Question 1

Of the following,which would be the last choice for a bank facing a reserve deficiency?

Accepted Answer

A) Call in loans. 
B) Borrow from the Fed. 
C) Sell securities. 
D) Borrow from other banks. 
A) Call in loans. 
B) Borrow from the Fed. 
C) Sell securities. 
D) Borrow from other banks. A

Question 2

A bank that wants to monitor the check payment practices of its commercial borrowers,so that moral hazard can be reduced,will require borrowers to

Accepted Answer

A) place a bank officer on their board of directors. 
B) place a corporate officer on the bank's board of directors. 
C) keep compensating balances in a checking account at the bank. 
D) purchase the bank's CDs. 
A) place a bank officer on their board of directors. 
B) place a corporate officer on the bank's board of directors. 
C) keep compensating balances in a checking account at the bank. 
D) purchase the bank's CDs. C

Question 3

Conditions that likely contributed to a credit crunch during the global financial crisis include

Accepted Answer

A) capital shortfalls caused in part by falling real estate prices. 
B) regulated hikes in bank capital requirements. 
C) falling interest rates that raised interest rate risk,causing banks to choose to hold more capital. 
D) increases in reserve requirements. 
A) capital shortfalls caused in part by falling real estate prices. 
B) regulated hikes in bank capital requirements. 
C) falling interest rates that raised interest rate risk,causing banks to choose to hold more capital. 
D) increases in reserve requirements. A

Question 4

Banks hold capital because

Accepted Answer

A) they are required to by regulatory authorities. 
B) higher capital increases the returns to the owners. 
C) it increases the likelihood of bankruptcy. 
D) higher capital increases the return on equity. 
A) they are required to by regulatory authorities. 
B) higher capital increases the returns to the owners. 
C) it increases the likelihood of bankruptcy. 
D) higher capital increases the return on equity.

Question 5

A bank with insufficient reserves can increase its reserves by

Accepted Answer

A) lending federal funds. 
B) calling in loans. 
C) buying short-term Treasury securities. 
D) buying municipal bonds. 
A) lending federal funds. 
B) calling in loans. 
C) buying short-term Treasury securities. 
D) buying municipal bonds.

Question 6

Examples of off-balance-sheet activities include

Accepted Answer

A) trading activities. 
B) extending loans to depositors. 
C) borrowing from other banks. 
D) selling negotiable CDs. 
A) trading activities. 
B) extending loans to depositors. 
C) borrowing from other banks. 
D) selling negotiable CDs.

Question 7

Banks may borrow from or lend to another bank in the Federal Funds market. A loan of excess reserves from one bank to another bank is recorded as a(n)________ for the borrowing bank and a(n)________ for the lending bank.

Accepted Answer

A) asset;asset 
B) asset;liability 
C) liability;liability 
D) liability;asset 
A) asset;asset 
B) asset;liability 
C) liability;liability 
D) liability;asset

Question 8

A deposit outflow results in equal reductions in

Accepted Answer

A) loans and reserves. 
B) assets and liabilities. 
C) reserves and capital. 
D) assets and capital. 
A) loans and reserves. 
B) assets and liabilities. 
C) reserves and capital. 
D) assets and capital.

Question 9

Banks hold excess and secondary reserves to

Accepted Answer

A) reduce the interest-rate risk problem. 
B) provide for unexpected deposit outflows. 
C) satisfy margin requirements. 
D) achieve higher earnings than they can with loans. 
A) reduce the interest-rate risk problem. 
B) provide for unexpected deposit outflows. 
C) satisfy margin requirements. 
D) achieve higher earnings than they can with loans.

Question 10

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

Accepted Answer

A) reducing deposits and reserves by $5 million. 
B) reducing deposits and loans by $5 million. 
C) reducing deposits and securities by $5 million. 
D) reducing deposits and capital by $5 million. 
A) reducing deposits and reserves by $5 million. 
B) reducing deposits and loans by $5 million. 
C) reducing deposits and securities by $5 million. 
D) reducing deposits and capital by $5 million.

Question 11

Traders working for banks are subject to the

Accepted Answer

A) principal-agent problem. 
B) free-rider problem. 
C) double-jeopardy problem. 
D) exchange-risk problem. 
A) principal-agent problem. 
B) free-rider problem. 
C) double-jeopardy problem. 
D) exchange-risk problem.

Question 12

In general,banks make profits by selling ________ liabilities and buying ________ assets.

Accepted Answer

A) long-term;shorter-term 
B) short-term;longer-term 
C) illiquid;liquid 
D) risky;risk-free 
A) long-term;shorter-term 
B) short-term;longer-term 
C) illiquid;liquid 
D) risky;risk-free

Question 13

How can specializing in lending help to reduce the adverse selection problem in lending?

Accepted Answer

Reducing the adverse selection problem r

Question 14

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

Accepted Answer

A) the assets at the bank increase by $1 million. 
B) the liabilities of the bank decrease by $1 million. 
C) reserves increase by $200,000. 
D) liabilities increase by $200,000. 
A) the assets at the bank increase by $1 million. 
B) the liabilities of the bank decrease by $1 million. 
C) reserves increase by $200,000. 
D) liabilities increase by $200,000.

Question 15

Your bank has the following balance sheet
 
What would happen to bank profits if the interest rates in the economy go down? Is there anything that you could do to keep your bank from being so vulnerable to interest rate movements?

Accepted Answer

The bank's profits would go down because

Question 16

The difference of rate-sensitive liabilities and rate-sensitive assets is known as the

Accepted Answer

A) duration. 
B) interest-sensitivity index. 
C) rate-risk index. 
D) gap. 
A) duration. 
B) interest-sensitivity index. 
C) rate-risk index. 
D) gap.

Question 17

Which of the following statements most accurately describes the task of bank asset management?

Accepted Answer

A) Banks seek the highest returns possible subject to minimizing risk and making adequate provisions for liquidity. 
B) Banks seek to have the highest liquidity possible subject to earning a positive rate of return on their operations. 
C) Banks seek to prevent bank failure at all cost;since a failed bank earns no profit,liquidity needs supersede the desire for profits. 
D) Banks seek to acquire funds in the least costly way. 
A) Banks seek the highest returns possible subject to minimizing risk and making adequate provisions for liquidity. 
B) Banks seek to have the highest liquidity possible subject to earning a positive rate of return on their operations. 
C) Banks seek to prevent bank failure at all cost;since a failed bank earns no profit,liquidity needs supersede the desire for profits. 
D) Banks seek to acquire funds in the least costly way.

Question 18

Banks face the problem of ________ in loan markets because bad credit risks are the ones most likely to seek bank loans.

Accepted Answer

A) adverse selection 
B) moral hazard 
C) moral suasion 
D) intentional fraud 
A) adverse selection 
B) moral hazard 
C) moral suasion 
D) intentional fraud

Question 19

Which of the following would NOT be a way to increase the return on equity?

Accepted Answer

A) Buy back bank stock. 
B) Pay higher dividends. 
C) Acquire new funds by selling negotiable CDs and increase assets with them. 
D) Sell more bank stock. 
A) Buy back bank stock. 
B) Pay higher dividends. 
C) Acquire new funds by selling negotiable CDs and increase assets with them. 
D) Sell more bank stock.

Question 20

If a bank needs to acquire funds quickly to meet an unexpected deposit outflow,the bank could

Accepted Answer

A) borrow from another bank in the federal funds market. 
B) buy U.S. Treasury bills. 
C) increase loans. 
D) buy corporate bonds. 
A) borrow from another bank in the federal funds market. 
B) buy U.S. Treasury bills. 
C) increase loans. 
D) buy corporate bonds.

Exam 9: Banking and the Management of Financial Institutions

Of the following,which would be the last choice for a bank facing a reserve deficiency?

A bank that wants to monitor the check payment practices of its commercial borrowers,so that moral hazard can be reduced,will require borrowers to

Conditions that likely contributed to a credit crunch during the global financial crisis include

Banks hold capital because

A bank with insufficient reserves can increase its reserves by

Examples of off-balance-sheet activities include

Banks may borrow from or lend to another bank in the Federal Funds market. A loan of excess reserves from one bank to another bank is recorded as a(n)________ for the borrowing bank and a(n)________ for the lending bank.

A deposit outflow results in equal reductions in

Banks hold excess and secondary reserves to

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

Traders working for banks are subject to the

In general,banks make profits by selling ________ liabilities and buying ________ assets.

How can specializing in lending help to reduce the adverse selection problem in lending?

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

Your bank has the following balance sheet What would happen to bank profits if the interest rates in the economy go down? Is there anything that you could do to keep your bank from being so vulnerable to interest rate movements?

The difference of rate-sensitive liabilities and rate-sensitive assets is known as the

Which of the following statements most accurately describes the task of bank asset management?

Banks face the problem of ________ in loan markets because bad credit risks are the ones most likely to seek bank loans.

Which of the following would NOT be a way to increase the return on equity?

If a bank needs to acquire funds quickly to meet an unexpected deposit outflow,the bank could

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, inflation and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Financial Crises in Emerging Market Economies

The ISLM Model

Filters

Banks may borrow from or lend to another bank in the Federal Funds market. A loan of excess reserves from one bank to another bank is recorded as a(n) for the borrowing bank and a(n) for the lending bank.

In general,banks make profits by selling liabilities and buying assets.