Question 1

________ may antagonize customers and thus can be a very costly way of acquiring funds to meet an unexpected deposit outflow.

Accepted Answer

A) Selling securities 
B) Selling loans 
C) Calling in loans 
D) Selling negotiable CDs 
A) Selling securities 
B) Selling loans 
C) Calling in loans 
D) Selling negotiable CDs

Question 2

Which of the following statements is FALSE?

Accepted Answer

A) A bank's assets are its uses of funds. 
B) A bank issues liabilities to acquire funds. 
C) The bank's assets provide the bank with income. 
D) Bank capital is recorded as an asset on the bank balance sheet. 
A) A bank's assets are its uses of funds. 
B) A bank issues liabilities to acquire funds. 
C) The bank's assets provide the bank with income. 
D) Bank capital is recorded as an asset on the bank balance sheet.

Question 3

Most of a bank's operating income results from

Accepted Answer

A) interest on assets. 
B) service charges on deposit accounts. 
C) off-balance-sheet activities. 
D) fees from standby lines of credit. 
A) interest on assets. 
B) service charges on deposit accounts. 
C) off-balance-sheet activities. 
D) fees from standby lines of credit.

Question 4

Net profit after taxes per dollar of equity capital is a basic measure of bank profitability called

Accepted Answer

A) return on assets. 
B) return on capital. 
C) return on equity. 
D) return on investment. 
A) return on assets. 
B) return on capital. 
C) return on equity. 
D) return on investment.

Question 5

Bankers' concerns regarding the optimal mix of excess reserves,secondary reserves,borrowings from the Fed,and borrowings from other banks to deal with deposit outflows is an example of

Accepted Answer

A) liability management. 
B) liquidity management. 
C) managing interest rate risk. 
D) managing credit risk. 
A) liability management. 
B) liquidity management. 
C) managing interest rate risk. 
D) managing credit risk.

Question 6

Long-term customer relationships ________ the cost of information collection and make it easier to ________ credit risks.

Accepted Answer

A) reduce;screen 
B) increase;screen 
C) reduce;increase 
D) increase;increase 
A) reduce;screen 
B) increase;screen 
C) reduce;increase 
D) increase;increase

Question 7

Which of the following would a bank NOT hold as insurance against the highest cost of deposit outflow-bank failure?

Accepted Answer

A) excess reserves 
B) secondary reserves 
C) bank capital 
D) mortgages 
A) excess reserves 
B) secondary reserves 
C) bank capital 
D) mortgages

Question 8

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

Accepted Answer

A) savings accounts;time deposits 
B) money market deposit accounts;time deposits 
C) money market deposit accounts;savings accounts 
D) time deposits;savings accounts 
A) savings accounts;time deposits 
B) money market deposit accounts;time deposits 
C) money market deposit accounts;savings accounts 
D) time deposits;savings accounts

Question 9

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

Accepted Answer

A) basic gap analysis. 
B) the maturity bucket approach to gap analysis. 
C) the segmented maturity approach to gap analysis. 
D) the segmented maturity approach to interest-exposure analysis. 
A) basic gap analysis. 
B) the maturity bucket approach to gap analysis. 
C) the segmented maturity approach to gap analysis. 
D) the segmented maturity approach to interest-exposure analysis.

Question 10

Which of the following are transaction deposits?

Accepted Answer

A) savings accounts 
B) small-denomination time deposits 
C) checkable deposits 
D) certificates of deposit 
A) savings accounts 
B) small-denomination time deposits 
C) checkable deposits 
D) certificates of deposit

Question 11

Banks earn profits from off-balance sheet loan sales

Accepted Answer

A) by foreclosing on delinquent accounts. 
B) by selling the loans at discounted prices. 
C) by selling existing loans for more than the original loan amount. 
D) by calling-in loans before the maturity date. 
A) by foreclosing on delinquent accounts. 
B) by selling the loans at discounted prices. 
C) by selling existing loans for more than the original loan amount. 
D) by calling-in loans before the maturity date.

Question 12

Credit risk management tools include

Accepted Answer

A) deductibles. 
B) collateral. 
C) interest rate swaps. 
D) duration analysis. 
A) deductibles. 
B) collateral. 
C) interest rate swaps. 
D) duration analysis.

Question 13

The principal-agent problem that exists for bank trading activities can be reduced through

Accepted Answer

A) creation of internal controls that combine trading activities with bookkeeping. 
B) creation of internal controls that separate trading activities from bookkeeping. 
C) elimination of regulation of banking. 
D) elimination of internal controls. 
A) creation of internal controls that combine trading activities with bookkeeping. 
B) creation of internal controls that separate trading activities from bookkeeping. 
C) elimination of regulation of banking. 
D) elimination of internal controls.

Question 14

Because of their ________ liquidity,________ U.S. government securities are called secondary reserves.

Accepted Answer

A) low;short-term 
B) low;long-term 
C) high;short-term 
D) high;long-term 
A) low;short-term 
B) low;long-term 
C) high;short-term 
D) high;long-term

Question 15

Bank loans from the Federal Reserve are called ________ and represent a ________ of funds.

Accepted Answer

A) discount loans;use 
B) discount loans;source 
C) fed funds;use 
D) fed funds;source 
A) discount loans;use 
B) discount loans;source 
C) fed funds;use 
D) fed funds;source

Question 16

Through correspondent banking,large banks provide services to small banks,including

Accepted Answer

A) loan guarantees. 
B) foreign exchange transactions. 
C) issuing stock. 
D) debt reduction. 
A) loan guarantees. 
B) foreign exchange transactions. 
C) issuing stock. 
D) debt reduction.

Question 17

Which of the following statements are TRUE?

Accepted Answer

A) Checkable deposits are payable on demand. 
B) Checkable deposits do not include NOW accounts. 
C) Checkable deposits are the primary source of bank funds. 
D) Checkable deposits are assets for the bank. 
A) Checkable deposits are payable on demand. 
B) Checkable deposits do not include NOW accounts. 
C) Checkable deposits are the primary source of bank funds. 
D) Checkable deposits are assets for the bank.

Question 18

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

Accepted Answer

A) money market deposit accounts;time deposits 
B) checkable deposits;savings accounts 
C) savings accounts;checkable deposits 
D) savings accounts;time deposits 
A) money market deposit accounts;time deposits 
B) checkable deposits;savings accounts 
C) savings accounts;checkable deposits 
D) savings accounts;time deposits

Question 19

Bruce the Bank Manager can reduce interest rate risk by ________ the duration of the bank's assets to increase their rate sensitivity or,alternatively,________ the duration of the bank's liabilities.

Accepted Answer

A) shortening;lengthening 
B) shortening;shortening 
C) lengthening;lengthening 
D) lengthening;shortening 
A) shortening;lengthening 
B) shortening;shortening 
C) lengthening;lengthening 
D) lengthening;shortening

Question 20

The amount of checkable deposits that banks are required by regulation to hold are the

Accepted Answer

A) excess reserves. 
B) required reserves. 
C) vault cash. 
D) total reserves. 
A) excess reserves. 
B) required reserves. 
C) vault cash. 
D) total reserves.

Exam 9: Banking and the Management of Financial Institutions

________ may antagonize customers and thus can be a very costly way of acquiring funds to meet an unexpected deposit outflow.

Which of the following statements is FALSE?

Most of a bank's operating income results from

Net profit after taxes per dollar of equity capital is a basic measure of bank profitability called

Bankers' concerns regarding the optimal mix of excess reserves,secondary reserves,borrowings from the Fed,and borrowings from other banks to deal with deposit outflows is an example of

Long-term customer relationships ________ the cost of information collection and make it easier to ________ credit risks.

Which of the following would a bank NOT hold as insurance against the highest cost of deposit outflow-bank failure?

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

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

Which of the following are transaction deposits?

Banks earn profits from off-balance sheet loan sales

Credit risk management tools include

The principal-agent problem that exists for bank trading activities can be reduced through

Because of their ________ liquidity,________ U.S. government securities are called secondary reserves.

Bank loans from the Federal Reserve are called ________ and represent a ________ of funds.

Through correspondent banking,large banks provide services to small banks,including

Which of the following statements are TRUE?

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

Bruce the Bank Manager can reduce interest rate risk by ________ the duration of the bank's assets to increase their rate sensitivity or,alternatively,________ the duration of the bank's liabilities.

The amount of checkable deposits that banks are required by regulation to hold are the

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

Long-term customer relationships the cost of information collection and make it easier to credit risks.

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

Because of their liquidity, U.S. government securities are called secondary reserves.

Bank loans from the Federal Reserve are called and represent a of funds.

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

Bruce the Bank Manager can reduce interest rate risk by the duration of the bank's assets to increase their rate sensitivity or,alternatively, the duration of the bank's liabilities.