Exam 12: Banking and the Management of Financial Institutions

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.

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

With a 10 percent reserve requirement ratio, a $100 deposit into New Bank means that the maximum amount New Bank could lend is ________.

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 ________.

Because of an expected rise in interest rates in the future, a banker will likely ________.

In one sense ________ appears surprising since it means that the bank is not ________ its portfolio of loans and thus is exposing itself to more risk.

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?

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

What is a loan sale and how does it work?

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

If the First National Bank has a gap equal to a negative $30 million, then a 5 percentage point increase in interest rates will cause profits to ________.

Banks hold excess and secondary reserves to ________.

In the absence of regulation, banks would probably hold ________.

Conditions that likely contributed to a credit crunch in 2008 include ________.

The quantity defined as interest income minus interest expenses divided by assets is a measure of bank performance known as ________.

Bank capital has both benefits and costs for the bank owners. Higher bank capital ________ the likelihood of bankruptcy, but higher bank capital ________ the return on equity for a given return on assets.

A T-account represents ________.

A bank is insolvent when ________.

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

If interest rates increase from 3% to 4%, a $100,000 10 year bond with a duration of 8 years would ________ in price by approximately ________.