Exam 12: Banking and the Management of Financial Institutions

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

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 ________.

To reduce moral hazard problems, banks include restrictive covenants in loan contracts. In order for these restrictive covenants to be effective, banks must also ________.

If a bank has $200,000 of demand deposits, a desired reserve ratio of 20 percent, and it holds $80000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is ________.

When a $10 cheque written on the First National Bank is deposited in an account at CIBC, then ________.

Measuring the sensitivity of bank profits to changes in interest rates by multiplying the gap for several maturity subintervals times the change in the interest rate is called ________.

Explain using an example the statement that "given the return on assets, the lower the bank capital, the higher the return for the owners of the bank."

Bank loans from the Bank of Canada are called ________ and represent a ________ of funds.

If a banker expects interest rates to fall in the future, her best strategy for the present is ________.

If a bank has $100,000 of demand deposits, a desired reserve ratio of 20 percent, and it holds $40000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is ________.

If a bank needs to raise the amount of capital relative to assets, a bank manager might choose to ________.

Credit Atlantic Bank has the following balance sheet: The bank's desired reserve ratio is 10 percent and there is a withdrawal of cash from chequable deposits equal to $20. Describe what is likely to happen in the bank's balance sheet and produce the new balance sheet for Credit Atlantic Bank.

Large-denomination CDs are ________, so that like a bond they can be resold in a ________ market before they mature.

Your bank has the following balance sheet: Assets Liabilities Reserves $50 million Deposits $200 million Securities 50 million Loans 150 million Bank capital 50 million If the desired reserve ratio is 10 percent, what actions should the bank manager take if there is an unexpected deposit outflow of $50 million?

When $1 million is deposited at a bank, the desired reserve ratio is 20 percent, and the bank chooses not to hold any excess reserves but makes loans instead, then, in the bank's final balance sheet, ________.

All of the following are examples of off-balance sheet activities that generate fee income for banks except ________.

If a bank has ________ rate-sensitive assets than liabilities, a ________ in interest rates will reduce bank profits, while a ________ in interest rates will raise bank profits.

When you deposit $50 in currency at Old National Bank, ________.

Holding all else constant, when a bank receives the funds for a deposited cheque, ________.

Most of a bank's operating income results from ________.