Exam 12: Banking and the Management of Financial Institutions

The fraction of chequable deposits that banks choose to hold are ________.

Explain using an example the statement that "given the return on assets, the lower the bank capital, the higher the return for the owners of the bank."

To reduce moral hazard problems, banks include restrictive covenants in loan contracts. In order for these restrictive covenants to be effective, banks must also ________.

A T-account represents ________.

The goals of bank asset management include ________.

Assume that a customer deposits $1000 in her bank. Show in a T-account the effect of this deposit. If the bank is subject to reserve requirements (as some bank in other countries are), show in a second T-account the banks balance sheet indicating required and excess reserves, assuming a 5 percent required reserve ratio. In a third T-account, show the change in the bank's balance sheet when the bank makes loans with the excess reserves.

A bank with insufficient reserves can increase its reserves by ________.

What are the main items in a bank's asset side of the balance sheet? Discuss them briefly.

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

Banks earn profits by selling ________ with attractive combinations of liquidity, risk, and return, and using the proceeds to buy ________ with a different set of characteristics.

If interest rates increase from 3% to 4%, a $100,000 25 year bond with a duration of 21 years would ________ in price by approximately ________.

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

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

Banks that suffered significant losses in the 1980s made the mistake of ________.

Which of the following are bank assets?

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

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

When a bank suspects that a $1 million loan might prove to be bad debt that will have to be written off in the future the bank ________.

For banks, ________.

A bank is insolvent when ________.