Question 1

Which of the following statements is not true?

Accepted Answer

A) The largest source of funds for banks to lend comes from the owner's capital 
B) Transaction deposits make up less than 10 percent of banks sources of funds 
C) The largest sources of funds for banks are non-transactions accounts 
D) Borrowing is a larger source of funds for banks than transaction deposits 
A) The largest source of funds for banks to lend comes from the owner's capital 
B) Transaction deposits make up less than 10 percent of banks sources of funds 
C) The largest sources of funds for banks are non-transactions accounts 
D) Borrowing is a larger source of funds for banks than transaction deposits

Question 2

Why do you think banks in the U.S.are prohibited from owning securities (stocks and bonds) of corporations?

Accepted Answer

It probably has a lot to do with two mai

Question 3

Which of the following statements is most correct for U.S.commercial banks?

Accepted Answer

A) Net interest margin is much larger than return on equity 
B) Net interest margin is about equal to return on equity 
C) Net interest margin averages about two times the return on equity 
D) Net interest margin is closely related to the return on assets 
A) Net interest margin is much larger than return on equity 
B) Net interest margin is about equal to return on equity 
C) Net interest margin averages about two times the return on equity 
D) Net interest margin is closely related to the return on assets

Question 4

Considering a bank's balance sheet, which of the following statements is true?

Accepted Answer

A) Total Bank Assets = Total Bank Capital - Total Bank Liabilities 
B) Total Bank Assets = Total Bank Liabilities + Total Bank Capital 
C) Total Bank Assets + Total Bank Capital = Total Bank Liabilities 
D) Total Bank Assets + Total Bank Liabilities = Total Bank Capital 
A) Total Bank Assets = Total Bank Capital - Total Bank Liabilities 
B) Total Bank Assets = Total Bank Liabilities + Total Bank Capital 
C) Total Bank Assets + Total Bank Capital = Total Bank Liabilities 
D) Total Bank Assets + Total Bank Liabilities = Total Bank Capital

Question 5

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

Accepted Answer

The equation reflecting a bank

Question 6

For every $100 in assets, a bank has $30 in interest-rate sensitive assets, and the other $70 in non-interest-rate sensitive assets.The same bank has $60 for every $100 in liabilities in interest-rate sensitive liabilities, the other $40 are in liabilities that are not interest-rate sensitive.If the interest rate on assets decreases from 6 to 5 percent, and the interest rate on liabilities decreases from 4 to 3, percent the impact on the bank's profits per $100 of assets will be:

Accepted Answer

A) A reduction of $0.30 
B) An increase of $0.30 
C) A reduction of $3.00 
D) Zero since the interest rates on assets and liabilities fell by the same amount 
A) A reduction of $0.30 
B) An increase of $0.30 
C) A reduction of $3.00 
D) Zero since the interest rates on assets and liabilities fell by the same amount

Question 7

Why would a bank usually want to minimize the amount of excess reserves it has on hand?

Accepted Answer

Reserves are assets held in the form of

Question 8

If you focus on interest-rate risk, can you explain why banks offer higher interest rates on longer-term CDs than they do on short-term CDs?

Accepted Answer

In looking at bank balance sheets one im

Question 9

A bank has a need for cash for a short period of time to meet its liquidity needs.The bank has significant holding of U.S.treasury securities.The bank really does not want to sell the securities, realizing the liquidity need is a temporary problem.A pension fund has significant cash holdings and would like to earn some return on part of these holdings.The problem is the fund will need this cash in a few days to honor a purchase agreement it made for municipal bonds being issued.Is there any way these two organizations can work together to solve each other's problem?

Accepted Answer

This is a situation that is ideal for a

Question 10

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 11

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 12

A bank faces foreign exchange risk when:

Accepted Answer

A) It has assets denominated in one currency and liabilities in another 
B) It lends to foreign borrowers because they are less likely to repay a U.S.bank 
C) Foreign governments restrict dollar-denominated payments 
D) It has branches in other countries 
A) It has assets denominated in one currency and liabilities in another 
B) It lends to foreign borrowers because they are less likely to repay a U.S.bank 
C) Foreign governments restrict dollar-denominated payments 
D) It has branches in other countries

Question 13

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 14

If a bank has a net worth that is negative, what do you know about the relationship between the amounts the bank has in assets and liabilities?

Accepted Answer

If a bank had a negative net w

Question 15

If a bank has $150 million in assets and a net worth of $20 million, its asset-to-equity ratio is:

Accepted Answer

A) 6.5 to 1 
B) 7.5 to 1 
C) 0.13 to 1 
D) 0.15 to 1 
A) 6.5 to 1 
B) 7.5 to 1 
C) 0.13 to 1 
D) 0.15 to 1

Question 16

A bank's assets tend to be long-term while its liabilities are short-term.Therefore, when interest rates raise the value of the bank's assets:

Accepted Answer

A) Increases by more than the value of its liabilities 
B) Will decrease by more than the value of its liabilities 
C) Increases and the value of its liabilities decreases 
D) Decreases and the value of its liabilities increases 
A) Increases by more than the value of its liabilities 
B) Will decrease by more than the value of its liabilities 
C) Increases and the value of its liabilities decreases 
D) Decreases and the value of its liabilities increases

Question 17

A bank that does not want to hold a lot of excess reserves but wants to manage liquidity risk is likely to:

Accepted Answer

A) Hold a lot in highly liquid securities 
B) Make sure that most of its assets are in small business loans 
C) Have a high ratio of loans to securities 
D) Limit withdrawals by customers 
A) Hold a lot in highly liquid securities 
B) Make sure that most of its assets are in small business loans 
C) Have a high ratio of loans to securities 
D) Limit withdrawals by customers

Question 18

Net interest income for a bank is:

Accepted Answer

A) The difference between gross income and net income after taxes 
B) The interest banks earn from uses of funds 
C) The difference between interest income and interest expense 
D) The difference between interest income and total expenses 
A) The difference between gross income and net income after taxes 
B) The interest banks earn from uses of funds 
C) The difference between interest income and interest expense 
D) The difference between interest income and total expenses

Question 19

Information asymmetry that exists in lending creates what type of risk for banks? Discuss the ways for a bank to handle or minimize this risk.

Accepted Answer

Information asymmetry leads to the probl

Question 20

In Chapter 11 we discussed the principal-agent problem as a form of moral hazard.Discuss the unique problems a bank manager faces in terms of trying to please the owners of the bank and at the same time trying to appease regulators.

Accepted Answer

The principal-agent problem arises from

Which of the following statements is not true?

Why do you think banks in the U.S.are prohibited from owning securities (stocks and bonds) of corporations?

Which of the following statements is most correct for U.S.commercial banks?

Considering a bank's balance sheet, which of the following statements is true?

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

Why would a bank usually want to minimize the amount of excess reserves it has on hand?

If you focus on interest-rate risk, can you explain why banks offer higher interest rates on longer-term CDs than they do on short-term CDs?

Capital is the cushion banks have against:

A bank faces foreign exchange risk when:

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:

If a bank has a net worth that is negative, what do you know about the relationship between the amounts the bank has in assets and liabilities?

If a bank has $150 million in assets and a net worth of $20 million, its asset-to-equity ratio is:

A bank's assets tend to be long-term while its liabilities are short-term.Therefore, when interest rates raise the value of the bank's assets:

A bank that does not want to hold a lot of excess reserves but wants to manage liquidity risk is likely to:

Net interest income for a bank is:

Information asymmetry that exists in lending creates what type of risk for banks? Discuss the ways for a bank to handle or minimize this risk.

In Chapter 11 we discussed the principal-agent problem as a form of moral hazard.Discuss the unique problems a bank manager faces in terms of trying to please the owners of the bank and at the same time trying to appease regulators.

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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Exam 12: Depository Institutions: Banks and Bank Management

Which of the following statements is not true?

Why do you think banks in the U.S.are prohibited from owning securities (stocks and bonds) of corporations?

Which of the following statements is most correct for U.S.commercial banks?

Considering a bank's balance sheet, which of the following statements is true?

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

Why would a bank usually want to minimize the amount of excess reserves it has on hand?

If you focus on interest-rate risk, can you explain why banks offer higher interest rates on longer-term CDs than they do on short-term CDs?

Capital is the cushion banks have against:

A bank faces foreign exchange risk when:

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:

If a bank has a net worth that is negative, what do you know about the relationship between the amounts the bank has in assets and liabilities?

If a bank has $150 million in assets and a net worth of $20 million, its asset-to-equity ratio is:

A bank's assets tend to be long-term while its liabilities are short-term.Therefore, when interest rates raise the value of the bank's assets:

A bank that does not want to hold a lot of excess reserves but wants to manage liquidity risk is likely to:

Net interest income for a bank is:

Information asymmetry that exists in lending creates what type of risk for banks? Discuss the ways for a bank to handle or minimize this risk.

In Chapter 11 we discussed the principal-agent problem as a form of moral hazard.Discuss the unique problems a bank manager faces in terms of trying to please the owners of the bank and at the same time trying to appease regulators.

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

Filters