Exam 12: Banking and the Management of Financial Institutions

All of the following are operating expenses for a bank except ________.

Assume a bank has $200 million of assets with a duration of 2.5, and $190 million of liabilities with a duration of 1.05. What is its duration gap?

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

Assume that a customer deposits $1000 in her bank. Show in a T-account the effect of this deposit. If the bank is subject to reserve requirements (as some bank in other countries are), show in a second T-account the banks balance sheet indicating required and excess reserves, assuming a 5 percent required reserve ratio. In a third T-account, show the change in the bank's balance sheet when the bank makes loans with the excess reserves.

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

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

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 ________.

Banks earn profits by selling ________ with attractive combinations of liquidity, risk, and return, and using the proceeds to buy ________ with a different set of characteristics.

Because borrowers, once they have a loan, are more likely to invest in high-risk investment projects, banks face the ________.

For a given return on assets, the lower is bank capital, ________.

A bank with insufficient reserves can increase its reserves by ________.

Which of the following are bank assets?

Banks that suffered significant losses in the 1980s made the mistake of ________.

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

Property promised to the lender as compensation if the borrower defaults is called ________.

Which of the following statements is false?

-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.

When you deposit a $50 bill in the New National Bank, ________.

Credit risk management tools include ________.

When a bank suspects that a $1 million loan might prove to be bad debt that will have to be written off in the future the bank ________.