Exam 12: Banking and the Management of Financial Institutions

Banks face the problem of ________ in loan markets because bad credit risks are the ones most likely to seek bank loans.

Assume a bank has $200 million of assets with a duration of 2.5, and $190 million of liabilities with a duration of 1.05. If interest rates increase from 5 percent to 6 percent, the net worth as a percentage of assets would ________ by approximately ________.

When you deposit $50 in currency at Old National Bank, ________.

Which of the following statements is false?

When a $10 cheque written on the First National Bank is deposited in an account at CIBC, then ________.

Banks develop statistical models to calculate their maximum loss over a given time period. This approach is known as the ________.

When a $10 cheque written on the First National Bank is deposited in an account at CIBC, then ________.

The principal-agent problem that exists for bank trading activities can be reduced through ________.

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.

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

Bank reserves include ________.

Examples of off-balance-sheet activities include ________.

Traders working for banks are subject to the ________.

Credit risk management tools include ________.

Because of their ________ liquidity, ________ government securities are called secondary reserves.

If a bank needs to raise the amount of capital relative to assets, a bank manager might choose to ________.

The quantity defined as interest income minus interest expenses divided by assets is a measure of bank performance known as ________.

Banks hold excess and secondary reserves to ________.

Using T-accounts show what happens to reserves at New National Bank if one individual deposits $1000 in cash into her chequing account and another individual withdraws $750 in cash from her chequing account.

Provisions in loan contracts that prohibit borrowers from engaging in specified risky activities are called ________.