Exam 12:Depository Institutions: Banks and Bank Management

A bank that meets deposit withdrawal by borrowing additional funds will alter:

Which of the following statements regarding checkable deposits is most accurate?

If a bank has deposits of $250 million, reserves that total $30 million and has a required reserve rate of 10 percent:

For every $100 in assets, a bank has $40 in interest-rate sensitive assets, and the other $60 in non-interest-rate sensitive assets. The same bank has $50 for every $100 in liabilities in interest-rate sensitive liabilities, the other $50 are in liabilities that are not interest-rate sensitive. If the interest rate on assets increases from 5 to 6 percent, and the interest rate on liabilities increases from 3 to 4 percent, the impact on the bank's profits per $100 of assets will be:

A rumor starts that says a bank has suffered significant losses and may not be able to honor its promises to depositors. This causes most of the depositors to line up in front of the bank the next morning wanting to withdraw their deposits. This is an example of:

A category of assets for banks is cash items in the process of collection. This is:

Savings and loan institutions:

A non-transaction deposit would include each of the following, except:

For every $100 in assets, a bank has $30 in interest-rate sensitive assets, and the other $70 in non-interest-rate sensitive assets. The same bank has $60 for every $100 in liabilities in interest-rate sensitive liabilities, the other $40 are in liabilities that are not interest-rate sensitive. If the interest rate on assets decreases from 6 to 5 percent, and the interest rate on liabilities decreases from 4 to 3 percent, the impact on the bank's profits per $100 of assets will be:

A bank's off-balance-sheet activities usually:

Which of the following is not a bank liability?

A bank that does not want to hold a lot of excess reserves but wants to manage liquidity risk is likely to:

If a bank's return on equity remains constant, but the ratio of bank assets to bank capital increases:

Bank managers seem to have to walk a tightrope between managing risk and earning a profit. Explain.

As the end of the year 1999 approached, many people worried that banks and more specifically the banks' computers would not be able to read the year 2000 correctly. This was commonly known as the Y2K problem. Many people were concerned that their bank would lose the record of their deposits etc., and made plans to take most of their funds out of the bank. Address the potential Y2K problem from the standpoint of bank risk. What two types of risk potentially could have been involved?

You are provided with the following information: a bank has a net income after taxes of $3.5 million; it has assets of $150 million; and bank capital of $12.5 million. What is the bank's return on assets; its return on equity, and its debt-to-equity ratio?

What should be the impact on a bank's return on assets and return on equity from increased use of off-balance-sheet activities?

Explain why a bank with a high debt-to-equity ratio may be more profitable than a bank with a lower ratio but would also have a higher level of risk.

An argument that comes up from time to time is that credit unions have an advantage over other financial depository institutions in the sense that they are non-profit institutions and, therefore, are exempt from taxes on income that other private depository institutions pay. As a result, credit unions may be able to charge lower rates of interest to borrowers and pay a higher rate to depositors than these other institutions. What do you think of this argument?

If a bank's return on equity remains constant, but the ratio of bank assets to bank capital decreases: