Question 1

If the value of bank's loans declines, what is the corresponding reduction in a liability entry that the bank makes?

Accepted Answer

A) Deposits are reduced by the amount of the decline in the value of the loan. 
B) Borrowings are reduced by the amount of the decline in the value of the loan. 
C) Net worth is reduced by the amount of the decline in the value of the loan. 
D) Cash items in the process of collection are reduced by the amount of the decline in the value of the loan. 
A) Deposits are reduced by the amount of the decline in the value of the loan. 
B) Borrowings are reduced by the amount of the decline in the value of the loan. 
C) Net worth is reduced by the amount of the decline in the value of the loan. 
D) Cash items in the process of collection are reduced by the amount of the decline in the value of the loan.

Question 2

The difference between the interest a bank earns on loans and securities and the interest paid on deposits and debt divided by the total value of its assets is called

Accepted Answer

A) interest spread. 
B) net interest margin. 
C) return on assets. 
D) return on equity. 
A) interest spread. 
B) net interest margin. 
C) return on assets. 
D) return on equity.

Question 3

The FDIC was created in

Accepted Answer

A) 1863. 
B) 1913. 
C) 1934. 
D) 1991. 
A) 1863. 
B) 1913. 
C) 1934. 
D) 1991.

Question 4

Which of the following is a name for when a bank promises to lend funds to a borrower to pay off its commercial paper?

Accepted Answer

A) loan commitment 
B) standby letter of credit 
C) securitization 
D) loan sale 
A) loan commitment 
B) standby letter of credit 
C) securitization 
D) loan sale

Question 5

Which of the following can be described as when a bank buying securities owned by a business while agreeing to sell them back at a later date?

Accepted Answer

A) repurchase agreement 
B) reverse repurchase agreement 
C) federal funds 
D) discount loans 
A) repurchase agreement 
B) reverse repurchase agreement 
C) federal funds 
D) discount loans

Question 6

The McFadden Act of 1927

Accepted Answer

A) separated commercial banking from investment banking. 
B) put a tax on the issuance of bank notes by state banks. 
C) prohibited national banks from operating branches outside their home states. 
D) established the Federal Reserve System. 
A) separated commercial banking from investment banking. 
B) put a tax on the issuance of bank notes by state banks. 
C) prohibited national banks from operating branches outside their home states. 
D) established the Federal Reserve System.

Question 7

Suppose a bank has assets of $500 million and capital of $100 million. Its return on assets is -3%. What is its leverage ratio? What is its return on equity?

Accepted Answer

Its leverage ratio is bank cap

Question 8

On a bank's balance sheet, liabilities are

Accepted Answer

A) the uses of acquired assets. 
B) the sources of acquired funds. 
C) all those items of value owned by the bank. 
D) by definition equal to the bank's assets. 
A) the uses of acquired assets. 
B) the sources of acquired funds. 
C) all those items of value owned by the bank. 
D) by definition equal to the bank's assets.

Question 9

The very low interest rates following the financial crisis of 2007-2009 resulted in:

Accepted Answer

A) many people moving their funds from CDs and money market accounts to checking accounts in order to have more liquidity without sacrificing much interest 
B) funds being transferred from checking accounts to time deposits 
C) further declines in checking accounts that began in the early 1970s 
D) people switching their funds from checking deposits to CDs in the pursuit of higher interest rates 
A) many people moving their funds from CDs and money market accounts to checking accounts in order to have more liquidity without sacrificing much interest 
B) funds being transferred from checking accounts to time deposits 
C) further declines in checking accounts that began in the early 1970s 
D) people switching their funds from checking deposits to CDs in the pursuit of higher interest rates

Question 10

Moral hazard can contribute to high bank leverage in all of the following ways EXCEPT

Accepted Answer

A) having high capital requirements. 
B) bank managers are compensated in part on providing shareholders with high returns on equity. 
C) high bank leverage provides shareholders with a potential for a higher return on equity. 
D) federal deposit insurance has reduced the incentive of depositors to monitor the behavior of bank managers. 
A) having high capital requirements. 
B) bank managers are compensated in part on providing shareholders with high returns on equity. 
C) high bank leverage provides shareholders with a potential for a higher return on equity. 
D) federal deposit insurance has reduced the incentive of depositors to monitor the behavior of bank managers.

Question 11

In 2012, net worth was about what percentage of total funds raised by banks?

Accepted Answer

A) 2% 
B) 7% 
C) 13% 
D) 35% 
A) 2% 
B) 7% 
C) 13% 
D) 35%

Question 12

The sensitivity of bank capital to market interest rates is measured by

Accepted Answer

A) gap analysis. 
B) duration analysis. 
C) leverage ratio. 
D) capital analysis. 
A) gap analysis. 
B) duration analysis. 
C) leverage ratio. 
D) capital analysis.

Question 13

On a bank's balance sheet, bank capital is considered:

Accepted Answer

A) an asset 
B) a liability 
C) the difference between a firm's assets and it's shareholder's equity 
D) the total amount of funds banks have availability to make loans 
A) an asset 
B) a liability 
C) the difference between a firm's assets and it's shareholder's equity 
D) the total amount of funds banks have availability to make loans

Question 14

Banks are exposed to interest rate risk primarily because

Accepted Answer

A) interest rates are very difficult to forecast. 
B) the maturities of banks' assets and liabilities differ. 
C) borrowers from banks are prone to default. 
D) depositors are always searching for a slightly higher interest rate. 
A) interest rates are very difficult to forecast. 
B) the maturities of banks' assets and liabilities differ. 
C) borrowers from banks are prone to default. 
D) depositors are always searching for a slightly higher interest rate.

Question 15

In what way did the Dodd-Frank Act reduce bank revenue?

Accepted Answer

A) It increased the amount banks had to pay on interest to depositors. 
B) It reduced fees banks could charge when customers took out loans. 
C) It reduced the amount of interest banks could charge on mortgages. 
D) It capped the fees that banks could charge stores for debit card transactions. 
A) It increased the amount banks had to pay on interest to depositors. 
B) It reduced fees banks could charge when customers took out loans. 
C) It reduced the amount of interest banks could charge on mortgages. 
D) It capped the fees that banks could charge stores for debit card transactions.

Question 16

What is a repurchase agreement?

Accepted Answer

Banks sell securities, such as

Question 17

Banks use "credit-risk analysis" to

Accepted Answer

A) determine the appropriate interest rate to charge borrowers. 
B) determine whether to invest in the stock of a corporation. 
C) determine the appropriate interest rate to pay depositors. 
D) determine the likelihood of an audit by bank regulators. 
A) determine the appropriate interest rate to charge borrowers. 
B) determine whether to invest in the stock of a corporation. 
C) determine the appropriate interest rate to pay depositors. 
D) determine the likelihood of an audit by bank regulators.

Question 18

What percentage of bank assets were in loans in 2012?

Accepted Answer

A) 8% 
B) 20% 
C) 37% 
D) 60% 
A) 8% 
B) 20% 
C) 37% 
D) 60%

Question 19

A bank's costs include all of the following EXCEPT

Accepted Answer

A) the interest it pays to depositors. 
B) the interest it pays on its loans or debt. 
C) the cost of providing services. 
D) the fees paid to maintain its reserve at the Federal Reserve. 
A) the interest it pays to depositors. 
B) the interest it pays on its loans or debt. 
C) the cost of providing services. 
D) the fees paid to maintain its reserve at the Federal Reserve.

Question 20

A key difference between small-denomination and large-denomination time deposits is that

Accepted Answer

A) small-denomination time deposits pay no interest. 
B) large-denomination time deposits may be bought and sold on secondary markets. 
C) large-denomination time deposits carry a significant penalty for early withdrawal. 
D) small-denomination time deposits carry a significant penalty for early withdrawal. 
A) small-denomination time deposits pay no interest. 
B) large-denomination time deposits may be bought and sold on secondary markets. 
C) large-denomination time deposits carry a significant penalty for early withdrawal. 
D) small-denomination time deposits carry a significant penalty for early withdrawal.

If the value of bank's loans declines, what is the corresponding reduction in a liability entry that the bank makes?

The difference between the interest a bank earns on loans and securities and the interest paid on deposits and debt divided by the total value of its assets is called

The FDIC was created in

Which of the following is a name for when a bank promises to lend funds to a borrower to pay off its commercial paper?

Which of the following can be described as when a bank buying securities owned by a business while agreeing to sell them back at a later date?

The McFadden Act of 1927

Suppose a bank has assets of $500 million and capital of $100 million. Its return on assets is -3%. What is its leverage ratio? What is its return on equity?

On a bank's balance sheet, liabilities are

The very low interest rates following the financial crisis of 2007-2009 resulted in:

Moral hazard can contribute to high bank leverage in all of the following ways EXCEPT

In 2012, net worth was about what percentage of total funds raised by banks?

The sensitivity of bank capital to market interest rates is measured by

On a bank's balance sheet, bank capital is considered:

Banks are exposed to interest rate risk primarily because

In what way did the Dodd-Frank Act reduce bank revenue?

What is a repurchase agreement?

Banks use "credit-risk analysis" to

What percentage of bank assets were in loans in 2012?

A bank's costs include all of the following EXCEPT

A key difference between small-denomination and large-denomination time deposits is that

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, Information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, Asymmetric Information, and the Structure of the Financial System

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: The Aggregate Demand and Aggregate Supply Model

Monetary Theory II: The IS-MP Model

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Exam 10: The Economics of Banking

If the value of bank's loans declines, what is the corresponding reduction in a liability entry that the bank makes?

The difference between the interest a bank earns on loans and securities and the interest paid on deposits and debt divided by the total value of its assets is called

The FDIC was created in

Which of the following is a name for when a bank promises to lend funds to a borrower to pay off its commercial paper?

Which of the following can be described as when a bank buying securities owned by a business while agreeing to sell them back at a later date?

The McFadden Act of 1927

Suppose a bank has assets of $500 million and capital of $100 million. Its return on assets is -3%. What is its leverage ratio? What is its return on equity?

On a bank's balance sheet, liabilities are

The very low interest rates following the financial crisis of 2007-2009 resulted in:

Moral hazard can contribute to high bank leverage in all of the following ways EXCEPT

In 2012, net worth was about what percentage of total funds raised by banks?

The sensitivity of bank capital to market interest rates is measured by

On a bank's balance sheet, bank capital is considered:

Banks are exposed to interest rate risk primarily because

In what way did the Dodd-Frank Act reduce bank revenue?

What is a repurchase agreement?

Banks use "credit-risk analysis" to

What percentage of bank assets were in loans in 2012?

A bank's costs include all of the following EXCEPT

A key difference between small-denomination and large-denomination time deposits is that

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, Information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, Asymmetric Information, and the Structure of the Financial System

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: The Aggregate Demand and Aggregate Supply Model

Monetary Theory II: The IS-MP Model

Filters