Question 1

Provisions in loan contracts that prohibit borrowers from engaging in specified risky activities are called ________.

Accepted Answer

A) proscription bonds 
B) restrictive covenants 
C) due-on-sale clauses 
D) liens 
A) proscription bonds 
B) restrictive covenants 
C) due-on-sale clauses 
D) liens

Question 2

Bank capital is equal to ________ minus ________.

Accepted Answer

A) total assets; total liabilities 
B) total liabilities; total assets 
C) total assets; total reserves 
D) total liabilities; total borrowings 
A) total assets; total liabilities 
B) total liabilities; total assets 
C) total assets; total reserves 
D) total liabilities; total borrowings

Question 3

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 percent of these assets count toward meeting desired 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 percent of these assets count toward meeting desired reserves 
D) they rank second to bank vault cash in importance of bank holdings

Question 4

________ 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 5

In order to reduce the ________ problem in loan markets, bankers collect information from prospective borrowers to screen out the bad credit risks from the good ones.

Accepted Answer

A) moral hazard 
B) adverse selection 
C) moral suasion 
D) adverse lending 
A) moral hazard 
B) adverse selection 
C) moral suasion 
D) adverse lending

Question 6

When banks offer borrowers smaller loans than they have requested, banks are said to ________.

Accepted Answer

A) shave credit 
B) rediscount the loan 
C) raze credit 
D) ration credit 
A) shave credit 
B) rediscount the loan 
C) raze credit 
D) ration credit

Question 7

Because of their ________ liquidity, ________ 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 8

Which of the following is not a source of borrowings for a bank?

Accepted Answer

A) Overnight funds 
B) Eurodollars 
C) Time deposits 
D) Advances 
A) Overnight funds 
B) Eurodollars 
C) Time deposits 
D) Advances

Question 9

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 10

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 11

The share of chequable 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 12

Bank capital is listed on the ________ side of the bank's balance sheet because it represents a ________ of funds.

Accepted Answer

A) liability; use 
B) liability; source 
C) asset; use 
D) asset; source 
A) liability; use 
B) liability; source 
C) asset; use 
D) asset; source

Question 13

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

Accepted Answer

Reducing the adverse selection problem r

Question 14

Which of the following bank assets is the most liquid?

Accepted Answer

A) Consumer loans 
B) Reserves 
C) Cash items in process of collection 
D) Government securities 
A) Consumer loans 
B) Reserves 
C) Cash items in process of collection 
D) Government securities

Question 15

A bank failure occurs whenever ________.

Accepted Answer

A) a bank cannot satisfy its obligations to pay its depositors and have enough reserves to meet its reserve requirements 
B) a bank suffers a large deposit outflow 
C) a bank has to call in a large volume of loans 
D) a bank is not allowed to borrow from the Bank of Canada 
A) a bank cannot satisfy its obligations to pay its depositors and have enough reserves to meet its reserve requirements 
B) a bank suffers a large deposit outflow 
C) a bank has to call in a large volume of loans 
D) a bank is not allowed to borrow from the Bank of Canada

Question 16

Asset transformation can be described as ________.

Accepted Answer

A) borrowing long and lending short 
B) borrowing short and lending long 
C) borrowing and lending only for the short term 
D) borrowing and lending for the long term 
A) borrowing long and lending short 
B) borrowing short and lending long 
C) borrowing and lending only for the short term 
D) borrowing and lending for the long term

Question 17

When Jane Brown writes a $100 cheque to her nephew (who lives in another province), 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 18

Which of the following has not resulted from more active liability management on the part of banks?

Accepted Answer

A) Increased bank holdings of cash items 
B) Aggressive targeting of goals for asset growth by banks 
C) Increased use of negotiable CDs to raise funds 
D) An increased proportion of bank assets held in loans 
A) Increased bank holdings of cash items 
B) Aggressive targeting of goals for asset growth by banks 
C) Increased use of negotiable CDs to raise funds 
D) An increased proportion of bank assets held in loans

Question 19

When a lender refuses to make a loan, although borrowers are willing to pay the stated interest rate or even a higher rate, the bank is said to engage in ________.

Accepted Answer

A) coercive bargaining 
B) strategic holding out 
C) credit rationing 
D) collusive behavior 
A) coercive bargaining 
B) strategic holding out 
C) credit rationing 
D) collusive behavior

Question 20

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 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 capital. 
D) A bank's balance sheet indicates whether or not the bank is profitable.

Exam 12: Banking and the Management of Financial Institutions

Provisions in loan contracts that prohibit borrowers from engaging in specified risky activities are called ________.

Bank capital is equal to ________ minus ________.

Secondary reserves are so called because ________.

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

In order to reduce the ________ problem in loan markets, bankers collect information from prospective borrowers to screen out the bad credit risks from the good ones.

When banks offer borrowers smaller loans than they have requested, banks are said to ________.

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

Which of the following is not a source of borrowings for a bank?

Unanticipated moral hazard contingencies can be reduced by ________.

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

The share of chequable deposits in total bank liabilities has ________.

Bank capital is listed on the ________ side of the bank's balance sheet because it represents a ________ of funds.

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

Which of the following bank assets is the most liquid?

A bank failure occurs whenever ________.

Asset transformation can be described as ________.

When Jane Brown writes a $100 cheque to her nephew (who lives in another province), Ms. Brown's bank ________ assets of $100 and ________ liabilities of $100.

Which of the following has not resulted from more active liability management on the part of banks?

When a lender refuses to make a loan, although borrowers are willing to pay the stated interest rate or even a higher rate, the bank is said to engage in ________.

Which of the following statements are true?

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behaviour 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

Financial Crises

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

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 Markets

The ISLM Model

Non-Bank Finance

Filters

Bank capital is equal to minus .

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

Bank capital is listed on the side of the bank's balance sheet because it represents a of funds.

When Jane Brown writes a $100 cheque to her nephew (who lives in another province), Ms. Brown's bank assets of $100 and liabilities of $100.