Exam 12: Banking and the Management of Financial Institutions

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

If the First National Bank has a gap equal to a negative $30 million, then a 5 percentage point increase in interest rates will cause profits to ________.

Asset transformation can be described as ________.

-Assuming that the average duration of its assets is four 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 ________ by ________ of the total original asset value.

In order to reduce the ________ problem in loan markets, bankers collect information from prospective borrowers to screen out the bad credit risks from the good ones.

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

Because ________ are less liquid for the depositor than ________, they earn higher interest rates.

For a given return on assets, the lower is bank capital, ________.

Your bank has the following balance sheet: Assets Liabilities Reserves $50 million Deposits $200 million Securities 50 million Loans 150 million Bank capital 50 million If the desired reserve ratio is 10 percent, what actions should the bank manager take if there is an unexpected deposit outflow of $50 million?

All else the same, if a bank's liabilities are more sensitive to interest rate fluctuations than are its assets, then ________ in interest rates will ________ bank profits.

Large-denomination CDs are ________, so that like a bond they can be resold in a ________ market before they mature.

When banks involved in trading activities attempt to outguess markets, they are ________.

When you deposit a $50 bill in the New National Bank, ________.

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. What is its duration gap?

Conditions that likely contributed to a credit crunch in 2008 include ________.

Which of the following has not resulted from more active liability management on the part of banks?

Bank capital has both benefits and costs for the bank owners. Higher bank capital ________ the likelihood of bankruptcy, but higher bank capital ________ the return on equity for a given return on assets.

If a bank has excess reserves greater than the amount of a deposit outflow, the outflow will result in equal reductions in ________.

A $5 million deposit outflow from a bank has the immediate effect of ________.

All of the following are operating expenses for a bank except ________.