Question 1

Holding all else constant,when a bank receives the funds for a deposited check,

Accepted Answer

A)  cash items in process of collection fall by the amount of the check. 
B)  bank assets increase by the amount of the check. 
C)  bank liabilities decrease by the amount of the check. 
D)  all of the above occur. 
A)  cash items in process of collection fall by the amount of the check. 
B)  bank assets increase by the amount of the check. 
C)  bank liabilities decrease by the amount of the check. 
D)  all of the above occur.

Question 2

Holding all else constant,when a bank receives the funds for a deposited check,

Accepted Answer

A)  cash items in process of collection fall by the amount of the check. 
B)  bank assets remain unchanged. 
C)  bank liabilities decrease by the amount of the check. 
D)  all of the above occur. 
E)  only A and B of the above occur. 
A)  cash items in process of collection fall by the amount of the check. 
B)  bank assets remain unchanged. 
C)  bank liabilities decrease by the amount of the check. 
D)  all of the above occur. 
E)  only A and B of the above occur.

Question 3

Which of the following are primary concerns of a bank manager?

Accepted Answer

A)  Maintaining sufficient reserves to minimize the cost to the bank of deposit outflows 
B)  Extending loans to borrowers who will pay high interest rates, but who are also good credit risks 
C)  Acquiring funds at a relatively low cost, so that profitable lending opportunities can be realized 
D)  All of the above 
A)  Maintaining sufficient reserves to minimize the cost to the bank of deposit outflows 
B)  Extending loans to borrowers who will pay high interest rates, but who are also good credit risks 
C)  Acquiring funds at a relatively low cost, so that profitable lending opportunities can be realized 
D)  All of the above

Question 4

The value-at-risk method for estimating a bank's risk exposure measures the losses a bank could incur under a worst-case scenario.

Accepted Answer

A) True 
 B)False

Question 5

Because passbook savings are ________ liquid for the depositor than checking accounts,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 6

On a bank's income statement,the provision for loan losses is an ________ item and represents the amount of ________ in the bank's loan loss reserves.

Accepted Answer

A)  income; decrease 
B)  income; increase 
C)  expense; decrease 
D)  expense; increase 
A)  income; decrease 
B)  income; increase 
C)  expense; decrease 
D)  expense; increase

Question 7

When a $10 check written on the First National Bank is deposited in an account at the Second National Bank,then

Accepted Answer

A)  the liabilities of the First National Bank decrease by $10. 
B)  the liabilities of the Second National Bank increase by $10. 
C)  the reserves of the First National Bank increase by $10. 
D)  all of the above occur. 
E)  only A and B of the above occur. 
A)  the liabilities of the First National Bank decrease by $10. 
B)  the liabilities of the Second National Bank increase by $10. 
C)  the reserves of the First National Bank increase by $10. 
D)  all of the above occur. 
E)  only A and B of the above occur.

Question 8

Which of the following statements is an accurate description of modern liability management?

Accepted Answer

A)  Greater flexibility in liability management has allowed banks to increase the proportion of their assets held in loans. 
B)  New financial instruments enable banks to acquire funds quickly. 
C)  The introduction of negotiable CDs have significantly reduced the percentage of funds that banks borrow from one another to finance loans. 
D)  All of the above have occurred since 1960. 
E)  Only A and B of the above have occurred since 1960. 
A)  Greater flexibility in liability management has allowed banks to increase the proportion of their assets held in loans. 
B)  New financial instruments enable banks to acquire funds quickly. 
C)  The introduction of negotiable CDs have significantly reduced the percentage of funds that banks borrow from one another to finance loans. 
D)  All of the above have occurred since 1960. 
E)  Only A and B of the above have occurred since 1960.

Question 9

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 10

Secondary reserves ________.

Accepted Answer

A)  can be converted into cash with low transaction costs 
B)  are not easily converted into cash and are, therefore, of secondary importance to banks 
C)  count toward meeting required reserves, but only at a rate of $0.50 per dollar of secondary reserves 
D)  of none of the above. 
A)  can be converted into cash with low transaction costs 
B)  are not easily converted into cash and are, therefore, of secondary importance to banks 
C)  count toward meeting required reserves, but only at a rate of $0.50 per dollar of secondary reserves 
D)  of none of the above.

Question 11

Explain the off-balance-sheet activities banks engage in,the risks they face from undertaking these activities,and the controls they put in place to restrict bank employees from taking on too much risk.

Accepted Answer

Off-balance-sheet activities refer to fi

Question 12

Which of the following statements is true?

Accepted Answer

A)  A bank's assets are its uses of funds. 
B)  A bank's assets are its sources of funds. 
C)  A bank's liabilities are its uses of funds. 
D)  Only B and C of the above are true. 
A)  A bank's assets are its uses of funds. 
B)  A bank's assets are its sources of funds. 
C)  A bank's liabilities are its uses of funds. 
D)  Only B and C of the above are true.

Question 13

Which of the following statements is 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)  All of the above are true. 
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)  All of the above are true.

Question 14

Before the 1960s,

Accepted Answer

A)  over half of the sources of bank funds were obtained through checkable deposits that by law could not pay any interest. 
B)  banks mostly borrowed from other banks to meet their reserve needs. 
C)  both A and B occurred. 
D)  neither A nor B occurred. 
A)  over half of the sources of bank funds were obtained through checkable deposits that by law could not pay any interest. 
B)  banks mostly borrowed from other banks to meet their reserve needs. 
C)  both A and B occurred. 
D)  neither A nor B occurred.

Question 15

If a bank has $200,000 of deposits,a required reserve ratio of 20 percent,and $80,000 in reserves,then the maximum deposit outflow it can sustain without altering its balance sheet is

Accepted Answer

A)  $50,000. 
B)  $40,000. 
C)  $30,000. 
D)  $25,000. 
A)  $50,000. 
B)  $40,000. 
C)  $30,000. 
D)  $25,000.

Question 16

When you deposit $50 in the First National Bank,

Accepted Answer

A)  its liabilities decrease by $50. 
B)  its assets increase by $50. 
C)  its reserves decrease by $50. 
D)  only B and C of the above occur. 
A)  its liabilities decrease by $50. 
B)  its assets increase by $50. 
C)  its reserves decrease by $50. 
D)  only B and C of the above occur.

Question 17

When $1 million is deposited at a bank,the required reserve ratio is 20 percent,and the bank chooses not to hold any excess reserves but instead makes loans,then in the bank's final balance sheet,

Accepted Answer

A)  the assets at the bank increase by $800,000. 
B)  the liabilities of the bank increase by $1,000,000. 
C)  the liabilities of the bank increase by $800,000. 
D)  reserves increase by $160,000. 
A)  the assets at the bank increase by $800,000. 
B)  the liabilities of the bank increase by $1,000,000. 
C)  the liabilities of the bank increase by $800,000. 
D)  reserves increase by $160,000.

Question 18

Which of the following do banks hold as insurance against the high cost of deposit outflows?

Accepted Answer

A)  Excess reserves 
B)  Secondary reserves 
C)  Bank equity capital 
D)  All of the above 
E)  Only A and B of the above 
A)  Excess reserves 
B)  Secondary reserves 
C)  Bank equity capital 
D)  All of the above 
E)  Only A and B of the above

Question 19

Which of the following are not checkable deposits?

Accepted Answer

A)  Savings accounts 
B)  Small-denomination time deposits 
C)  Negotiable order of withdrawal accounts 
D)  All of the above 
E)  Only A and B of the above 
A)  Savings accounts 
B)  Small-denomination time deposits 
C)  Negotiable order of withdrawal accounts 
D)  All of the above 
E)  Only A and B of the above

Question 20

Large-denomination CDs are ________,so that like a bond they can be resold in a ________ market before they mature.

Accepted Answer

A)  nonnegotiable; secondary 
B)  nonnegotiable; primary 
C)  negotiable; secondary 
D)  negotiable; primary 
A)  nonnegotiable; secondary 
B)  nonnegotiable; primary 
C)  negotiable; secondary 
D)  negotiable; primary

Exam 17: Banking and the Management of Financial Institutions

Holding all else constant,when a bank receives the funds for a deposited check,

Holding all else constant,when a bank receives the funds for a deposited check,

Which of the following are primary concerns of a bank manager?

The value-at-risk method for estimating a bank's risk exposure measures the losses a bank could incur under a worst-case scenario.

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

On a bank's income statement,the provision for loan losses is an ________ item and represents the amount of ________ in the bank's loan loss reserves.

When a $10 check written on the First National Bank is deposited in an account at the Second National Bank,then

Which of the following statements is an accurate description of modern liability management?

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

Secondary reserves ________.

Explain the off-balance-sheet activities banks engage in,the risks they face from undertaking these activities,and the controls they put in place to restrict bank employees from taking on too much risk.

Which of the following statements is true?

Which of the following statements is true?

Before the 1960s,

If a bank has $200,000 of deposits,a required reserve ratio of 20 percent,and $80,000 in reserves,then the maximum deposit outflow it can sustain without altering its balance sheet is

When you deposit $50 in the First National Bank,

When $1 million is deposited at a bank,the required reserve ratio is 20 percent,and the bank chooses not to hold any excess reserves but instead makes loans,then in the bank's final balance sheet,

Which of the following do banks hold as insurance against the high cost of deposit outflows?

Which of the following are not checkable deposits?

Large-denomination CDs are ________,so that like a bond they can be resold in a ________ market before they mature.

Why Study Financial Markets and Institutions?

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation?

Why Do Interest Rates Change?

How Do Risk and Term Structure Affect Interest Rates?

Are Financial Markets Efficient?

Why Do Financial Institutions Exist?

Why Do Financial Crises Occur and

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging with Financial Derivatives

Financial Crises In Emerging Market Economies

Savings Associations and Credit Unions

Finance Companies

Filters

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

On a bank's income statement,the provision for loan losses is an item and represents the amount of in the bank's loan loss reserves.

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

Large-denomination CDs are ,so that like a bond they can be resold in a market before they mature.