Question 1

The largest percentage of banks' holdings of securities consist of

Accepted Answer

A) Treasury and government agency securities. 
B) tax-exempt municipal securities. 
C) state and local government securities. 
D) corporate securities. 
A) Treasury and government agency securities. 
B) tax-exempt municipal securities. 
C) state and local government securities. 
D) corporate securities.

Question 2

If a bank's liabilities are more sensitive to interest rate movements than are its assets,then

Accepted Answer

A) an increase in interest rates will reduce bank profits. 
B) a decrease in interest rates will reduce bank profits. 
C) interest rates changes will not impact bank profits. 
D) an increase in interest rates will increase bank profits. 
A) an increase in interest rates will reduce bank profits. 
B) a decrease in interest rates will reduce bank profits. 
C) interest rates changes will not impact bank profits. 
D) an increase in interest rates will increase bank profits.

Question 3

In the absence of regulation,banks would probably hold

Accepted Answer

A) too much capital,reducing the efficiency of the payments system. 
B) too much capital,reducing the profitability of banks. 
C) too little capital. 
D) too much capital,making it more difficult to obtain loans. 
A) too much capital,reducing the efficiency of the payments system. 
B) too much capital,reducing the profitability of banks. 
C) too little capital. 
D) too much capital,making it more difficult to obtain loans.

Question 4

The amount of assets per dollar of equity capital is called the

Accepted Answer

A) asset ratio. 
B) equity ratio. 
C) equity multiplier. 
D) asset multiplier. 
A) asset ratio. 
B) equity ratio. 
C) equity multiplier. 
D) asset multiplier.

Question 5

Using T-accounts show what happens to reserves at Security National Bank if one individual deposits $1000 in cash into her checking account and another individual withdraws $750 in cash from her checking account.

Accepted Answer

Security N

Question 6

A bank's commitment to provide a firm with loans up to pre-specified limit at an interest rate that is tied to a market interest rate is called

Accepted Answer

A) an adjustable gap loan. 
B) an adjustable portfolio loan. 
C) loan commitment. 
D) pre-credit loan line. 
A) an adjustable gap loan. 
B) an adjustable portfolio loan. 
C) loan commitment. 
D) pre-credit loan line.

Question 7

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

Question 8

In general,banks would prefer to acquire funds quickly by ________ rather than ________.

Accepted Answer

A) reducing loans; selling securities 
B) reducing loans; borrowing from the Fed 
C) borrowing from the Fed; reducing loans 
D) "calling in" loans; selling securities 
A) reducing loans; selling securities 
B) reducing loans; borrowing from the Fed 
C) borrowing from the Fed; reducing loans 
D) "calling in" loans; selling securities

Question 9

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

Accepted Answer

A) basic gap analysis. 
B) the maturity bucket approach to gap analysis. 
C) the segmented maturity approach to gap analysis. 
D) the segmented maturity approach to interest-exposure analysis. 
A) basic gap analysis. 
B) the maturity bucket approach to gap analysis. 
C) the segmented maturity approach to gap analysis. 
D) the segmented maturity approach to interest-exposure analysis.

Question 10

Of the following,which would be the first choice for a bank facing a reserve deficiency?

Accepted Answer

A) Call in loans 
B) Borrow from the Fed 
C) Sell securities 
D) Borrow from other banks 
A) Call in loans 
B) Borrow from the Fed 
C) Sell securities 
D) Borrow from other banks

Question 11

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 12

Net profit after taxes per dollar of equity capital is a basic measure of bank profitability called

Accepted Answer

A) return on assets. 
B) return on capital. 
C) return on equity. 
D) return on investment. 
A) return on assets. 
B) return on capital. 
C) return on equity. 
D) return on investment.

Question 13

If borrowers with the most risky investment projects seek bank loans in higher proportion to those borrowers with the safest investment projects,banks are said to face the problem of

Accepted Answer

A) adverse credit risk. 
B) adverse selection. 
C) moral hazard. 
D) lemon lenders. 
A) adverse credit risk. 
B) adverse selection. 
C) moral hazard. 
D) lemon lenders.

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) U.S.government securities 
A) Consumer loans 
B) Reserves 
C) Cash items in process of collection 
D) U.S.government securities

Question 15

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

Accepted Answer

A) Federal funds 
B) Eurodollars 
C) Transaction deposits 
D) Discount loans 
A) Federal funds 
B) Eurodollars 
C) Transaction deposits 
D) Discount loans

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

Which of the following statements is false?

Accepted Answer

A) A bank's assets are its uses of funds. 
B) A bank issues liabilities to acquire funds. 
C) The bank's assets provide the bank with income. 
D) Bank capital is recorded as an asset on the bank balance sheet. 
A) A bank's assets are its uses of funds. 
B) A bank issues liabilities to acquire funds. 
C) The bank's assets provide the bank with income. 
D) Bank capital is recorded as an asset on the bank balance sheet.

Question 18

A $5 million deposit outflow from a bank has the immediate effect of

Accepted Answer

A) reducing deposits and reserves by $5 million. 
B) reducing deposits and loans by $5 million. 
C) reducing deposits and securities by $5 million. 
D) reducing deposits and capital by $5 million. 
A) reducing deposits and reserves by $5 million. 
B) reducing deposits and loans by $5 million. 
C) reducing deposits and securities by $5 million. 
D) reducing deposits and capital by $5 million.

Question 19

Which of the following are reported as assets on a bank's balance sheet?

Accepted Answer

A) Borrowings 
B) Reserves 
C) Savings deposits 
D) Bank capital 
A) Borrowings 
B) Reserves 
C) Savings deposits 
D) Bank capital

Question 20

For banks,

Accepted Answer

A) return on assets exceeds return on equity. 
B) return on assets equals return on equity. 
C) return on equity exceeds return on assets. 
D) return on equity is another name for net interest margin. 
A) return on assets exceeds return on equity. 
B) return on assets equals return on equity. 
C) return on equity exceeds return on assets. 
D) return on equity is another name for net interest margin.

Exam 10: Banking and the Management of Financial Institutions

The largest percentage of banks' holdings of securities consist of

If a bank's liabilities are more sensitive to interest rate movements than are its assets,then

In the absence of regulation,banks would probably hold

The amount of assets per dollar of equity capital is called the

Using T-accounts show what happens to reserves at Security National Bank if one individual deposits $1000 in cash into her checking account and another individual withdraws $750 in cash from her checking account.

A bank's commitment to provide a firm with loans up to pre-specified limit at an interest rate that is tied to a market interest rate is called

Which of the following statements are true?

In general,banks would prefer to acquire funds quickly by ________ rather than ________.

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

Of the following,which would be the first choice for a bank facing a reserve deficiency?

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

Net profit after taxes per dollar of equity capital is a basic measure of bank profitability called

If borrowers with the most risky investment projects seek bank loans in higher proportion to those borrowers with the safest investment projects,banks are said to face the problem of

Which of the following bank assets is the most liquid?

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

Asset transformation can be described as

Which of the following statements is false?

A $5 million deposit outflow from a bank has the immediate effect of

Which of the following are reported as assets on a bank's balance sheet?

For banks,

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behavior 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 and the Subprime Meltdown

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Central Banks and the Federal Reserve System

The Money Supply Process

Tools for Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

The Demand for Money

The Islm Model

Monetary and Fiscal Policy in the ISLM Model

Aggregate Demand and Supply Analysis

Transmission Mechanisms of Monetary Policy: The Evidence

Money and Inflation

Rational Expectations: Implications for Policy

Filters

In general,banks would prefer to acquire funds quickly by rather than .

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