million in reserves, then it will not have enough reserves to support a deposit outflow of

Accepted Answer

A)   $1.2 million.
B)   $1.1 million.
C)   $1 million.
D)   $900,000.E) A) and B)
F) A) and C)

Question 7

In order to reduce the ________ problem in loan markets, bankers collect information from prospective borrowers to screen out the bad credit risks from the good ones.

Accepted Answer

A)   moral hazard
B)   adverse selection
C)   moral suasion
D)   adverse lendingE) A) and C)
F) All of the above

Question 8

-If interest rates rise by 5 percentage points, say, from 10 to 15%, bank profits (measured using gap analysis)  will

Accepted Answer

A)   decline by $0.5 million.
B)   decline by $1.5 million.
C)   decline by $2.5 million.
D)   increase by $1.5 million.E) C) and D)
F) A) and B)

Question 9

When a new depositor opens a checking account at the First National Bank, the bank's assets ________ and its liabilities ________.

Accepted Answer

A)   increase; increase
B)   increase; decrease
C)   decrease; increase
D)   decrease; decreaseE) A) and C)
F) A) and B)

Question 10

Collateral requirements lessen the consequences of ________ because the collateral reduces the lender's losses in the case of a loan default and it reduces ________ because the borrower has more to lose from a default.

Accepted Answer

A)   adverse selection; moral hazard
B)   moral hazard; adverse selection
C)   adverse selection; diversification
D)   diversification; moral hazardE) A) and D)
F) B) and C)

Question 11

Which of the following would a bank not hold as insurance against the highest cost of deposit outflow-bank failure?

Accepted Answer

A)   Excess reserves
B)   Secondary reserves
C)   Bank capital
D)   MortgagesE) A) and C)
F) None of the above

Question 12

A $5 million deposit outflow from a bank has the immediate effect of

Accepted Answer

A)   reducing deposits and reserves by $5 million.
B)   reducing deposits and loans by $5 million.
C)   reducing deposits and securities by $5 million.
D)   reducing deposits and capital by $5 million.E) C) and D)
F) B) and C)

Question 13

Your bank has the following balance sheet:
Assets Liabilities
Reserves $ 50 million Checkable deposits $200 million
Securities 50 million
Loans 150 million Bank capital 50 million
If the required reserve ratio is 10%, what actions should the bank manager take if there is an unexpected deposit outflow of $50 million?

Accepted Answer

After the deposit outflow, the bank will...

Question 14

In general, banks would prefer to acquire funds quickly by ________ rather than ________.

Accepted Answer

A)   reducing loans; selling securities
B)   reducing loans; borrowing from the Fed
C)   borrowing from the Fed; reducing loans
D)   "calling in" loans; selling securitiesE) C) and D)
F) B) and D)

Question 15

In one sense ________ appears surprising since it means that the bank is not ________ its portfolio of loans and thus is exposing itself to more risk.

Accepted Answer

A)   specialization in lending; diversifying
B)   specialization in lending; rationing
C)   credit rationing; diversifying
D)   screening; rationingE) A) and C)
F) C) and D)

Question 16

As the costs associated with deposit outflows ________, the banks willingness to hold excess reserves will ________.

Accepted Answer

A)   decrease; increase
B)   increase; decrease
C)   increase; increase
D)   decrease; not be affectedE) C) and D)
F) None of the above

Question 17

Your bank has the following balance sheet
Assets Liabilities
Rate-sensitive $100 million Rate-sensitive $75 million
Fixed-rate 100 million Fixed-rate 125 million
What would happen to bank profits if the interest rates in the economy go down? Is there anything that you could do to keep your bank from being so vulnerable to interest rate movements?

Accepted Answer

The bank's profits would go down because...

Question 18

Which of the following is not an example of a backup line of credit?

Accepted Answer

A)   loan commitments
B)   overdraft privileges
C)   standby letters of credit
D)   mortgagesE) A) and B)
F) B) and C)

Question 19

If a banker expects interest rates to fall in the future, her best strategy for the present is

Accepted Answer

A)   to increase the duration of the bank's liabilities.
B)   to buy short-term bonds.
C)   to sell long-term certificates of deposit.
D)   to increase the duration of the bank's assets.E) A) and C)
F) All of the above

Question 20

Which of the following is not a source of borrowings for a bank?

Accepted Answer

A)   Federal funds
B)   Eurodollars
C)   Transaction deposits
D)   Discount loansE) A) and C)
F) C) and D)

Exam 10: Banking and the Management of Financial Institutions

In one sense appears surprising since it means that the bank is not its portfolio of loans and thus is exposing itself to more risk.

Correct Answer
verified

In order to reduce the ________ problem in loan markets, bankers collect information from prospective borrowers to screen out the bad credit risks from the good ones.

Correct Answer
verified

Traders working for banks are subject to the

Correct Answer
verified

-If interest rates rise by 5 percentage points, say, from 10 to 15%, bank profits (measured using gap analysis) will

Correct Answer
verified

If a banker expects interest rates to fall in the future, her best strategy for the present is

Correct Answer
verified

For banks,

Correct Answer
verified

Correct Answer
verified
The bank's profits would go down because...
View Answer

Which of the following is not an example of a backup line of credit?

Correct Answer
verified

In general, banks would prefer to acquire funds quickly by rather than .

Correct Answer
verified

Which of the following are reported as liabilities on a bank's balance sheet?

Correct Answer
verified

Which of the following would a bank not hold as insurance against the highest cost of deposit outflow-bank failure?

Correct Answer
verified

Which of the following is not a source of borrowings for a bank?

Correct Answer
verified

When a new depositor opens a checking account at the First National Bank, the bank's assets and its liabilities .

Correct Answer
verified

Which of the following are transaction deposits?

Correct Answer
verified

A $5 million deposit outflow from a bank has the immediate effect of

Correct Answer
verified

If a bank has $10 million of checkable deposits, a required reserve ratio of 10 percent, and it holds $2 million in reserves, then it will not have enough reserves to support a deposit outflow of

Correct Answer
verified

With a 10% reserve requirement ratio, a $100 deposit into New Bank means that the maximum amount New Bank could lend is

Correct Answer
verified

Correct Answer
verified
After the deposit outflow, the bank will...
View Answer

As the costs associated with deposit outflows , the banks willingness to hold excess reserves will .

Correct Answer
verified

Collateral requirements lessen the consequences of because the collateral reduces the lender's losses in the case of a loan default and it reduces because the borrower has more to lose from a default.

Correct Answer
verified

Exam 10: Banking and the Management of Financial Institutions

In one sense ________ appears surprising since it means that the bank is not ________ its portfolio of loans and thus is exposing itself to more risk.

Correct AnswerverifiedShow Answer

In order to reduce the ________ problem in loan markets, bankers collect information from prospective borrowers to screen out the bad credit risks from the good ones.

Correct AnswerverifiedShow Answer

Traders working for banks are subject to the

Correct AnswerverifiedShow Answer

-If interest rates rise by 5 percentage points, say, from 10 to 15%, bank profits (measured using gap analysis) will

Correct AnswerverifiedShow Answer

If a banker expects interest rates to fall in the future, her best strategy for the present is

Correct AnswerverifiedShow Answer

For banks,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe bank's profits would go down because...View AnswerShow Answer

Which of the following is not an example of a backup line of credit?

Correct AnswerverifiedShow Answer

In general, banks would prefer to acquire funds quickly by ________ rather than ________.

Correct AnswerverifiedShow Answer

Which of the following are reported as liabilities on a bank's balance sheet?

Correct AnswerverifiedShow Answer

Which of the following would a bank not hold as insurance against the highest cost of deposit outflow-bank failure?

Correct AnswerverifiedShow Answer

Which of the following is not a source of borrowings for a bank?

Correct AnswerverifiedShow Answer

When a new depositor opens a checking account at the First National Bank, the bank's assets ________ and its liabilities ________.

Correct AnswerverifiedShow Answer

Which of the following are transaction deposits?

Correct AnswerverifiedShow Answer

A $5 million deposit outflow from a bank has the immediate effect of

Correct AnswerverifiedShow Answer

If a bank has $10 million of checkable deposits, a required reserve ratio of 10 percent, and it holds $2 million in reserves, then it will not have enough reserves to support a deposit outflow of

Correct AnswerverifiedShow Answer

With a 10% reserve requirement ratio, a $100 deposit into New Bank means that the maximum amount New Bank could lend is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedAfter the deposit outflow, the bank will...View AnswerShow Answer

As the costs associated with deposit outflows ________, the banks willingness to hold excess reserves will ________.

Correct AnswerverifiedShow Answer

Collateral requirements lessen the consequences of ________ because the collateral reduces the lender's losses in the case of a loan default and it reduces ________ because the borrower has more to lose from a default.

Correct AnswerverifiedShow Answer

In one sense appears surprising since it means that the bank is not its portfolio of loans and thus is exposing itself to more risk.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The bank's profits would go down because...
View Answer

Correct Answer
verified

In general, banks would prefer to acquire funds quickly by rather than .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

When a new depositor opens a checking account at the First National Bank, the bank's assets and its liabilities .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
After the deposit outflow, the bank will...
View Answer

As the costs associated with deposit outflows , the banks willingness to hold excess reserves will .

Correct Answer
verified

Collateral requirements lessen the consequences of because the collateral reduces the lender's losses in the case of a loan default and it reduces because the borrower has more to lose from a default.

Correct Answer
verified