Question 1

Loans by the Federal Reserve to banks are known as

Accepted Answer

A) repurchase agreements. 
B) Federal funds. 
C) discount loans. 
D) cash items in the process of collection. 
A) repurchase agreements. 
B) Federal funds. 
C) discount loans. 
D) cash items in the process of collection.

Question 2

The United States has a dual banking system in the sense that

Accepted Answer

A) the public may deposit money in either commercial banks or savings-and-loan associations. 
B) banks offer both demand deposits and time deposits to savers. 
C) banks are chartered by the federal government and by state governments. 
D) banks both take in deposits and make loans. 
A) the public may deposit money in either commercial banks or savings-and-loan associations. 
B) banks offer both demand deposits and time deposits to savers. 
C) banks are chartered by the federal government and by state governments. 
D) banks both take in deposits and make loans.

Question 3

Bank capital will decline following an increase in interest rates if the value of its

Accepted Answer

A) fixed-rate assets is greater than the value of its fixed-rate liabilities. 
B) fixed-rate assets is less than the value of its fixed-rate liabilities. 
C) fixed-rate assets is greater than the value of its variable-rate assets. 
D) fixed-rate liabilities is greater than the value of its variable-rate liabilities. 
A) fixed-rate assets is greater than the value of its fixed-rate liabilities. 
B) fixed-rate assets is less than the value of its fixed-rate liabilities. 
C) fixed-rate assets is greater than the value of its variable-rate assets. 
D) fixed-rate liabilities is greater than the value of its variable-rate liabilities.

Question 4

The process by which banks screen potential applicants by eliminating bad risks and to obtain a pool of creditworthy borrowers is called:

Accepted Answer

A) gap analysis 
B) duration analysis 
C) credit-risk analysis 
D) liquidity analysis 
A) gap analysis 
B) duration analysis 
C) credit-risk analysis 
D) liquidity analysis

Question 5

Standby letters of credit

Accepted Answer

A) are a form of swaps. 
B) are a promise by a bank to lend the borrower funds to pay off its maturing commercial paper. 
C) are a promise by a large depositor to provide additional funds to a bank should the bank face an unexpectedly large deposit outflow. 
D) represent the unused balance on a bank credit card. 
A) are a form of swaps. 
B) are a promise by a bank to lend the borrower funds to pay off its maturing commercial paper. 
C) are a promise by a large depositor to provide additional funds to a bank should the bank face an unexpectedly large deposit outflow. 
D) represent the unused balance on a bank credit card.

Question 6

Which of the following statements about checking deposits is true?

Accepted Answer

A) It is a liability for both households and banks. 
B) It is an asset for both households and banks. 
C) It is an asset for households but a liability for a bank. 
D) It is a liability for households but an asset for a bank. 
A) It is a liability for both households and banks. 
B) It is an asset for both households and banks. 
C) It is an asset for households but a liability for a bank. 
D) It is a liability for households but an asset for a bank.

Question 7

How does moral hazard contribute to high bank leverage?

Accepted Answer

First, bank managers are typically compe

Question 8

In managing its liabilities to deal with liquidity problems, banks trade off

Accepted Answer

A) credit risk against interest rate risk. 
B) adverse selection against moral hazard. 
C) the need for available funds to meet deposit outflows against the desire for greater profit. 
D) present tax liabilities against future tax liabilities. 
A) credit risk against interest rate risk. 
B) adverse selection against moral hazard. 
C) the need for available funds to meet deposit outflows against the desire for greater profit. 
D) present tax liabilities against future tax liabilities.

Question 9

A bank that expects interest rates to fall will

Accepted Answer

A) want the duration of its assets to be greater than the duration of its liabilities-a positive duration gap. 
B) want the duration of its assets to be less than the duration of its liabilities-a positive duration gap. 
C) want the duration of its assets to be greater than the duration of its liabilities-a negative duration gap. 
D) want the duration of its assets to be less than the duration of its liabilities-a negative duration gap. 
A) want the duration of its assets to be greater than the duration of its liabilities-a positive duration gap. 
B) want the duration of its assets to be less than the duration of its liabilities-a positive duration gap. 
C) want the duration of its assets to be greater than the duration of its liabilities-a negative duration gap. 
D) want the duration of its assets to be less than the duration of its liabilities-a negative duration gap.

Question 10

If you deposit a $50 check in the bank, the immediate impact on your bank's balance sheet will be a

Accepted Answer

A) $50 increase in reserves and a $50 increase in checkable deposits. 
B) $50 decrease in reserves and a $50 increase in checkable deposits. 
C) $50 increase in reserves and a $50 decrease in checkable deposits. 
D) $50 decrease in liabilities and a $50 increase in checkable deposits. 
A) $50 increase in reserves and a $50 increase in checkable deposits. 
B) $50 decrease in reserves and a $50 increase in checkable deposits. 
C) $50 increase in reserves and a $50 decrease in checkable deposits. 
D) $50 decrease in liabilities and a $50 increase in checkable deposits.

Question 11

Short-term loans between banks are called

Accepted Answer

A) federal funds. 
B) repurchase agreements. 
C) repos. 
D) discount loans. 
A) federal funds. 
B) repurchase agreements. 
C) repos. 
D) discount loans.

Question 12

What are the advantages of bank deposits compared to other types of assets?

Accepted Answer

Compared to cash, bank deposits offer sa

Question 13

Federal funds are

Accepted Answer

A) the tax revenues of the Federal government. 
B) loans by the Federal Reserve to banks. 
C) loans by banks to the Federal Reserve. 
D) short-term loans between banks. 
A) the tax revenues of the Federal government. 
B) loans by the Federal Reserve to banks. 
C) loans by banks to the Federal Reserve. 
D) short-term loans between banks.

Question 14

On a bank's balance sheet, assets are

Accepted Answer

A) the uses of acquired funds. 
B) the sources of acquired funds. 
C) those items owed by the bank to depositors and others. 
D) by definition equal to the bank's liabilities. 
A) the uses of acquired funds. 
B) the sources of acquired funds. 
C) those items owed by the bank to depositors and others. 
D) by definition equal to the bank's liabilities.

Question 15

Where do the FDIC's funds come from?

Accepted Answer

A) Congress appropriates money for the FDIC, just as it does for other federal agencies. 
B) The FDIC earns income through the insurance premiums paid by insured banks and from investment earnings. 
C) The FDIC sells bonds in the financial markets. 
D) The FDIC relies on voluntary contributions from the banking community. 
A) Congress appropriates money for the FDIC, just as it does for other federal agencies. 
B) The FDIC earns income through the insurance premiums paid by insured banks and from investment earnings. 
C) The FDIC sells bonds in the financial markets. 
D) The FDIC relies on voluntary contributions from the banking community.

Question 16

Geographic restrictions on banks

Accepted Answer

A) reduce their ability to take advantage of economies of scale. 
B) raise the costs of their providing risk-sharing, liquidity, and information services. 
C) reduce their exposure to credit risk. 
D) reduce the amount of local lending they undertake. 
A) reduce their ability to take advantage of economies of scale. 
B) raise the costs of their providing risk-sharing, liquidity, and information services. 
C) reduce their exposure to credit risk. 
D) reduce the amount of local lending they undertake.

Question 17

Required reserves are

Accepted Answer

A) the portion of demand deposits and NOW accounts banks must hold. 
B) zero on demand deposits. 
C) zero on NOW accounts. 
D) imposed on all deposits at commercial banks. 
A) the portion of demand deposits and NOW accounts banks must hold. 
B) zero on demand deposits. 
C) zero on NOW accounts. 
D) imposed on all deposits at commercial banks.

Question 18

About what percentage of bank assets is made up of cash items in 2012?

Accepted Answer

A) 8% 
B) 20% 
C) 37% 
D) 50% 
A) 8% 
B) 20% 
C) 37% 
D) 50%

Question 19

A checkable deposit that pays no interest is known as a

Accepted Answer

A) demand deposit. 
B) certificate of deposit. 
C) NOW account. 
D) time deposit. 
A) demand deposit. 
B) certificate of deposit. 
C) NOW account. 
D) time deposit.

Loans by the Federal Reserve to banks are known as

The United States has a dual banking system in the sense that

Bank capital will decline following an increase in interest rates if the value of its

The process by which banks screen potential applicants by eliminating bad risks and to obtain a pool of creditworthy borrowers is called:

Standby letters of credit

Which of the following statements about checking deposits is true?

How does moral hazard contribute to high bank leverage?

In managing its liabilities to deal with liquidity problems, banks trade off

A bank that expects interest rates to fall will

If you deposit a $50 check in the bank, the immediate impact on your bank's balance sheet will be a

Short-term loans between banks are called

What are the advantages of bank deposits compared to other types of assets?

Federal funds are

On a bank's balance sheet, assets are

Where do the FDIC's funds come from?

Geographic restrictions on banks

Required reserves are

About what percentage of bank assets is made up of cash items in 2012?

A checkable deposit that pays no interest is known as a

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

Exam 10: The Economics of Banking

Loans by the Federal Reserve to banks are known as

The United States has a dual banking system in the sense that

Bank capital will decline following an increase in interest rates if the value of its

The process by which banks screen potential applicants by eliminating bad risks and to obtain a pool of creditworthy borrowers is called:

Standby letters of credit

Which of the following statements about checking deposits is true?

How does moral hazard contribute to high bank leverage?

In managing its liabilities to deal with liquidity problems, banks trade off

A bank that expects interest rates to fall will

If you deposit a $50 check in the bank, the immediate impact on your bank's balance sheet will be a

Short-term loans between banks are called

What are the advantages of bank deposits compared to other types of assets?

Federal funds are

On a bank's balance sheet, assets are

Where do the FDIC's funds come from?

Geographic restrictions on banks

Required reserves are

About what percentage of bank assets is made up of cash items in 2012?

A checkable deposit that pays no interest is known as a

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