Question 1

The share of checkable deposits in total bank liabilities has

Accepted Answer

A)  expanded moderately over time. 
B)  expanded dramatically over time. 
C)  shrunk over time. 
D)  remained virtually unchanged since 1960. 
A)  expanded moderately over time. 
B)  expanded dramatically over time. 
C)  shrunk over time. 
D)  remained virtually unchanged since 1960.

Question 2

To keep enough cash on hand to meet depositors' demand for withdrawals,banks must engage in liquidity management.

Accepted Answer

A) True 
 B)False

Question 3

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)  A bank's assets provide the bank with income. 
D)  Bank capital is 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)  A bank's assets provide the bank with income. 
D)  Bank capital is an asset on the bank balance sheet.

Question 4

Which of the following bank assets are 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 5

A bank fails when the value of its ________ falls below the value of ________,causing the bank to become insolvent.

Accepted Answer

A)  reserves; required reserves 
B)  loans; secondary reserves 
C)  securities; deposit liabilities 
D)  assets; liabilities 
A)  reserves; required reserves 
B)  loans; secondary reserves 
C)  securities; deposit liabilities 
D)  assets; liabilities

Question 6

A bank manager has which of the following concerns?

Accepted Answer

A)  To acquire funds at low cost 
B)  To minimize risk by diversifying asset holdings 
C)  To have enough ready cash to meet deposit outflows 
D)  All of the above 
A)  To acquire funds at low cost 
B)  To minimize risk by diversifying asset holdings 
C)  To have enough ready cash to meet deposit outflows 
D)  All of the above

Question 7

Explain how a capital crunch can lead to a credit crunch in our economy.

Accepted Answer

A capital crunch the limited availabilit

Question 8

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 $200,000. 
B)  the liabilities of the bank increase by $200,000. 
C)  reserves increase by $200,000. 
D)  all of the above occur. 
A)  the assets at the bank increase by $200,000. 
B)  the liabilities of the bank increase by $200,000. 
C)  reserves increase by $200,000. 
D)  all of the above occur.

Question 9

Required reserves are insurance against the costs associated with deposit outflows.The higher the costs associated with deposit outflows,the more required reserves banks will want to hold.

Accepted Answer

A) True 
 B)False

Question 10

If a bank has $100,000 of deposits,a required reserve ratio of 20 percent,and $40,000 in reserves,then the maximum deposit outflow it can sustain without altering its balance sheet is

Accepted Answer

A)  $30,000. 
B)  $25,000. 
C)  $20,000. 
D)  $10,000. 
A)  $30,000. 
B)  $25,000. 
C)  $20,000. 
D)  $10,000.

Question 11

Which of the following would substitute for discount loans?

Accepted Answer

A)  Loans to businesses 
B)  Repurchase agreements 
C)  Investing in Eurodollars 
D)  Loans to bank holding companies 
E)  Reverse repurchase agreements 
A)  Loans to businesses 
B)  Repurchase agreements 
C)  Investing in Eurodollars 
D)  Loans to bank holding companies 
E)  Reverse repurchase agreements

Question 12

Which of the following are checkable deposits?

Accepted Answer

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

Question 13

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

Accepted Answer

A)  return on assets. 
B)  return on capital. 
C)  return on equity. 
D)  return after taxes. 
A)  return on assets. 
B)  return on capital. 
C)  return on equity. 
D)  return after taxes.

Question 14

Nontransaction deposits are the primary source of bank funds.

Accepted Answer

A) True 
 B)False

Question 15

The most important category of assets on a bank's balance sheet is

Accepted Answer

A)  discount loans. 
B)  securities. 
C)  loans. 
D)  cash items in the process of collection. 
A)  discount loans. 
B)  securities. 
C)  loans. 
D)  cash items in the process of collection.

Question 16

The ________ the costs associated with deposit outflows are,the ________ excess reserves banks will want to hold.

Accepted Answer

A)  lower; more 
B)  higher; less 
C)  higher; more 
D)  none of the above, since deposit outflows cannot be anticipated 
A)  lower; more 
B)  higher; less 
C)  higher; more 
D)  none of the above, since deposit outflows cannot be anticipated

Question 17

When you deposit $50 in currency at the Old National Bank,

Accepted Answer

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

Question 18

Bank capital

Accepted Answer

A)  is raised by selling new equity. 
B)  is a cushion against a drop in the value of its assets. 
C)  comes from retained earnings. 
D)  is all of the above. 
A)  is raised by selling new equity. 
B)  is a cushion against a drop in the value of its assets. 
C)  comes from retained earnings. 
D)  is all of the above.

Question 19

How did liability management change during the 1960s?

Accepted Answer

During the 1960s, liability management u

Question 20

Distinguish between a bank's reserves,required reserves,excess reserves,and secondary reserves.

Accepted Answer

A bank's reserves refer to the funds tha

Exam 17: Banking and the Management of Financial Institutions

The share of checkable deposits in total bank liabilities has

To keep enough cash on hand to meet depositors' demand for withdrawals,banks must engage in liquidity management.

Which of the following statements is false?

Which of the following bank assets are the most liquid?

A bank fails when the value of its ________ falls below the value of ________,causing the bank to become insolvent.

A bank manager has which of the following concerns?

Explain how a capital crunch can lead to a credit crunch in our economy.

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,

Required reserves are insurance against the costs associated with deposit outflows.The higher the costs associated with deposit outflows,the more required reserves banks will want to hold.

If a bank has $100,000 of deposits,a required reserve ratio of 20 percent,and $40,000 in reserves,then the maximum deposit outflow it can sustain without altering its balance sheet is

Which of the following would substitute for discount loans?

Which of the following are checkable deposits?

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

Nontransaction deposits are the primary source of bank funds.

The most important category of assets on a bank's balance sheet is

The ________ the costs associated with deposit outflows are,the ________ excess reserves banks will want to hold.

When you deposit $50 in currency at the Old National Bank,

Bank capital

How did liability management change during the 1960s?

Distinguish between a bank's reserves,required reserves,excess reserves,and secondary reserves.

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

A bank fails when the value of its falls below the value of ,causing the bank to become insolvent.

The the costs associated with deposit outflows are,the excess reserves banks will want to hold.