Question 1

A bank with insufficient reserves can increase its reserves by

Accepted Answer

A) lending federal funds. 
B) calling in loans. 
C) buying short-term Treasury securities. 
D) buying municipal bonds. 
A) lending federal funds. 
B) calling in loans. 
C) buying short-term Treasury securities. 
D) buying municipal bonds.

Question 2

Secondary reserves include

Accepted Answer

A) deposits at Federal Reserve Banks. 
B) deposits at other large banks. 
C) short-term Treasury securities. 
D) state and local government securities. 
A) deposits at Federal Reserve Banks. 
B) deposits at other large banks. 
C) short-term Treasury securities. 
D) state and local government securities.

Question 3

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

Accepted Answer

A) Discount loans 
B) Reserves 
C) U.S.Treasury securities 
D) Loans 
A) Discount loans 
B) Reserves 
C) U.S.Treasury securities 
D) Loans

Question 4

________ may antagonize customers and thus can be a very costly way of acquiring funds to meet an unexpected deposit outflow.

Accepted Answer

A) Selling securities 
B) Selling loans 
C) Calling in loans 
D) Selling negotiable CDs 
A) Selling securities 
B) Selling loans 
C) Calling in loans 
D) Selling negotiable CDs

Question 5

When Jane Brown writes a $100 check to her nephew (who lives in another state),Ms.Brown's bank ________ assets of $100 and ________ liabilities of $100.

Accepted Answer

A) gains; gains 
B) gains; loses 
C) loses; gains 
D) loses; loses 
A) gains; gains 
B) gains; loses 
C) loses; gains 
D) loses; loses

Question 6

Which of the following statements are true?

Accepted Answer

A) Checkable deposits are payable on demand. 
B) Checkable deposits do not include NOW accounts. 
C) Checkable deposits are the primary source of bank funds. 
D) Demand deposits are checkable deposits that pay interest. 
A) Checkable deposits are payable on demand. 
B) Checkable deposits do not include NOW accounts. 
C) Checkable deposits are the primary source of bank funds. 
D) Demand deposits are checkable deposits that pay interest.

Question 7

Looking at the Net Interest Margin indicates that the poor bank performance in the late 1980s

Accepted Answer

A) was not the result of interest-rate movements. 
B) was not the result of risky loans made in the early 1980s. 
C) resulted from a narrowing of the gap between interest earned on assets and inters paid on liabilities. 
D) resulted from a huge decrease in provisions for loan losses. 
A) was not the result of interest-rate movements. 
B) was not the result of risky loans made in the early 1980s. 
C) resulted from a narrowing of the gap between interest earned on assets and inters paid on liabilities. 
D) resulted from a huge decrease in provisions for loan losses.

Question 8

Which of the following has not resulted from more active liability management on the part of banks?

Accepted Answer

A) Increased bank holdings of cash items 
B) Aggressive targeting of goals for asset growth by banks 
C) Increased use of negotiable CDs to raise funds 
D) An increased proportion of bank assets held in loans 
A) Increased bank holdings of cash items 
B) Aggressive targeting of goals for asset growth by banks 
C) Increased use of negotiable CDs to raise funds 
D) An increased proportion of bank assets held in loans

Question 9

Use the following table to answer the questions: 
 
-Assuming that the average duration of its assets is five years,while the average duration of its liabilities is three years,then a 5 percentage point increase in interest rates will cause the net worth of First National to decline by ________ of the total original asset value.

Accepted Answer

A) 5 percent 
B) 10 percent 
C) 15 percent 
D) 25 percent 
A) 5 percent 
B) 10 percent 
C) 15 percent 
D) 25 percent

Question 10

The fraction of checkable deposits that banks are required by regulation to hold are

Accepted Answer

A) excess reserves. 
B) required reserves. 
C) vault cash. 
D) total reserves. 
A) excess reserves. 
B) required reserves. 
C) vault cash. 
D) total reserves.

Question 11

Which of the following are transaction deposits?

Accepted Answer

A) Savings accounts 
B) Small-denomination time deposits 
C) Negotiable order of withdraw accounts 
D) Certificates of deposit 
A) Savings accounts 
B) Small-denomination time deposits 
C) Negotiable order of withdraw accounts 
D) Certificates of deposit

Question 12

Use the following table to answer the questions: 
 
-Assuming that the average duration of its assets is four years,while the average duration of its liabilities is three years,then a 5 percentage point increase in interest rates will cause the net worth of First National to ________ by ________ of the total original asset value.

Accepted Answer

A) decline; 5 percent 
B) decline; 10 percent 
C) decline; 15 percent 
D) increase; 20 percent 
A) decline; 5 percent 
B) decline; 10 percent 
C) decline; 15 percent 
D) increase; 20 percent

Question 13

Off-balance sheet activities involving guarantees of securities and back-up credit lines

Accepted Answer

A) have no impact on the risk a bank faces. 
B) greatly reduce the risk a bank faces. 
C) increase the risk a bank faces. 
D) slightly reduce the risk a bank faces. 
A) have no impact on the risk a bank faces. 
B) greatly reduce the risk a bank faces. 
C) increase the risk a bank faces. 
D) slightly reduce the risk a bank faces.

Question 14

Banks face the problem of ________ in loan markets because bad credit risks are the ones most likely to seek bank loans.

Accepted Answer

A) adverse selection 
B) moral hazard 
C) moral suasion 
D) intentional fraud 
A) adverse selection 
B) moral hazard 
C) moral suasion 
D) intentional fraud

Question 15

Duration analysis involves comparing the average duration of the bank's ________ to the average duration of its ________.

Accepted Answer

A) securities portfolio; non-deposit liabilities 
B) assets; liabilities 
C) loan portfolio; deposit liabilities 
D) assets; deposit liabilities 
A) securities portfolio; non-deposit liabilities 
B) assets; liabilities 
C) loan portfolio; deposit liabilities 
D) assets; deposit liabilities

Question 16

Through correspondent banking,large banks provide services to small banks,including

Accepted Answer

A) loan guarantees. 
B) foreign exchange transactions. 
C) issuing stock. 
D) debt reduction. 
A) loan guarantees. 
B) foreign exchange transactions. 
C) issuing stock. 
D) debt reduction.

Question 17

If a bank has $10 million of checkable deposits,a required reserve ratio of 10 percent,and it holds $2 million in reserves,then it will not have enough reserves to support a deposit outflow of

Accepted Answer

A) $1.2 million. 
B) $1.1 million. 
C) $1 million. 
D) $900,000. 
A) $1.2 million. 
B) $1.1 million. 
C) $1 million. 
D) $900,000.

Question 18

In general,banks make profits by selling ________ liabilities and buying ________ assets.

Accepted Answer

A) long-term; shorter-term 
B) short-term; longer-term 
C) illiquid; liquid 
D) risky; risk-free 
A) long-term; shorter-term 
B) short-term; longer-term 
C) illiquid; liquid 
D) risky; risk-free

Question 19

Because checking accounts are ________ liquid for the depositor than passbook savings,they earn ________ interest rates.

Accepted Answer

A) less; higher 
B) less; lower 
C) more; higher 
D) more; lower 
A) less; higher 
B) less; lower 
C) more; higher 
D) more; lower

Question 20

Which of the following is not a nontransaction deposit?

Accepted Answer

A) Savings accounts 
B) Small-denomination time deposits 
C) Negotiable order of withdrawal accounts 
D) Certificate of deposit 
A) Savings accounts 
B) Small-denomination time deposits 
C) Negotiable order of withdrawal accounts 
D) Certificate of deposit

Exam 10: Banking and the Management of Financial Institutions

A bank with insufficient reserves can increase its reserves by

Secondary reserves include

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

________ may antagonize customers and thus can be a very costly way of acquiring funds to meet an unexpected deposit outflow.

When Jane Brown writes a $100 check to her nephew (who lives in another state),Ms.Brown's bank ________ assets of $100 and ________ liabilities of $100.

Which of the following statements are true?

Looking at the Net Interest Margin indicates that the poor bank performance in the late 1980s

Which of the following has not resulted from more active liability management on the part of banks?

The fraction of checkable deposits that banks are required by regulation to hold are

Which of the following are transaction deposits?

Off-balance sheet activities involving guarantees of securities and back-up credit lines

Banks face the problem of ________ in loan markets because bad credit risks are the ones most likely to seek bank loans.

Duration analysis involves comparing the average duration of the bank's ________ to the average duration of its ________.

Through correspondent banking,large banks provide services to small banks,including

If a bank has $10 million of checkable deposits,a required reserve ratio of 10 percent,and it holds $2 million in reserves,then it will not have enough reserves to support a deposit outflow of

In general,banks make profits by selling ________ liabilities and buying ________ assets.

Because checking accounts are ________ liquid for the depositor than passbook savings,they earn ________ interest rates.

Which of the following is not a nontransaction deposit?

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

When Jane Brown writes a $100 check to her nephew (who lives in another state),Ms.Brown's bank assets of $100 and liabilities of $100.

Duration analysis involves comparing the average duration of the bank's to the average duration of its .

In general,banks make profits by selling liabilities and buying assets.

Because checking accounts are liquid for the depositor than passbook savings,they earn interest rates.