Question 1

A bank's reserves include:

Accepted Answer

A)  U.S. Treasury bills. 
B)  currency in the bank but not currency in the ATM machines. 
C)  the bank's deposits at the Federal Reserve. 
D)  U.S. Treasury bills and currency in the bank. 
A)  U.S. Treasury bills. 
B)  currency in the bank but not currency in the ATM machines. 
C)  the bank's deposits at the Federal Reserve. 
D)  U.S. Treasury bills and currency in the bank.

Question 2

If bank with leverage of 8 to 1 increases its assets by adding $1 to capital for every $1 added to assets:

Accepted Answer

A)  leverage increases. 
B)  leverage decreases. 
C)  leverage stays constant. 
D)  the answer cannot be determined from the information in the question. 
A)  leverage increases. 
B)  leverage decreases. 
C)  leverage stays constant. 
D)  the answer cannot be determined from the information in the question.

Question 3

Suppose a particular bank is very large in terms of assets, and makes consumer and residential loans as well as commercial and industrial loan. The bank is probably a:

Accepted Answer

A)  regional or super-regional bank. 
B)  money center bank. 
C)  community bank. 
D)  savings bank. 
A)  regional or super-regional bank. 
B)  money center bank. 
C)  community bank. 
D)  savings bank.

Question 4

A bank's return on equity (ROE) is calculated by:

Accepted Answer

A)  dividing the bank's net profit after taxes by the bank's capital. 
B)  dividing the banks liabilities by the bank's capital. 
C)  taking the bank's assets plus the net profit after taxes and dividing this sum by the bank's capital. 
D)  dividing the bank's net profit after taxes by the sum of the bank's assets and its liabilities. 
A)  dividing the bank's net profit after taxes by the bank's capital. 
B)  dividing the banks liabilities by the bank's capital. 
C)  taking the bank's assets plus the net profit after taxes and dividing this sum by the bank's capital. 
D)  dividing the bank's net profit after taxes by the sum of the bank's assets and its liabilities.

Question 5

Commercial banks increased their involvement in mortgages over the years due to:

Accepted Answer

A)  the ability to securitize mortgages which made them more liquid. 
B)  the demands of regulators. 
C)  the increase in commercial loans demanded due to the development of the commercial paper market. 
D)  the reduced risk of borrowers' defaulting on mortgage loans. 
A)  the ability to securitize mortgages which made them more liquid. 
B)  the demands of regulators. 
C)  the increase in commercial loans demanded due to the development of the commercial paper market. 
D)  the reduced risk of borrowers' defaulting on mortgage loans.

Question 6

Explain why non-transactions accounts have become a more important source of funds for the bank than transaction accounts over the past thirty years?

Accepted Answer

Non-transactions accounts include saving

Question 7

What is the equation that reflects a bank's balance sheet?

Accepted Answer

The equation reflecting a bank

Question 8

Secondary reserves for banks are:

Accepted Answer

A)  the same as the bank's net worth. 
B)  mainly the bank's liquid securities. 
C)  vault cash. 
D)  deposits the bank has at the Federal Reserve. 
A)  the same as the bank's net worth. 
B)  mainly the bank's liquid securities. 
C)  vault cash. 
D)  deposits the bank has at the Federal Reserve.

Question 9

Considering a bank's balance sheet, which of the following statements is true?

Accepted Answer

A)  Total Bank Assets = Total Bank Capital - Total Bank Liabilities 
B)  Total Bank Assets = Total Bank Liabilities + Total Bank Capital 
C)  Total Bank Assets + Total Bank Capital = Total Bank Liabilities 
D)  Total Bank Assets + Total Bank Liabilities =Total Bank Capital 
A)  Total Bank Assets = Total Bank Capital - Total Bank Liabilities 
B)  Total Bank Assets = Total Bank Liabilities + Total Bank Capital 
C)  Total Bank Assets + Total Bank Capital = Total Bank Liabilities 
D)  Total Bank Assets + Total Bank Liabilities =Total Bank Capital

Question 10

Checkable deposits have decreased since the 1970's mainly because:

Accepted Answer

A)  regulators allowed higher rates to be paid on these accounts and banks found them to be highly unprofitable. 
B)  people prefer to use credit cards rather than writing checks. 
C)  these deposit accounts offer little or no interest so depositors find them to be expensive. 
D)  as banks added fees to these accounts people increased their holdings of currency. 
A)  regulators allowed higher rates to be paid on these accounts and banks found them to be highly unprofitable. 
B)  people prefer to use credit cards rather than writing checks. 
C)  these deposit accounts offer little or no interest so depositors find them to be expensive. 
D)  as banks added fees to these accounts people increased their holdings of currency.

Question 11

One of the lessons from the 2007-2009 financial crisis regarding the management of risk by financial institution is that:

Accepted Answer

A)  many banks lacked real-time information that would allow them to assess their various risk exposures at the bank-wide level. 
B)  some banks, especially large ones, overestimated the trading risk associated with mortgage backed securities. 
C)  banks were holding too much capital as a protection against market risk. 
D)  many of the usual mechanisms for managing liquidity risk actually worked pretty well. 
A)  many banks lacked real-time information that would allow them to assess their various risk exposures at the bank-wide level. 
B)  some banks, especially large ones, overestimated the trading risk associated with mortgage backed securities. 
C)  banks were holding too much capital as a protection against market risk. 
D)  many of the usual mechanisms for managing liquidity risk actually worked pretty well.

Question 12

Which of the following is not a bank asset?

Accepted Answer

A)  Securities 
B)  Mortgage loans 
C)  Reserves 
D)  Non-transaction deposits 
A)  Securities 
B)  Mortgage loans 
C)  Reserves 
D)  Non-transaction deposits

Question 13

The primary difference in certificates of deposit (CDs) that are equal to or less than $100,000 and those over $100,000 (other than the amount) is:

Accepted Answer

A)  a bank does not have to include CDs equal to or less than $100,000 in its liabilities. 
B)  CDs greater than $100,000 are negotiable and therefore can be bought and sold. 
C)  CDs equal to or less than $100,000 are issued for only six months or less. 
D)  CDs greater than $100,000 are issued for only six months or less. 
A)  a bank does not have to include CDs equal to or less than $100,000 in its liabilities. 
B)  CDs greater than $100,000 are negotiable and therefore can be bought and sold. 
C)  CDs equal to or less than $100,000 are issued for only six months or less. 
D)  CDs greater than $100,000 are issued for only six months or less.

Question 14

If a bank has $150 million in assets and a net worth of $20 million, its asset-to-equity ratio is:

Accepted Answer

A)  6.5 to 1. 
B)  7.5 to 1. 
C)  0.13 to 1. 
D)  0.15 to 1. 
A)  6.5 to 1. 
B)  7.5 to 1. 
C)  0.13 to 1. 
D)  0.15 to 1.

Question 15

The credit risk a bank faces is the risk resulting specifically from:

Accepted Answer

A)  the economy entering a recession. 
B)  interest rates falling. 
C)  some of the bank's loans not being repaid. 
D)  the bank experiencing a decrease in deposits. 
A)  the economy entering a recession. 
B)  interest rates falling. 
C)  some of the bank's loans not being repaid. 
D)  the bank experiencing a decrease in deposits.

Question 16

Banks do not hold a lot of their assets in the form of cash mainly because of:

Accepted Answer

A)  regulation. 
B)  the fear of being robbed. 
C)  the opportunity cost of holding cash; cash does not earn interest. 
D)  it can encourage employee theft. 
A)  regulation. 
B)  the fear of being robbed. 
C)  the opportunity cost of holding cash; cash does not earn interest. 
D)  it can encourage employee theft.

Question 17

A bank develops specialized skills in analyzing companies from one specific industry. This contributes significantly to the bank achieving economies of scale because a large portion of its total loan portfolio is made up of companies in this industry. What are the long-run profit prospects for this bank? Explain.

Accepted Answer

The bank may have lowered its transactio

Question 18

A home buyer is presented with two options for financing the purchase of a home: a 20 year fixed rate mortgage or a 20 year adjustable-rate mortgage, where the rate adjusts once a year. Which mortgage would you expect to start at the lowest interest rate and why?

Accepted Answer

The adjustable-rate mortgage should star

Question 19

If a bank sells off all of its assets and pays all of its liabilities, the amount remaining would be its:

Accepted Answer

A)  net profit. 
B)  reserves. 
C)  net worth. 
D)  excess reserves. 
A)  net profit. 
B)  reserves. 
C)  net worth. 
D)  excess reserves.

Question 20

Considering the balance sheet for all commercial banks in the U.S., the largest category of liabilities is:

Accepted Answer

A)  borrowing from other banks in the U.S. 
B)  saving's deposits and time deposits. 
C)  checkable deposits. 
D)  borrowings from non-banks in the U.S. 
A)  borrowing from other banks in the U.S. 
B)  saving's deposits and time deposits. 
C)  checkable deposits. 
D)  borrowings from non-banks in the U.S.

Exam 12:Depository Institutions: Banks and Bank Management

A bank's reserves include:

If bank with leverage of 8 to 1 increases its assets by adding $1 to capital for every $1 added to assets:

Suppose a particular bank is very large in terms of assets, and makes consumer and residential loans as well as commercial and industrial loan. The bank is probably a:

A bank's return on equity (ROE) is calculated by:

Commercial banks increased their involvement in mortgages over the years due to:

Explain why non-transactions accounts have become a more important source of funds for the bank than transaction accounts over the past thirty years?

What is the equation that reflects a bank's balance sheet?

Secondary reserves for banks are:

Considering a bank's balance sheet, which of the following statements is true?

Checkable deposits have decreased since the 1970's mainly because:

One of the lessons from the 2007-2009 financial crisis regarding the management of risk by financial institution is that:

Which of the following is not a bank asset?

The primary difference in certificates of deposit (CDs) that are equal to or less than $100,000 and those over $100,000 (other than the amount) is:

If a bank has $150 million in assets and a net worth of $20 million, its asset-to-equity ratio is:

The credit risk a bank faces is the risk resulting specifically from:

Banks do not hold a lot of their assets in the form of cash mainly because of:

A home buyer is presented with two options for financing the purchase of a home: a 20 year fixed rate mortgage or a 20 year adjustable-rate mortgage, where the rate adjusts once a year. Which mortgage would you expect to start at the lowest interest rate and why?

If a bank sells off all of its assets and pays all of its liabilities, the amount remaining would be its:

Considering the balance sheet for all commercial banks in the U.S., the largest category of liabilities 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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