Exam 12: Banking and the Management of Financial Institutions

Long-term customer relationships ________ the cost of information collection and make it easier to ________ credit risks.

A bank failure occurs whenever ________.

Off-balance sheet activities involving guarantees of securities and back-up credit lines ________.

Unanticipated moral hazard contingencies can be reduced by ________.

When you deposit $50 in your account at First National Bank and a $100 cheque you have written on this account is cashed at Chemical Bank, then ________.

If a bank has $100,000 of demand deposits, a desired reserve ratio of 20 percent, and it holds $40000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is ________.

If borrowers with the most risky investment projects seek bank loans in higher proportion to those borrowers with the safest investment projects, banks are said to face the problem of ________.

Which of the following would not be a way to increase the return on equity?

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

If a bank has $200,000 of demand deposits, a desired reserve ratio of 20 percent, and it holds $80000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is ________.

Which of the following are primary concerns of the bank manager?

All of the following are examples of off-balance sheet activities that generate fee income for banks except ________.

Bank loans from the Bank of Canada are called ________ and represent a ________ of funds.

Measuring the sensitivity of bank profits to changes in interest rates by multiplying the gap times the change in the interest rate is called ________.

-Assuming that the average duration of its assets is five years, while the average duration of its liabilities is three years, then a 5 percentage point increase in interest rates will cause the net worth of First National to decline by ________ of the total original asset value.

Which of the following are not reported as assets on a bank's balance sheet?

When banks offer borrowers smaller loans than they have requested, banks are said to ________.

If interest rates increase from 3% to 4%, a $100,000 10 year bond with a duration of 8 years would ________ in price by approximately ________.

Property promised to the lender as compensation if the borrower defaults is called ________.

When a lender refuses to make a loan, although borrowers are willing to pay the stated interest rate or even a higher rate, the bank is said to engage in ________.