Question 1

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 2

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 3

The goals of bank asset management include

Accepted Answer

A) maximizing risk. 
B) minimizing liquidity. 
C) lending at high interest rates regardless of risk. 
D) purchasing securities with high returns and low risk. 
A) maximizing risk. 
B) minimizing liquidity. 
C) lending at high interest rates regardless of risk. 
D) purchasing securities with high returns and low risk.

Question 4

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 5

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 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

Which of the following statements are TRUE?

Accepted Answer

A) A bank's assets are its sources of funds. 
B) A bank's liabilities are its uses of funds. 
C) A bank's balance sheet shows that total assets equal total liabilities plus equity capital. 
D) A bank's balance sheet indicates whether or not the bank is profitable. 
A) A bank's assets are its sources of funds. 
B) A bank's liabilities are its uses of funds. 
C) A bank's balance sheet shows that total assets equal total liabilities plus equity capital. 
D) A bank's balance sheet indicates whether or not the bank is profitable.

Question 8

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 9

Secondary reserves are so called because

Accepted Answer

A) they can be converted into cash with low transactions costs. 
B) they are not easily converted into cash,and are,therefore,of secondary importance to banking firms. 
C) 50% of these assets count toward meeting required reserves. 
D) they rank second to bank vault cash in importance of bank holdings. 
A) they can be converted into cash with low transactions costs. 
B) they are not easily converted into cash,and are,therefore,of secondary importance to banking firms. 
C) 50% of these assets count toward meeting required reserves. 
D) they rank second to bank vault cash in importance of bank holdings.

Question 10

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

Accepted Answer

Reducing the adverse selection problem r

Question 11

Holding large amounts of bank capital helps prevent bank failures because

Accepted Answer

A) it means that the bank has a higher income. 
B) it makes loans easier to sell. 
C) it can be used to absorb the losses resulting from bad loans. 
D) it makes it easier to call in loans. 
A) it means that the bank has a higher income. 
B) it makes loans easier to sell. 
C) it can be used to absorb the losses resulting from bad loans. 
D) it makes it easier to call in loans.

Question 12

One way for banks to reduce the principal-agent problems associated with trading activities is to

Accepted Answer

A) set limits on the total amount of a traders' transactions. 
B) make sure that the person conducting the trades is also the person responsible for recording the transactions. 
C) encourage traders to take on more risk if the potential rewards are higher. 
D) reduce the regulations on the traders so that they have more flexibility in conducting trades. 
A) set limits on the total amount of a traders' transactions. 
B) make sure that the person conducting the trades is also the person responsible for recording the transactions. 
C) encourage traders to take on more risk if the potential rewards are higher. 
D) reduce the regulations on the traders so that they have more flexibility in conducting trades.

Question 13

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 14

Which of the following statements is FALSE?

Accepted Answer

A) Checkable deposits are usually the lowest cost source of bank funds. 
B) Checkable deposits are the primary source of bank funds. 
C) Checkable deposits are payable on demand. 
D) Checkable deposits include NOW accounts. 
A) Checkable deposits are usually the lowest cost source of bank funds. 
B) Checkable deposits are the primary source of bank funds. 
C) Checkable deposits are payable on demand. 
D) Checkable deposits include NOW accounts.

Question 15

Net profit after taxes per dollar of assets 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 16

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 17

Unanticipated moral hazard contingencies can be reduced by

Accepted Answer

A) screening. 
B) long-term customer relationships. 
C) specialization in lending. 
D) credit rationing. 
A) screening. 
B) long-term customer relationships. 
C) specialization in lending. 
D) credit rationing.

Question 18

As the costs associated with deposit outflows ________,the banks willingness to hold excess reserves will ________.

Accepted Answer

A) decrease;increase 
B) increase;decrease 
C) increase;increase 
D) decrease;not be affected 
A) decrease;increase 
B) increase;decrease 
C) increase;increase 
D) decrease;not be affected

Question 19

Assuming that the average duration of its assets is four years,while the average duration of its liabilities is three years,then a 5 percentage point increase in interest rates will cause the net worth of First National to ________ by ________ of the total original asset value.

Accepted Answer

A) decline;5 percent 
B) decline;10 percent 
C) decline;15 percent 
D) increase;20 percent 
A) decline;5 percent 
B) decline;10 percent 
C) decline;15 percent 
D) increase;20 percent

Question 20

Which of the following are reported as assets on a bank's balance sheet?

Accepted Answer

A) borrowings 
B) reserves 
C) savings deposits 
D) bank capital 
A) borrowings 
B) reserves 
C) savings deposits 
D) bank capital

Exam 9: Banking and the Management of Financial Institutions

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

A bank with insufficient reserves can increase its reserves by

The goals of bank asset management include

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

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

Examples of off-balance-sheet activities include

Which of the following statements are TRUE?

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

Secondary reserves are so called because

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

Holding large amounts of bank capital helps prevent bank failures because

One way for banks to reduce the principal-agent problems associated with trading activities is to

Most of a bank's operating income results from

Which of the following statements is FALSE?

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

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

Unanticipated moral hazard contingencies can be reduced by

As the costs associated with deposit outflows ________,the banks willingness to hold excess reserves will ________.

Assuming that the average duration of its assets is four years,while the average duration of its liabilities is three years,then a 5 percentage point increase in interest rates will cause the net worth of First National to ________ by ________ of the total original asset value.

Which of the following are reported as assets on a bank's balance sheet?

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

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.

As the costs associated with deposit outflows ,the banks willingness to hold excess reserves will .

Assuming that the average duration of its assets is four years,while the average duration of its liabilities is three years,then a 5 percentage point increase in interest rates will cause the net worth of First National to by of the total original asset value.