Exam 12: Banking and the Management of Financial Institutions

In general, banks make profits by selling ________ liabilities and buying ________ assets.

Modern liability management has resulted in ________.

The amount of assets per dollar of equity capital is called the ________.

When $1 million is deposited at a bank, the desired reserve ratio is 20 percent, and the bank chooses not to make any loans but to hold excess reserves instead, then, in the bank's final balance sheet, ________.

The difference of rate-sensitive liabilities and rate-sensitive assets is known as the ________.

Net profit after taxes per dollar of equity capital is a basic measure of bank profitability called ________.

If, after a deposit outflow, a bank needs an additional $3 million to meet its desired reserves, the bank can ________.

One way for banks to reduce the principal-agent problems associated with trading activities is to ________.

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

If a bank's liabilities are more sensitive to interest rate movements than are its assets, then ________.

In the absence of regulation, banks would probably hold ________.

Which of the following statements are true?

If a bank has $10 million of demand deposits, a desired 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 ________.

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

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?

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

Because borrowers, once they have a loan, are more likely to invest in high-risk investment projects, banks face the ________.

Bruce the Bank Manager can reduce interest rate risk by ________ the duration of the bank's assets to increase their rate sensitivity or, alternatively, ________ the duration of the bank's liabilities.

Bank capital is equal to ________ minus ________.

A bank's commitment to provide a firm with loans up to pre-specified limit at an interest rate that is tied to a market interest rate is called ________.