Question 1

Interest income minus interest expenses divided by assets is a measure of bank performance known as the

Accepted Answer

A) operating income. 
B) net interest margin. 
C) return on assets. 
D) return on equity. 
A) operating income. 
B) net interest margin. 
C) return on assets. 
D) return on equity.

Question 2

Banks' asset portfolios include state and local government securities because

Accepted Answer

A) they help to attract business from these government entities. 
B) banks consider them helpful in attracting accounts of Federal employees. 
C) the Federal Reserve requires member banks to buy securities from state and local governments located within their respective Federal Reserve districts. 
D) there is no default-risk with state and local government securities. 
A) they help to attract business from these government entities. 
B) banks consider them helpful in attracting accounts of Federal employees. 
C) the Federal Reserve requires member banks to buy securities from state and local governments located within their respective Federal Reserve districts. 
D) there is no default-risk with state and local government securities.

Question 3

If a bank has $50 million in rate-sensitive assets and $20 million in rate-sensitive liabilities then

Accepted Answer

A) an increase in interest rates will reduce bank profits. 
B) a decrease in interest rates will reduce bank profits. 
C) interest rate changes will not impact bank profits. 
D) a decrease in interest rates will increase bank profits. 
A) an increase in interest rates will reduce bank profits. 
B) a decrease in interest rates will reduce bank profits. 
C) interest rate changes will not impact bank profits. 
D) a decrease in interest rates will increase bank profits.

Question 4

Using T-accounts show what happens to reserves at Security National Bank if one individual deposits $1000 in cash into her checking account and another individual withdraws $750 in cash from her checking account.

Accepted Answer

Security National Ba

Question 5

Based on the Net Interest Margin the poor bank performance in the late 1980s

Accepted Answer

A) was not the result of interest-rate movements. 
B) was not the result of risky loans made in the early 1980s. 
C) resulted from a narrowing of the gap between interest earned on assets and inters paid on liabilities. 
D) resulted from a huge decrease in provisions for loan losses. 
A) was not the result of interest-rate movements. 
B) was not the result of risky loans made in the early 1980s. 
C) resulted from a narrowing of the gap between interest earned on assets and inters paid on liabilities. 
D) resulted from a huge decrease in provisions for loan losses.

Question 6

One of the problems in conducting a duration gap analysis is that the duration gap is calculated assuming that interest rates for all maturities are the same.That means that the yield curve is

Accepted Answer

A) flat. 
B) slightly upward sloping. 
C) steeply upward sloping. 
D) downward sloping. 
A) flat. 
B) slightly upward sloping. 
C) steeply upward sloping. 
D) downward sloping.

Question 7

Because checking accounts are ________ liquid for the depositor than savings accounts,they earn ________ interest rates.

Accepted Answer

A) less;higher 
B) less;lower 
C) more;higher 
D) more;lower 
A) less;higher 
B) less;lower 
C) more;higher 
D) more;lower

Question 8

The share of checkable deposits in total bank liabilities has

Accepted Answer

A) expanded moderately over time. 
B) expanded dramatically over time. 
C) shrunk over time. 
D) remained virtually unchanged since 1960. 
A) expanded moderately over time. 
B) expanded dramatically over time. 
C) shrunk over time. 
D) remained virtually unchanged since 1960.

Question 9

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 10

If interest rates increase from 9 percent to 10 percent,a bank with a duration gap of 2 years would experience a decrease in its net worth of

Accepted Answer

A) 0.9 percent of its assets. 
B) 0.9 percent of its liabilities. 
C) 1.8 percent of its liabilities. 
D) 1.8 percent of its assets. 
A) 0.9 percent of its assets. 
B) 0.9 percent of its liabilities. 
C) 1.8 percent of its liabilities. 
D) 1.8 percent of its assets.

Question 11

When banks calculate the losses the institution would incur if an unusual combination of bad events happened,the bank is using the ________ approach.

Accepted Answer

A) stress-test 
B) value-at-risk 
C) trading-loss 
D) maximum value 
A) stress-test 
B) value-at-risk 
C) trading-loss 
D) maximum value

Question 12

In general,banks would prefer to acquire funds quickly by ________ rather than ________.

Accepted Answer

A) reducing loans;selling securities 
B) reducing loans;borrowing from the Fed 
C) borrowing from the Fed;reducing loans 
D) "calling in" loans;selling securities 
A) reducing loans;selling securities 
B) reducing loans;borrowing from the Fed 
C) borrowing from the Fed;reducing loans 
D) "calling in" loans;selling securities

Question 13

When Jane Brown writes a $100 check to her nephew and he cashes the check,Ms.Brown's bank ________ assets of $100 and ________ liabilities of $100.

Accepted Answer

A) gains;gains 
B) gains;loses 
C) loses;gains 
D) loses;loses 
A) gains;gains 
B) gains;loses 
C) loses;gains 
D) loses;loses

Question 14

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 15

Your bank has the following balance sheet
Assets Liabilities
Rate-sensitive $100 million Rate-sensitive $75 million
Fixed-rate 100 million Fixed-rate 125 million
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

A bank's commitment to provide a firm with loans up to pre-specified limit at an interest rate that is tied to a market interest rate is called

Accepted Answer

A) an adjustable gap loan. 
B) an adjustable portfolio loan. 
C) loan commitment. 
D) pre-credit loan line. 
A) an adjustable gap loan. 
B) an adjustable portfolio loan. 
C) loan commitment. 
D) pre-credit loan line.

Question 17

-If interest rates rise by 5 percentage points,say from 10 to 15%,bank profits (measured using gap analysis)will

Accepted Answer

A) decline by $0.5 million. 
B) decline by $1.5 million. 
C) decline by $2.5 million. 
D) increase by $2.0 million. 
A) decline by $0.5 million. 
B) decline by $1.5 million. 
C) decline by $2.5 million. 
D) increase by $2.0 million.

Question 18

If a bank's liabilities are more sensitive to interest rate movements than are its assets,then

Accepted Answer

A) an increase in interest rates will reduce bank profits. 
B) a decrease in interest rates will reduce bank profits. 
C) interest rates changes will not impact bank profits. 
D) an increase in interest rates will increase bank profits. 
A) an increase in interest rates will reduce bank profits. 
B) a decrease in interest rates will reduce bank profits. 
C) interest rates changes will not impact bank profits. 
D) an increase in interest rates will increase bank profits.

Question 19

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.

Question 20

Risk that is related to the uncertainty about interest rate movements is called

Accepted Answer

A) default risk. 
B) interest-rate risk. 
C) the problem of moral hazard. 
D) security risk. 
A) default risk. 
B) interest-rate risk. 
C) the problem of moral hazard. 
D) security risk.

Exam 9: Banking and the Management of Financial Institutions

Interest income minus interest expenses divided by assets is a measure of bank performance known as the

Banks' asset portfolios include state and local government securities because

If a bank has $50 million in rate-sensitive assets and $20 million in rate-sensitive liabilities then

Using T-accounts show what happens to reserves at Security National Bank if one individual deposits $1000 in cash into her checking account and another individual withdraws $750 in cash from her checking account.

Based on the Net Interest Margin the poor bank performance in the late 1980s

One of the problems in conducting a duration gap analysis is that the duration gap is calculated assuming that interest rates for all maturities are the same.That means that the yield curve is

Because checking accounts are ________ liquid for the depositor than savings accounts,they earn ________ interest rates.

The share of checkable deposits in total bank liabilities has

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

If interest rates increase from 9 percent to 10 percent,a bank with a duration gap of 2 years would experience a decrease in its net worth of

When banks calculate the losses the institution would incur if an unusual combination of bad events happened,the bank is using the ________ approach.

In general,banks would prefer to acquire funds quickly by ________ rather than ________.

When Jane Brown writes a $100 check to her nephew and he cashes the check,Ms.Brown's bank ________ assets of $100 and ________ liabilities of $100.

Traders working for banks are subject to the

A bank's commitment to provide a firm with loans up to pre-specified limit at an interest rate that is tied to a market interest rate is called

-If interest rates rise by 5 percentage points,say from 10 to 15%,bank profits (measured using gap analysis)will

If a bank's liabilities are more sensitive to interest rate movements than are its assets,then

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

Risk that is related to the uncertainty about interest rate movements is called

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

Web 1:financial Crises in Emerging Market Economies

Web 2:the Islm Model

Web 3:nonbank Finance

Web 4:financial Derivatives

Web 5:conflicts of Interest in the Financial Services Industry

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Because checking accounts are liquid for the depositor than savings accounts,they earn interest rates.

In general,banks would prefer to acquire funds quickly by rather than .

When Jane Brown writes a $100 check to her nephew and he cashes the check,Ms.Brown's bank assets of $100 and liabilities of $100.