Question 1

A bank that cannot meet its loan commitments is experiencing the results of:

Accepted Answer

A)  interest rate risk. 
B)  credit risk. 
C)  trading risk. 
D)  liquidity risk. 
A)  interest rate risk. 
B)  credit risk. 
C)  trading risk. 
D)  liquidity risk. D

Question 2

Which of the following bank assets would be categorized as secondary reserves?

Accepted Answer

A)  U.S. Treasury bills 
B)  Cash 
C)  Mortgage loans 
D)  Deposits at the Federal Reserve 
A)  U.S. Treasury bills 
B)  Cash 
C)  Mortgage loans 
D)  Deposits at the Federal Reserve A

Question 3

Trading risk faced by U.S. banks results from:

Accepted Answer

A)  the free-rider problem. 
B)  changes in regulations. 
C)  adverse selection. 
D)  moral hazard. 
A)  the free-rider problem. 
B)  changes in regulations. 
C)  adverse selection. 
D)  moral hazard. D

Question 4

A bank's reserves include:

Accepted Answer

A)  vault cash. 
B)  U.S. Treasury Securities. 
C)  the bank's loan portfolio. 
D)  U.S. Treasury bills and vault cash. 
A)  vault cash. 
B)  U.S. Treasury Securities. 
C)  the bank's loan portfolio. 
D)  U.S. Treasury bills and vault cash.

Question 5

One way for a bank to deal with credit risk is to:

Accepted Answer

A)  charge all borrowers from the same industry an average rate for that industry. 
B)  add a mark-up for a specific borrower based on the borrower's credit history to the cost of funds. 
C)  avoid making loans to borrowers from a broad spectrum and to specialize geographically and in specific industries. 
D)  increase the number of loans made in any year. 
A)  charge all borrowers from the same industry an average rate for that industry. 
B)  add a mark-up for a specific borrower based on the borrower's credit history to the cost of funds. 
C)  avoid making loans to borrowers from a broad spectrum and to specialize geographically and in specific industries. 
D)  increase the number of loans made in any year.

Question 6

If a bank has customer deposits of $150 million, $15 million in reserves and the amount of excess reserves equals 0 (zero):

Accepted Answer

A)  the required reserve rate is 15 percent. 
B)  the required reserve rate is 10 percent. 
C)  the required reserve rate is 1 percent. 
D)  the bank's net interest margin is zero (0). 
A)  the required reserve rate is 15 percent. 
B)  the required reserve rate is 10 percent. 
C)  the required reserve rate is 1 percent. 
D)  the bank's net interest margin is zero (0).

Question 7

The total assets of commercial banks in 2015 amounted to:

Accepted Answer

A)  three times nominal GDP in the U.S. 
B)  about one-half of nominal GDP in the U.S. 
C)  about four-fifths of nominal GDP in the U.S. 
D)  about one-tenth of nominal GDP in the U.S. 
A)  three times nominal GDP in the U.S. 
B)  about one-half of nominal GDP in the U.S. 
C)  about four-fifths of nominal GDP in the U.S. 
D)  about one-tenth of nominal GDP in the U.S.

Question 8

Loans made in the federal funds market:

Accepted Answer

A)  are highly collateralized. 
B)  are made by the Federal Reserve System to the bank within 24 hours. 
C)  are unsecured loans. 
D)  are insured by the FDIC. 
A)  are highly collateralized. 
B)  are made by the Federal Reserve System to the bank within 24 hours. 
C)  are unsecured loans. 
D)  are insured by the FDIC.

Question 9

Which of the following statements best completes this sentence: "On a bank's balance sheet..."?

Accepted Answer

A)  liabilities show the uses of funds and assets show the sources of funds. 
B)  assets show the sources of funds and the net worth shows the uses of funds. 
C)  net worth shows the sources of funds and liabilities show the uses of funds. 
D)  liabilities show the sources of funds and assets show the uses of funds. 
A)  liabilities show the uses of funds and assets show the sources of funds. 
B)  assets show the sources of funds and the net worth shows the uses of funds. 
C)  net worth shows the sources of funds and liabilities show the uses of funds. 
D)  liabilities show the sources of funds and assets show the uses of funds.

Question 10

We have discussed the principal-agent problem as a form of moral hazard. Discuss the unique problems a bank manager faces in terms of trying to please the owners of the bankand at the same time trying to appease regulators.

Accepted Answer

The principal-agent problem arises from

Question 11

The trading losses that some banks incurred could be thought to be from trading risk, but in many cases the real cause of the losses could be attributed to moral hazard. Why was this the case?

Accepted Answer

As the chapter points out, in the case o

Question 12

Identify the four broad categories that make up the asset side of the balance sheet for banks and which category is usually the largest.

Accepted Answer

The four categories that make

Question 13

Which of the following is a bank liability?

Accepted Answer

A)  Mortgage loans 
B)  Demand deposits 
C)  Reserves 
D)  U.S. Treasury securities 
A)  Mortgage loans 
B)  Demand deposits 
C)  Reserves 
D)  U.S. Treasury securities

Question 14

If a bank has a net worth that is negative, what do you know about the relationship between the amounts the bank has in assets and liabilities?

Accepted Answer

If a bank had a negative net w

Question 15

Which of the following statements is not true?

Accepted Answer

A)  The largest source of funds for banks to lend comes from the owner's capital. 
B)  Transaction deposits make up less than 10 percent of banks sources of funds. 
C)  The largest sources of funds for banks are non-transactions accounts. 
D)  Borrowing is a larger source of funds for banks than transaction deposits. 
A)  The largest source of funds for banks to lend comes from the owner's capital. 
B)  Transaction deposits make up less than 10 percent of banks sources of funds. 
C)  The largest sources of funds for banks are non-transactions accounts. 
D)  Borrowing is a larger source of funds for banks than transaction deposits.

Question 16

Repurchase agreements are usually used by banks that:

Accepted Answer

A)  have a need for long-term financing. 
B)  need cash for a very short period of time. 
C)  have negative net worth. 
D)  cannot obtain financing from any other source. 
A)  have a need for long-term financing. 
B)  need cash for a very short period of time. 
C)  have negative net worth. 
D)  cannot obtain financing from any other source.

Question 17

A bank has a need for cash for a short period of time to meet its liquidity needs. The bank has significant holding of U.S. treasury securities. The bank really does not want to sell the securities, realizing the liquidity need is a temporary problem. A pension fund has significant cash holdings and would like to earn some return on part of these holdings. The problem is the fund will need this cash in a few days to honor a purchase agreement it made for municipal bonds being issued. Is there any way these two organizations can work together to solve each other's problem?

Accepted Answer

This is a situation that is ideal for a

Question 18

A bank's net interest margin is calculated by taking net interest income and:

Accepted Answer

A)  dividing it by the bank's capital. 
B)  dividing it by the bank's assets. 
C)  dividing it by the sum of the bank's assets and capital. 
D)  subtracting taxes. 
A)  dividing it by the bank's capital. 
B)  dividing it by the bank's assets. 
C)  dividing it by the sum of the bank's assets and capital. 
D)  subtracting taxes.

Question 19

Mergers resulting from the financial crisis of 2007-2009 have left what percentage of deposits in the hands of 4 banks?

Accepted Answer

A)  10% 
B)  30% 
C)  40% 
D)  60% 
A)  10% 
B)  30% 
C)  40% 
D)  60%

Question 20

The difference between a bank's reserves and its required reserves is:

Accepted Answer

A)  profits. 
B)  net interest income. 
C)  excess reserves. 
D)  vault cash. 
A)  profits. 
B)  net interest income. 
C)  excess reserves. 
D)  vault cash.

Exam 12:Depository Institutions: Banks and Bank Management

A bank that cannot meet its loan commitments is experiencing the results of:

Which of the following bank assets would be categorized as secondary reserves?

Trading risk faced by U.S. banks results from:

A bank's reserves include:

One way for a bank to deal with credit risk is to:

If a bank has customer deposits of $150 million, $15 million in reserves and the amount of excess reserves equals 0 (zero):

The total assets of commercial banks in 2015 amounted to:

Loans made in the federal funds market:

Which of the following statements best completes this sentence: "On a bank's balance sheet..."?

We have discussed the principal-agent problem as a form of moral hazard. Discuss the unique problems a bank manager faces in terms of trying to please the owners of the bankand at the same time trying to appease regulators.

The trading losses that some banks incurred could be thought to be from trading risk, but in many cases the real cause of the losses could be attributed to moral hazard. Why was this the case?

Identify the four broad categories that make up the asset side of the balance sheet for banks and which category is usually the largest.

Which of the following is a bank liability?

If a bank has a net worth that is negative, what do you know about the relationship between the amounts the bank has in assets and liabilities?

Which of the following statements is not true?

Repurchase agreements are usually used by banks that:

A bank's net interest margin is calculated by taking net interest income and:

Mergers resulting from the financial crisis of 2007-2009 have left what percentage of deposits in the hands of 4 banks?

The difference between a bank's reserves and its required reserves is:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange Rate Policy and the Central Bank

Money Growth, Money Demand and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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