Question 1

Capital is the cushion banks have against:

Accepted Answer

A) sudden drops in the value of their assets. 
B) an unexpected decrease in liabilities. 
C) liquidity risk. 
D) moral hazard. 
A) sudden drops in the value of their assets. 
B) an unexpected decrease in liabilities. 
C) liquidity risk. 
D) moral hazard.

Question 2

A non-transaction deposit would include each of the following, except:

Accepted Answer

A) a savings account. 
B) a checking account. 
C) a passbook savings account. 
D) a certificate of deposit. 
A) a savings account. 
B) a checking account. 
C) a passbook savings account. 
D) a certificate of deposit.

Question 3

A bank develops specialized skills in analyzing companies from one specific industry.This contributes significantly to the bank achieving economies of scale because a large portion of its total loan portfolio is made up of companies in this industry.What are the long-run profit prospects for this bank? Explain.

Accepted Answer

The bank may have lowered its transactio

Question 4

We saw in Chapter 12 that initially savings and loans were created to make home mortgages, and their main source of funds was deposits from savers.In the late 1970's and into the 1980's, the U.S.experienced rising interest rates that had depositors looking for higher returns.Congress quickly removed the interest rate ceilings that savings and loans could offer.Explain the initial impact this had on the interest rate spread and the net interest margin for the savings and loans.

Accepted Answer

Before the dramatic increase in interest

Question 5

When interest rates fall a bank's capital will usually:

Accepted Answer

A) not change. 
B) decrease. 
C) turn negative. 
D) increase. 
A) not change. 
B) decrease. 
C) turn negative. 
D) increase.

Question 6

Commercial banks increased their involvement in mortgages over the years due to:

Accepted Answer

A) the ability to securitize mortgages which made them more liquid. 
B) the demands of regulators. 
C) the increase in commercial loans demanded due to the development of the commercial paper market. 
D) the reduced risk of borrowers' defaulting on mortgage loans. 
A) the ability to securitize mortgages which made them more liquid. 
B) the demands of regulators. 
C) the increase in commercial loans demanded due to the development of the commercial paper market. 
D) the reduced risk of borrowers' defaulting on mortgage loans.

Question 7

A bank's reserves include:

Accepted Answer

A) vault cash. 
B) U.S.Treasury Securities. 
C) the bank's loan portfolio. 
D) U.S.Treasury bills and vault cash. 
A) vault cash. 
B) U.S.Treasury Securities. 
C) the bank's loan portfolio. 
D) U.S.Treasury bills and vault cash.

Question 8

The total assets of commercial banks in 2013 amounted to:

Accepted Answer

A) three times nominal GDP in the U.S. 
B) about one-half of nominal GDP in the U.S. 
C) about four-fifths of nominal GDP in the U.S. 
D) about one-tenth of nominal GDP in the U.S. 
A) three times nominal GDP in the U.S. 
B) about one-half of nominal GDP in the U.S. 
C) about four-fifths of nominal GDP in the U.S. 
D) about one-tenth of nominal GDP in the U.S.

Question 9

If a bank has deposits of $250 million, reserves that total $30 million and has a required reserve rate of 10 percent:

Accepted Answer

A) the bank is short of required reserves. 
B) the bank has excess reserves of $27.5 million. 
C) the bank has excess reserves of $5 million. 
D) the bank has excess reserves of $3 million. 
A) the bank is short of required reserves. 
B) the bank has excess reserves of $27.5 million. 
C) the bank has excess reserves of $5 million. 
D) the bank has excess reserves of $3 million.

Question 10

A bank that specializes in granting loans to firms in a specific line of business:

Accepted Answer

A) may decrease its operating cost and decrease its credit risk. 
B) may increase both its operating cost and its credit risk. 
C) may increase its operating cost and decrease its credit risk. 
D) may decrease its operating costs and increase its credit risk. 
A) may decrease its operating cost and decrease its credit risk. 
B) may increase both its operating cost and its credit risk. 
C) may increase its operating cost and decrease its credit risk. 
D) may decrease its operating costs and increase its credit risk.

Question 11

You are provided with the following information: a bank has a net income after taxes of $3.5 million; it has assets of $150 million; and bank capital of $12.5 million.What is the bank's return on assets; its return on equity, and its debt-to-equity ratio?

Accepted Answer

The bank's return on assets is 2.33%; th

Question 12

The primary difference among various kinds of depository institutions is in the composition of their loan portfolios.Agree or disagree? Explain.

Accepted Answer

All depository institutions have deposit

Question 13

What is the equation that reflects a bank's balance sheet?

Accepted Answer

The equation reflecting a bank

Question 14

Of the more than 6,100 banks in the United States at the end of 2013, by far the greatest numbers of them were:

Accepted Answer

A) regional banks. 
B) money center banks. 
C) community banks. 
D) savings banks. 
A) regional banks. 
B) money center banks. 
C) community banks. 
D) savings banks.

Question 15

Many people believed that when the calendar changed from December 31, 1999 to January 1, 2000, many bank records were going to be wiped out, so many people planned on withdrawing their funds.If this were to happen, this would be an example of:

Accepted Answer

A) credit risk. 
B) operational risk. 
C) interest rate risk. 
D) liquidity risk. 
A) credit risk. 
B) operational risk. 
C) interest rate risk. 
D) liquidity risk.

Question 16

The practice of "redlining" in bank lending is clearly an example of discrimination in lending.Agree or disagree? Why?

Accepted Answer

The term "redlining" alludes to a practi

Question 17

A rumor starts that says a bank has suffered significant losses and may not be able to honor its promises to depositors.This causes most of the depositors to line up in front of the bank the next morning wanting to withdraw their deposits.This is an example of:

Accepted Answer

A) liquidity risk. 
B) operational risk. 
C) interest rate risk. 
D) credit risk. 
A) liquidity risk. 
B) operational risk. 
C) interest rate risk. 
D) credit risk.

Question 18

Everything else equal, if the ratio of bank assets to bank capital decreases, the bank's return on equity should:

Accepted Answer

A) decrease. 
B) remain constant. 
C) increase. 
D) cannot be determined from the information provided. 
A) decrease. 
B) remain constant. 
C) increase. 
D) cannot be determined from the information provided.

Question 19

Bank managers seem to have to walk a tightrope between managing risk and earning a profit.Explain.

Accepted Answer

If we consider the various forms of bank

Question 20

Everything else equal, if the ratio of bank assets to bank capital increases, the bank's return on equity should:

Accepted Answer

A) remain constant. 
B) decrease. 
C) increase. 
D) cannot be determined from the information provided. 
A) remain constant. 
B) decrease. 
C) increase. 
D) cannot be determined from the information provided.

Exam 12: Depository Institutions: Banks and Bank Management

Capital is the cushion banks have against:

A non-transaction deposit would include each of the following, except:

When interest rates fall a bank's capital will usually:

Commercial banks increased their involvement in mortgages over the years due to:

A bank's reserves include:

The total assets of commercial banks in 2013 amounted to:

If a bank has deposits of $250 million, reserves that total $30 million and has a required reserve rate of 10 percent:

A bank that specializes in granting loans to firms in a specific line of business:

You are provided with the following information: a bank has a net income after taxes of $3.5 million; it has assets of $150 million; and bank capital of $12.5 million.What is the bank's return on assets; its return on equity, and its debt-to-equity ratio?

The primary difference among various kinds of depository institutions is in the composition of their loan portfolios.Agree or disagree? Explain.

What is the equation that reflects a bank's balance sheet?

Of the more than 6,100 banks in the United States at the end of 2013, by far the greatest numbers of them were:

Many people believed that when the calendar changed from December 31, 1999 to January 1, 2000, many bank records were going to be wiped out, so many people planned on withdrawing their funds.If this were to happen, this would be an example of:

The practice of "redlining" in bank lending is clearly an example of discrimination in lending.Agree or disagree? Why?

A rumor starts that says a bank has suffered significant losses and may not be able to honor its promises to depositors.This causes most of the depositors to line up in front of the bank the next morning wanting to withdraw their deposits.This is an example of:

Everything else equal, if the ratio of bank assets to bank capital decreases, the bank's return on equity should:

Bank managers seem to have to walk a tightrope between managing risk and earning a profit.Explain.

Everything else equal, if the ratio of bank assets to bank capital increases, the bank's return on equity should:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value, and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets, and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange-Rate Policy and the Central Bank

Money Growth, Money Demand, and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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