Question 1

Banks in the United States have been prohibited from investing deposits in significant equity holdings since the passage of the

Accepted Answer

A) Bank Reform Act of 1980. 
B) Securities and Exchange Acts of 1933 and 1934. 
C) National Banking Acts of 1863 and 1864. 
D) Sherman Antitrust Act of 1890. 
A) Bank Reform Act of 1980. 
B) Securities and Exchange Acts of 1933 and 1934. 
C) National Banking Acts of 1863 and 1864. 
D) Sherman Antitrust Act of 1890.

Question 2

Which of the following things do banks do with the funds they acquire from savers?

Accepted Answer

A) Invest in corporate stock 
B) Invest in corporate bonds 
C) Make loans to individuals 
D) All of the above 
A) Invest in corporate stock 
B) Invest in corporate bonds 
C) Make loans to individuals 
D) All of the above

Question 3

Which of the following is a bank liability?

Accepted Answer

A) Reserves 
B) Consumer loans 
C) Nontransaction deposits 
D) Securities 
A) Reserves 
B) Consumer loans 
C) Nontransaction deposits 
D) Securities

Question 4

In the mid-1990s to 2000s Japanese banks were experiencing difficulties in which areas?

Accepted Answer

A) Real estate lending and poor management 
B) Overly strict government regulation 
C) High inflation 
D) High taxes 
A) Real estate lending and poor management 
B) Overly strict government regulation 
C) High inflation 
D) High taxes

Question 5

In 2006, net worth was about what percentage of total funds raised by banks?

Accepted Answer

A) 2% 
B) 7% 
C) 10% 
D) 35% 
A) 2% 
B) 7% 
C) 10% 
D) 35%

Question 6

What is a super-NOW account?

Accepted Answer

A) A NOW account against which checks may not be written 
B) A NOW account that pays no interest 
C) A NOW account that pays high interest, but the funds in which may not be withdrawn for six months 
D) A NOW account linked to a savings account 
A) A NOW account against which checks may not be written 
B) A NOW account that pays no interest 
C) A NOW account that pays high interest, but the funds in which may not be withdrawn for six months 
D) A NOW account linked to a savings account

Question 7

The interest rate on unsecured loans between banks is called the

Accepted Answer

A) discount rate. 
B) repurchase rate. 
C) T-bill rate. 
D) federal funds rate. 
A) discount rate. 
B) repurchase rate. 
C) T-bill rate. 
D) federal funds rate.

Question 8

The threat that savers may withdraw their deposits

Accepted Answer

A) is not credible in the current banking situation. 
B) helps to reduce the moral hazard problem in banking. 
C) reduces interest rates banks charge on loans. 
D) increases the volume of cash items in the process of collection. 
A) is not credible in the current banking situation. 
B) helps to reduce the moral hazard problem in banking. 
C) reduces interest rates banks charge on loans. 
D) increases the volume of cash items in the process of collection.

Question 9

In which of the following assets are commercial banks in the United States NOT allowed to invest checkable deposits?

Accepted Answer

A) Home mortgages 
B) Corporate bonds 
C) Municipal bonds 
D) U.S. Treasury bonds 
A) Home mortgages 
B) Corporate bonds 
C) Municipal bonds 
D) U.S. Treasury bonds

Question 10

About what percentage of bank assets is made up of cash items in 2006?

Accepted Answer

A) 3% 
B) 21% 
C) 37% 
D) 50% 
A) 3% 
B) 21% 
C) 37% 
D) 50%

Question 11

The prime interest rate is the

Accepted Answer

A) interest rate on six-month U.S. Treasury bills. 
B) discount rate. 
C) Federal funds rate. 
D) interest rate that banks charge high-quality borrowers. 
A) interest rate on six-month U.S. Treasury bills. 
B) discount rate. 
C) Federal funds rate. 
D) interest rate that banks charge high-quality borrowers.

Question 12

A bank's net worth will decline following an increase in interest rates if the value of its

Accepted Answer

A) fixed-rate assets is greater than the value of its fixed-rate liabilities. 
B) fixed-rate assets is less than the value of its fixed-rate liabilities. 
C) fixed-rate assets is greater than the value of its variable-rate assets. 
D) fixed-rate liabilities is greater than the value of its variable-rate liabilities. 
A) fixed-rate assets is greater than the value of its fixed-rate liabilities. 
B) fixed-rate assets is less than the value of its fixed-rate liabilities. 
C) fixed-rate assets is greater than the value of its variable-rate assets. 
D) fixed-rate liabilities is greater than the value of its variable-rate liabilities.

Question 13

A bank's remaining value after it has met all its liabilities is known as a

Accepted Answer

A) bank's assets. 
B) bank's liabilities. 
C) bank's equity capital. 
D) bank's income. 
A) bank's assets. 
B) bank's liabilities. 
C) bank's equity capital. 
D) bank's income.

Question 14

Which of the following statements about checkable deposits is correct?

Accepted Answer

A) Checkable deposits are a larger fraction of banks' funds today than in 1960. 
B) Checkable deposits are a smaller fraction of banks' funds today than in 1960. 
C) All checkable deposits pay interest. 
D) No checkable deposits pay interest. 
A) Checkable deposits are a larger fraction of banks' funds today than in 1960. 
B) Checkable deposits are a smaller fraction of banks' funds today than in 1960. 
C) All checkable deposits pay interest. 
D) No checkable deposits pay interest.

Question 15

Which of the following is NOT considered a cash item by banks?

Accepted Answer

A) U.S. Treasury bills 
B) Deposits at other banks 
C) Deposits at the Federal Reserve 
D) Vault cash 
A) U.S. Treasury bills 
B) Deposits at other banks 
C) Deposits at the Federal Reserve 
D) Vault cash

Question 16

What steps can a bank take to deal with a significant outflow of deposits?

Accepted Answer

Banks need to manage their assets so as

Question 17

In banking, the spread refers to the difference between the

Accepted Answer

A) interest rate on long-term bonds and the interest rate on short-term bonds. 
B) interest rate on car loans and the interest rate on home mortgages. 
C) return earned from lending and the cost of the needed funds. 
D) bid and asked prices on a bond. 
A) interest rate on long-term bonds and the interest rate on short-term bonds. 
B) interest rate on car loans and the interest rate on home mortgages. 
C) return earned from lending and the cost of the needed funds. 
D) bid and asked prices on a bond.

Question 18

Which of the following helps explain why depositors sometimes put their funds in demand deposits rather than NOW accounts?

Accepted Answer

A) Demand deposits pay interest, whereas NOW accounts do not pay interest. 
B) Businesses may not hold NOW accounts. 
C) Checks may be written against demand deposits, but not against NOW accounts. 
D) Demand deposits are more liquid than NOW accounts. 
A) Demand deposits pay interest, whereas NOW accounts do not pay interest. 
B) Businesses may not hold NOW accounts. 
C) Checks may be written against demand deposits, but not against NOW accounts. 
D) Demand deposits are more liquid than NOW accounts.

Question 19

Which of the following is NOT a consideration when a bank decides the appropriate interest rate to charge on a loan?

Accepted Answer

A) The bank's cost of funds 
B) The ratio of the bank's assets to its liabilities 
C) The default risk on the loan 
D) The rates of return on alternative investments available to the bank 
A) The bank's cost of funds 
B) The ratio of the bank's assets to its liabilities 
C) The default risk on the loan 
D) The rates of return on alternative investments available to the bank

Question 20

Which of the following is a checkable deposit?

Accepted Answer

A) A NOW account 
B) A money market deposit account 
C) A certificate of deposit 
D) A savings account 
A) A NOW account 
B) A money market deposit account 
C) A certificate of deposit 
D) A savings account

Exam 13: The Business of Banking

Banks in the United States have been prohibited from investing deposits in significant equity holdings since the passage of the

Which of the following things do banks do with the funds they acquire from savers?

Which of the following is a bank liability?

In the mid-1990s to 2000s Japanese banks were experiencing difficulties in which areas?

In 2006, net worth was about what percentage of total funds raised by banks?

What is a super-NOW account?

The interest rate on unsecured loans between banks is called the

The threat that savers may withdraw their deposits

In which of the following assets are commercial banks in the United States NOT allowed to invest checkable deposits?

About what percentage of bank assets is made up of cash items in 2006?

The prime interest rate is the

A bank's net worth will decline following an increase in interest rates if the value of its

A bank's remaining value after it has met all its liabilities is known as a

Which of the following statements about checkable deposits is correct?

Which of the following is NOT considered a cash item by banks?

What steps can a bank take to deal with a significant outflow of deposits?

In banking, the spread refers to the difference between the

Which of the following helps explain why depositors sometimes put their funds in demand deposits rather than NOW accounts?

Which of the following is NOT a consideration when a bank decides the appropriate interest rate to charge on a loan?

Which of the following is a checkable deposit?

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

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