Question 1

What costs do banks hope to avoid by holding excess reserves?

Accepted Answer

Banks hold excess reserves for several r

Question 2

Which of the following is checkable deposits?

Accepted Answer

A)  Savings accounts 
B)  Small-denomination time deposits 
C)  Money market deposit accounts 
D)  Certificates of deposit 
A)  Savings accounts 
B)  Small-denomination time deposits 
C)  Money market deposit accounts 
D)  Certificates of deposit

Question 3

The largest operating expense for a bank is

Accepted Answer

A)  salaries and employee benefits. 
B)  interest paid on discount loans. 
C)  interest paid on federal funds borrowed from other banks. 
D)  interest paid on deposits. 
A)  salaries and employee benefits. 
B)  interest paid on discount loans. 
C)  interest paid on federal funds borrowed from other banks. 
D)  interest paid on deposits.

Question 4

Examples of off-balance-sheet activities include

Accepted Answer

A)  loan sales. 
B)  foreign exchange market transactions. 
C)  trading in financial futures. 
D)  all of the above. 
E)  only A and B of the above. 
A)  loan sales. 
B)  foreign exchange market transactions. 
C)  trading in financial futures. 
D)  all of the above. 
E)  only A and B of the above.

Question 5

Discuss the recent trends in bank performance measures.

Accepted Answer

In recent years, there have been several

Question 6

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

Accepted Answer

A)  Reserves 
B)  Checkable deposits 
C)  Loans 
D)  Deposits with other banks 
A)  Reserves 
B)  Checkable deposits 
C)  Loans 
D)  Deposits with other banks

Question 7

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

Accepted Answer

A)  $1.2 million. 
B)  $1.1 million. 
C)  $1 million. 
D)  either A or B of the above. 
A)  $1.2 million. 
B)  $1.1 million. 
C)  $1 million. 
D)  either A or B of the above.

Question 8

Banks can protect themselves from the disruption caused by deposit outflows by

Accepted Answer

A)  holding excess reserves. 
B)  selling securities. 
C)  "calling in" loans. 
D)  doing all of the above. 
E)  doing only A and B of the above. 
A)  holding excess reserves. 
B)  selling securities. 
C)  "calling in" loans. 
D)  doing all of the above. 
E)  doing only A and B of the above.

Question 9

A loan commitment is an agreement to provide a loan up to a certain dollar amount if a customer requests the loan during a specific time period.

Accepted Answer

A) True 
 B)False

Question 10

When a bank receives additional deposits,it gains an equal amount of reserves; when it loses deposits,it loses an equal amount of reserves.

Accepted Answer

A) True 
 B)False

Question 11

What are a bank's major sources and uses of funds?

Accepted Answer

Banks operate by balancing their sources

Question 12

Banks earn profits by selling ________ with attractive combinations of liquidity,risk,and return,and using the proceeds to buy ________ with a different set of characteristics.

Accepted Answer

A)  loans; deposits 
B)  securities; deposits 
C)  liabilities; assets 
D)  assets; liabilities 
A)  loans; deposits 
B)  securities; deposits 
C)  liabilities; assets 
D)  assets; liabilities

Question 13

Which is the least costly way for a bank to handle deposit outflows?

Accepted Answer

A)  Hold excess reserves. 
B)  Borrow from other banks. 
C)  Sell securities. 
D)  Call in loans. 
A)  Hold excess reserves. 
B)  Borrow from other banks. 
C)  Sell securities. 
D)  Call in loans.

Question 14

Because of their ________ liquidity,________ U.S.government securities are called secondary reserves.

Accepted Answer

A)  low; short-term 
B)  low; long-term 
C)  high; short-term 
D)  high; long-term 
A)  low; short-term 
B)  low; long-term 
C)  high; short-term 
D)  high; long-term

Question 15

The danger of banks engaging in activities such as trading in financial futures and interest-rate swaps is that these activities allow banks to

Accepted Answer

A)  increase profits. 
B)  decrease risks. 
C)  avoid bank regulations. 
D)  engage in speculation. 
A)  increase profits. 
B)  decrease risks. 
C)  avoid bank regulations. 
D)  engage in speculation.

Question 16

For a given return on assets,the lower the bank capital is,

Accepted Answer

A)  the lower the return for the owners of the bank will be. 
B)  the higher the return for the owners of the bank will be. 
C)  the lower the credit risk for the owners of the bank will be. 
D)  both A and C of the above will happen. 
A)  the lower the return for the owners of the bank will be. 
B)  the higher the return for the owners of the bank will be. 
C)  the lower the credit risk for the owners of the bank will be. 
D)  both A and C of the above will happen.

Question 17

Which of the following statements is false?

Accepted Answer

A)  Checkable deposits are usually the lowest-cost source of bank funds. 
B)  Checkable deposits are the primary source of bank funds. 
C)  Checkable deposits are payable on demand. 
D)  Checkable deposits include NOW accounts. 
A)  Checkable deposits are usually the lowest-cost source of bank funds. 
B)  Checkable deposits are the primary source of bank funds. 
C)  Checkable deposits are payable on demand. 
D)  Checkable deposits include NOW accounts.

Question 18

A bank failure is more likely to occur when

Accepted Answer

A)  a bank holds less in U.S. government securities. 
B)  a bank suffers large deposit outflows. 
C)  a bank holds less equity capital. 
D)  all of the above occur. 
E)  only A and B of the above occur. 
A)  a bank holds less in U.S. government securities. 
B)  a bank suffers large deposit outflows. 
C)  a bank holds less equity capital. 
D)  all of the above occur. 
E)  only A and B of the above occur.

Question 19

When a bank sells all or part of the cash stream from a specific loan,

Accepted Answer

A)  it removes the loan from its balance sheet. 
B)  it usually does so at a loss. 
C)  it usually does so at a profit. 
D)  both A and B of the above occur. 
E)  both A and C of the above occur. 
A)  it removes the loan from its balance sheet. 
B)  it usually does so at a loss. 
C)  it usually does so at a profit. 
D)  both A and B of the above occur. 
E)  both A and C of the above occur.

Question 20

The share of bank operating income earned from off-balance-sheet activities has increased over the past two decades.

Accepted Answer

A) True 
 B)False

Exam 17: Banking and the Management of Financial Institutions

What costs do banks hope to avoid by holding excess reserves?

Which of the following is checkable deposits?

The largest operating expense for a bank is

Examples of off-balance-sheet activities include

Discuss the recent trends in bank performance measures.

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

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

Banks can protect themselves from the disruption caused by deposit outflows by

A loan commitment is an agreement to provide a loan up to a certain dollar amount if a customer requests the loan during a specific time period.

When a bank receives additional deposits,it gains an equal amount of reserves; when it loses deposits,it loses an equal amount of reserves.

What are a bank's major sources and uses of funds?

Banks earn profits by selling ________ with attractive combinations of liquidity,risk,and return,and using the proceeds to buy ________ with a different set of characteristics.

Which is the least costly way for a bank to handle deposit outflows?

Because of their ________ liquidity,________ U.S.government securities are called secondary reserves.

The danger of banks engaging in activities such as trading in financial futures and interest-rate swaps is that these activities allow banks to

For a given return on assets,the lower the bank capital is,

Which of the following statements is false?

A bank failure is more likely to occur when

When a bank sells all or part of the cash stream from a specific loan,

The share of bank operating income earned from off-balance-sheet activities has increased over the past two decades.

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

Banks earn profits by selling with attractive combinations of liquidity,risk,and return,and using the proceeds to buy with a different set of characteristics.

Because of their liquidity, U.S.government securities are called secondary reserves.